With the open economy, India`s F&B market has been inundated with foreign brands and franchise has become the obvious device for them to expand
The Rs 25000 crore food & beverage market in Indian seems mouthwatering enough for the international players to gorge on a slice of pie. With margins as high as 30 per cent, the market is lucrative enough.
Franchising the chosen model
For most of the international F&B companies, franchising is the preferable route for making an entry into the Indian market. The trend started with the entry of McDonald`s in 1991 and the opening of its first outlet in 1996. Domino`s Pizza India Ltd was incorporated in March 1995 as the master franchisee for India, Nepal, Sri Lanka and Bangladesh of Domino`s Pizza International Inc., of USA through its wholly owned subsidiary. Shyam S.Bhartia and Hari S.Bhartia of the Jubilant Organosys Group were the promoters of the company. In the same year US Pizza entered the Indian market. Presently, out of its 70 outlets, 52 are franchised. The following year, in 1996, Pizza Hut entered India through the franchise route. The brand is owned by Yum! Restaurants International, a part of Yum! Inc. Other notable foreign brands are Pizza Corner, KFC, Papa John`s, Coffee World and Costa Coffee. Geneva-based Global Franchise Architects brought in Pizza Corner in 1996 in Chennai and also introduced Coffee World and Cream & Fudge Factory in the country.
Thank God It`s Friday (TGIF), a US-based casual dining restaurant entered India in 1996 through its Indian franchise Bistro Hospitality Ltd. Subway, another US casual dining restaurant famous for its footlongs, entered India in 2001 by setting up its wholly-owned subsidiary Subway Systems India Pvt. Ltd. The company follows the franchise model for expansion. During this period, US-based Ruby Tuesday too entered India. RTC Restaurant (India) Pvt. Ltd is their master franchisee. The RTC Group is also the catalyst for bringing in the US-based Italian QSR Sbarro in 2007. In 2005, UK café chain Costa Coffee set up its first outlet through franchise agreement with Devyani International, a part of RK Jaipuria Group. Recently, Essence Retail Ventures Pvt. Ltd, the master franchisee of Singapore-based PastaMatrix International Pte. Ltd has formed a 50:50 JV with Franchise India Holdings Ltd to bring PastaMania in India. So far the brand has set up three outlets, one each in Gurgaon, Pune and Ahmedabad.
Texas Chicken, owned by Atlanta-based Church`s Chicken, has opened its first outlet in Hyderabad. This is part of its expansion plan of setting 30 outlets in Andhra Pradesh in a 5-year period. SH Group has been appointed as the franchisee for the brand to operate in Andhra Pradesh.
Cookie Man entered the Indian market in the year 2000 with its first outlet in Spencer`s Plaza, Chennai, where it pioneered the concept of retailing fresh baked Australian cookies in the country. It has altogether 48 franchised retail outlets across India.
Franchised bottling plants of international soft drink brands
Two major multi-national companies are ruling the soft drink sector in India, PepsiCo and Coca Cola. At present, PepsiCo has 43 bottling plants in India, of which 15 are company-owned, while 28 are owned by franchisees. Coca Cola has 50 bottling plants; half of them are franchised.
After a brief sojourn in the early 50s, PepsiCo re-entered India in 1989. PepsiCo owns the brands Pepsi , 7 Up, Mirinda and Mountain Dew, in addition to low calorie and caffeine free options– Diet Pepsi and 7 Up Light and Caffeine free Pepsi; hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports drink - Gatorade, and 100 per cent natural fruit juices and juice based drinks – Tropicana and Slice.
In 1993, Coca Cola re-entered India. The company was present in India since the early 50s till 1977 and exited due to the restricted economic policies of India. Presently, it owns the brands Thums Up, Sprite, Limca, Fanta, Maaza, Kinley Club Soda, Diet Coke and Minute Maid Pulpy Orange besides Coke.
Expansion & promotion
The Marketing Director of Pizza Hut, Anup Jain, once commented that in India only 35 per cent urbanites eat out-- once in three months. So for these foreign brands, it is a tough job to lure Indian consumers. A lot of patience and business strategies are invested to this end. Observing the growth plan of these international F&B brands, it can be well assumed that the potential of the Indian market has always remained a bait. It is interesting to note that Mike White, Vice-Chairman, PepsiCo, said that at present about 60 per cent of its international growth comes from emerging markets and India is one of the top five markets for the company.
