MOBILE phones have moved from being a luxury to a necessity.
MOBILE phones have moved from being a luxury to a necessity. Meager prices and easy availability of connections with alluring options have made owning a cell phone a child's play. This spells the need for more and more trusted names in the business to cater to the burgeoning needs of people. The opportunity is clearly visible.
Business potential
Currently, more than 70 per cent of the mobile retail sector is unorganised. However, it is growing swiftly and market analysts believe that there is a huge potential for the franchise model. There are about 95,000 retail outlets in India, of which only one per cent are organised. If we go by sales, then organised retail has a share of seven per cent. The country's standing in the mobile market is pegged at about Rs 35,000 crore. Vaidhyanathan K, CEO, Hash 10, says, “The subscriber base of India stands at 45.66 crore and the net additions are growing at around 30 per cent per annum.” Cheap phones can be purchased from any store in the nook and cranny of the city, but when it comes to making a purchase of a high-price tagged phone, customer gets thinking. This is where organised players with a trusted name and brand come into picture. Franchised cell phone stores, which house the latest array of options from all brands that are available in the market, proved to be quite a hit. An MBO will have an upper hand over an exclusive brand store in this industry, as customers have become aware and don't want to carry out an extensive research before making a purchase. With the increasing demand, these stores have become indispensable.
Loopholes
The mobile industry is targeting the youth who are independent with higher disposable incomes. Customer service needs to be at its best and so does the look and feel of your store. Though the key pointers for running the show will come from the franchisor, dealing with daily hassles is a franchisee's job. Maintaining stocks and keeping a check on pilferage are pointers a franchisee needs to keep in mind to keep his sale figures soaring. The urban market has reached saturation and franchisors now need to explore more markets for growth. Moving to rural markets is what will drive augmentation, as it accounts for a share of about 35 per cent.
The presence of international franchisors poses a threat to the industry. FDI of up to 24 per cent is allowed in this industry for international players. As the margins are very slender at just a meager four per cent, the competition stiffens further. The strain from the sale of second-hand phones puts franchisees in a spot.
Franchisability
India adds 10 million users every month, which outrightly points towards the need for organised players to grow bigger. And what could be better than franchising. The popular brands are effectively utilising the franchise route to strengthen their roots and raise market share. Franchising has contributed to the mobile industry in a big way in terms of investment and helped brands in scaling up at a faster pace. Players are moving to tier III and IV cities as well. The rural sector does not have organised players yet. A customer replaces a handset every 18-24 months, which means that even after reaching saturation, the scope in the industry has not lowered. The sale of cell phones on EMIs is another added benefit.
Financial viability
Taking up a franchise concept is advisable since the scope of recovery of initial investment is exceedingly healthy. With the initial investment ranging between Rs 15-20 lakh, the return on investment that franchisees can look at are 50 per cent. The working capital that would be required lays somewhere between Rs 1 lakh to Rs 2 lakh with a net margin of 5-6 per cent that can be attained on the products.
Exit option
The average franchise term in this stream of business is five years with the franchisees having the option to renew their agreements further. A discussion with the franchisor should answer all your queries regarding the options to exit the business before or after the completion of the franchise agreement.
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