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Aug, 09 2011

TURNAROUND IN INVESTORS’ APPROACH

What stirs a franchise investor? What is his risk appetite? What is his perception about a franchise business? What are the sectors that catch an investor's eye? To gain clarity on uncertainties clouding an investor's behaviour, The Franchising World (TFW

THE large numbers and complex attitude of Indian investors often leaves a franchisor confused. The heterogeneity that characterises the modern Indian investor has created a maze that brand owners will like to unravel to know what kind of investment opportunities will be a hit or miss. After going deep into investors' mind, we present you varied facets of franchise investors.

The show attracted investors from not only the tricity (Chandigarh, Panchkula and Mohali), but also from the neighbouring states of Punjab (30 per cent) and Haryana (six per cent). However, the majority (56 per cent) was from the city. Maximum enterprising intensity has been witnessed among 20-30 years (46 per cent) and 30-40 years (31 per cent). The show experienced women participation of about 13 per cent, which was incidentally eight per cent more than the last year. This signifies the growing entrepreneurial interest among women.

The survey further found that majority of women investors were already running a business (40 per cent) and a significant percentage were professionals (34 per cent), who were looking for franchise opportunities in their present skill area. The show encountered beauty professionals deciding amid the choices offered in salons and spas or teaching professionals exploring options in education and training sectors. Among male investors (87 per cent) maximum were businessmen (61 per cent) looking for opportunities to diversify from their present venture and professionals (18 per cent) contemplating options in their area of operations.

Investors' attitude

An investor's attitude was mapped through a series of questions. A detailed analysis shows about the low-risk taking ability of an investor. More than half of the investors (54 per cent) said they would not invest in businesses that involved high risk. However, a franchisor has reasons to rejoice, since majority of investors (55 per cent) believed that buying a franchise is not a risky business and a considerable percentage of respondents (73 per cent) were of the opinion that taking a franchise is better than starting their own business. This, at times, could mean spending a little more. While for an investor economy and efficiency of capital remains essential. However, when it comes to buying a franchise, a significant half (50 per cent) held that it did not need a lot of money to start a franchise, indicating that the cost of acquiring a business is optimised.

Family-run show

Business in India has always been a family-run affair, bearing a suffix (ABC & sons), is how they are incepted and identified. A franchise business also is not an exception. The investor (73per cent) intended to involve family members in the franchise business. When the respondents were asked if they knew entrepreneurs who were benefitted from taking up a franchise, maximum (63 per cent) agreed. A behavioural pattern that remains specific to Indian consumers/investors is the demonstration effect. When a small businessman becomes successful, he becomes a small-time icon among his peers. This acts as a catalyst, inspiring the ones around to take a similar route to success. Though, a franchisor must take this as a word of caution. As the test of a successful franchise lies in happy and satisfied franchisees and the fact becomes more critical when most (81per cent) of the investors agreed that it was essential to meet the existing franchisees. A prospective franchisee does his homework well. Consequently, for a franchisor, apart from investing in marketing efforts, keeping the present franchisees happy and satisfied becomes crucial.

Breaking away from tradition

The survey brought to the light the optimistic outlook of an investor. An investor is no longer conservative in his approach. The largest part of the lot (86 per cent) agreed to invest in new and exciting business concepts and a significant 62 per cent agreed to invest in brands that were internationally renowned, but were new in India. This denotes that an investor has broken the shackles of traditionalism and is ready to face challenges associated with new and unique concepts. Further, an investor has broadened his horizon and doesn't look for options explicitly in conventional sectors. The Food and Beverages Industry, which was a clear winner a year ago with 90 per cent of the respondents opting for it, saw the industry being chosen by 55 per cent of the respondents this year. The other favourites included education and training (40 per cent) and fashion and lifestyle (19 per cent).

Road ahead

Investors demonstrated buoyancy in the franchise system with a majority (69 per cent) considering to take to franchise business model with a long-term vision. The investor is visibly patient with just about 11per cent of the respondents having a short-term vision for owning a franchise.

Bottom line

The survey concluded that at the surface-level it seems that retail business is getting more cannibalising, the traditional franchising in India is all set to broaden its horizon. With changing times there is a change in business models too. A huge chunk (69 per cent) is considering to reap long-term benefits from owning a franchise business. Innovation in terms of formats as well as concepts is being touted as the next big leap. With the boosted investor's confidence in the system, the conservative Indian investor is bowled over by contemporary creative energies.

(Inputs by Harsh Sinha)

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