Unnat Varma, KFC India`s Marketing Director, has revealed that by the end of 2008, KFC is going to add another 10 outlets. “Our business model is primarily a franchise one and the aggregate investment involved in this expansion will be INR 2 to 3 billion,” he concludes. KFC has plans to set up 100 outlets by 2010. Presently, it has 38 outlets across 10 cities.
Pizza Hut plans to double its present footprint in the next five years. The company has plans to infuse Rs 130 crore which will be partly borne by its franchisees.
McDonald`s has earmarked Rs 400 crore for its national expansion. The focus now, is on the eastern market and Rs 100 crore will be pumped in for expansion in the region. Presently, McDonald`s has 160 restaurants across India.
Plans are afoot for F&B major, PepsiCo, to triple its revenue in the next five years and the company will be investing $500 million in the next three years for sprucing up its India operation. It is reported that PepsiCo Chairman & CEO Indra Nooyi has revealed that the company is also open to expanding its existing capacities as well starting greenfield plants.
Costa Coffee, UK`s popular café chain plans to open 300 outlets in India within 4 years, up from 42 right now. The company will invest Rs 35-40 lakh for setting up every new outlet.
PastaMania has plans to set up 50 outlets in metros and mini-metros by 2012 by infusing Rs 40 crore.
Texas Chicken has expansion plans of setting up 30 outlets in Andhra Pradesh in a 5-year period.
This year, Papa John`s has announced its plan to open 500 Papa John`s outlets in the next decade or so after signing a master franchise agreement with JIP Fashion and Restaurant India for southern and western India, and NCRs.
US Pizza conducts local events and awareness programmes within the 3 km radius of its outlets as a part of its promotional activities. Launching loyalty programmes, alliances with like minded brands and innovation of exotic products are some of the brand propositions that US Pizza offers.
Customising the product
It`s a common practice in the franchise business model, to ensure the uniformity of services and products across all outlets. But in India, a country with so much of cultural diversity, the practice cannot always be applicable. If one goes to a McDonald`s or TGIF or Pizza Hut in India, the food tastes different and the menus are geared to local taste and culture. For instance, people like spicy food, and beef and pork have to be absent in the menu to avoid offending religious sentiments.
Akbar Khwaja, MD of US Pizza informs, “We are the innovators of Tandoori, Chettinad and Andhra Pizza.” US Pizza has considerable market share in tier II and tier III cities including Mysore, Gulbarga, Balgaum, Vizag and Bellary in the South; and Vapi, Valsad, Rajkot, Jamnagar and Bharuch in the West.
Some of KFC`s localised offerings that are unique to India include; vegetarian offerings like KFC Veggie Snacker and KFC rice meal to cater to the Indian palate.
Varying retail format
The brands generally have different kinds of retail formats depending upon the demography of the area where the outlet has been set up. Khwaja of US Pizza informs that the company has three retail formats altogether – Diners, Delivery and Express. Diners requires1500 plus sq.ft of area and an investment of Rs 60 lakh; for Delivery it is 400 plus sq.ft of area and an investment of Rs 30 lakh; and Express needs 150 sq.ft of retail space and an investment of Rs 8-10 lakh.
Pattabhi Rama Rao, President, Cookie Man India, informs that the company has two retail formats. Its store format requires an area of 350-500 sq.ft with a minimum frontage of 24 ft, and the ideal dimension of its kiosk format is 10x10 ft. However, the company is open to customisation of space. The investment required for the store is Rs 25-40 lakh, and for a kiosk it is Rs 5 -15 lakh.
PastaMania operates on the basis of two retail formats, dine-in of 1300-1800 sq.ft and food counter of 500 sq.ft. An investment of Rs 65-70 lakh and Rs 30-35 lakh is required for these two retail formats respectively.
As far as the retail format of KFC is concerned, Unnat Varma, Marketing Director of the company reveals, “We have so far launched two retail formats. Dine in restaurants are currently dominant, however, we have recently launched food court express outlets. Coming years will see us actively developing drive-thru formats as well. For these retail formats, space requirement varies from 500 sq.ft to 5,000 sq.ft.”
Upcoming global food joints
In 2007, US-based café chain Gloria Jean`s inked a master franchisee deal with Citymax India to set up 500 outlets across India in 10 years.
Also, US-based Chili`s Grill & Bar is going to make its debut in India through master franchise agreement with JIP Fashion and Restaurant. The list goes on with new joinees in retail bandwagon – Coffee Republic Deli, Dulcé Café, Tasty Thai, Salad Creations, Vapiano, Ricky`s Candy Cones and Chaos, New York Fries and many others. The trend shows India is really cooking up an encouraging market story.