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Oct, 22 2009

Multiplying profits

Multiplied profits with minimal of risks is what multi-unit franchise of a low cost brand has to offer to its franchisees. TFW spoke with a few franchisees and franchisors to track the doubly reaped success.

Taking multi-unit franchise of a low cost franchise option is a success formula that has worked well internationally. However, in the past few years, some Indian franchisors have also followed suit, finding multi-unit franchising a more assured way to expand. While operating the first outlet, the franchisee fixes the nuts and bolts of the business model and is therefore, better armed to take up the second unit. Moreover, the success reaped at one outlet comes as a motivation for both - the franchisee and the franchisor. Whereas, the franchisee gets motivated to try his hand at several locations, the franchisor  being assured of competence of the franchisee prefer him over others to take multiple units. And since the investment involved is low, the cost of taking up another unit does not become a major issue.

Benefits

The low cost business offers some evident benefits to the franchisees and the fact that it’s a low cost proposition further facilitates the decision making process. Highlighting the advantages of taking multiple units of Ferns ‘n’ Petals (FNP), Pawan Gadia, Vice President, FNP avers, “The gestation period is far less and you are able to see breakeven within 3-6 months and your entire investment coming back to you in 18-24 months, which in today’s volatile scenario is a secure position.” Further, since the business is low cost, it might not require your full time attention after a while and you can utilise your time once you understand and setup the processes in the low cost venture.  All the stress of managing large number of manpower, inventory etc are reduced to a great extent in a low cost business.

Manmita Sharma, Franchisee, Coffee Day Xpress (CDX) believes, “In any kind of business, it is always difficult to understand the first unit. With the first unit we gather all the knowledge of the business structure and its requirements.” So, with the addition of another unit under the same brand, the strength of its business gets multiplied.

Arvind R, another CDX franchisee running nine CDX centres finds taking multiple unit franchise, an excellent opportunity to compare facts within his own centres and use the same as an effective measure in other outlets as well. “By catering to the needs of various segments, we get a clear understanding of the precise requirements. Hence, we can plan in a better manner. When we face a problem, we find a solution and implement it in all the outlets. Thus, problem for one is a proactive solution for the other,” explains Arvind.

“Multiple outlets give you the opportunity to keep interchanging your staff and training them in rotation. Also, we keep interchanging the stock according to customer’s taste in a particular area. Therefore, wastage of stock gets minimised,” opines Karan Chhabra, Franchisee, FNP.

The similar views are reflected by Arvind and Seem, Franchisee, Eurokids, running six Eurokids schools in Delhi, as they say, “Our resources get shared. In a situation when one centre requires support, the aid is readily available from other units. Besides that, being franchisee for multiple units we get preference over others whenever there is an opportunity to do a new setup.”

A multi-unit franchisee may get reduction in marketing and advertising cost incurred by the company on its various such endeavours, depending upon the strategy of the company.

“We participate in various programmes of brand sharing with various brands across the country and the local advertising is divided among multiple units being in force,” informs Gadia. The company also provides reduction in the opening fee, franchise fee or royalty fee for the second unit depending upon the location and the potential the company sees in the second outlet. CDX is not into any major advertisement and marketing activities as their business format is dependent on word of mouth publicity. “But, as a multi-unit franchisee, one can enjoy the benefit of basic promotional campaign during any new product introduction, during special days like Valentine’s Day, Friendships Day, Diwali, Christmas etc.,” informs A G Puttaraj, President, CDX. Hence with multi-unit franchising, the investment for each unit on an average further gets lowered.

Cost as deciding factor

Whether low cost is a major factor that facilitates decision making is a debatable issue, as the franchisors agree that the low cost proposition makes it an easy choice for the franchisees, but they do not completely comply with the idea that the low cost is the only reason which leads the franchisees to go for multiple units. Agreeing partially to it, Gadia says, “Partly yes, but more importantly the opportunity one sees in replicating the success model in other areas of the city and seizing the same brand rather than let somebody else takeover.” However, some franchisors believe that the choice of the business proposition depends on the industry and scale of operations. Yet no one can deny the temptation a low cost franchise obviously has, says Amit Singh, National Business Manager,EuroKids, “Yes, there is a definite advantage of a low cost model. The low cost model not only reduces the gestation period but also provides quicker breakeven points and higher return on investment.”

However, Chhabra who borrowed money from his father to open first FNP outlet and funded the rest of the four ventures himself gives multiple reasons for opting multi-unit franchise format saying, “We opted for multi-unit franchise because the first unit gave good returns on low investment and also a very good working environment among flowers and greeting, besides a heavy footfall due to the brand FNP.” Sonia Bhandari, Franchisee, CDX, on the other hand finds CDX one of the most cost effective options available. She further substantiates saying, “If in a particular month, one outlet has not done well the other may cover up, thus, averaging out the business. It makes better business sense not to put all eggs in one basket. Hence, to spread the risk, I preferred to go for multiple units of CDX rather than high cost single investment of some other brand.”

Excitement despite challenges

“We had a very exciting and satisfactory experience after starting the first unit, therefore, opted for multiple units. In our second unit we recovered our entire operating expenses from the day one itself,” say Arvind and Seem, . They further add, “It was a learning experience with each new unit and today, we are experienced enough to run a school at any given location. However, success does not come easy, rather each new step confronts a new challenge; with multiple units, most of the problems are at the initial step, i.e., at the time of the first unit, and the franchisee knows the solution for the later ones.

When the franchisee takes up the first unit, mostly he/she is new to the business and its complexities, it takes him some time to taste success,  but once the ingredients of success are established, the chances to replicate the same are much higher in other locations as well,” reiterates Singh. Conversely, counting the hurdles pertaining to multi-unit franchising, Manmita Sharma, Franchisee, CDX, declares, “It is a strong challenge to monitor and keep operational balance in multiple units. It also needs intense supervision of sales in all the units. Each outlet needs complete and constant attention but with the company’s strong operational network and web support, the challenges are highly minimised.”

“Maintaining a good staff at all our outlets which can satisfy customer requirements is again a big challenge in front of the franchisee. At times, one may have to suffer big losses due to any staff member absence on a big-sale day, like Valentine’s Day, or a Christmas Day, and none being available to replace him due to heavy rush on all other outlets.” says Chhabra.

As no two individuals are alike, each unit is different from the other in terms of expectations, demand and consumption pattern. By all means, they are two autonomous units which have to be handled independently and differently. Another challenge in running multiple units is to manage and handle staff. For one unit, one does not need to put much effort, but to run multiple units one has to devote full time. “Different expectations from different corporates, different model of operations, geographical distance between outlets, problems with regard to adherence of food delivery timings constitute a few challenges, which a multi-unit franchisee has to face,” counts Bhandari.

However, it’s not only the challenges that the multi-unit franchising has to offer but there are moments of excitement too. The challenges are often followed by the thrill of encountering them and discovering solutions, each day. A multi-unit franchisee has an edge over the unit franchisees, as the wisdom one has gained at one outlet can be easily applied at other outlets too.

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