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Jan, 03 2011

Foreign Brands Find Home In India

The Indian franchising industry has evolved into a hotbed for global franchisors in the last one decade. From Subway to Sir Speedy, from Mango to Miss Sixty, all are making it really big in India.

ALTHOUGH a foreign concept, franchising is finally seeping into the entrepreneurial haven that is India. While domestic brands are reaping rich dividends through this format, the global brands are high on growth and aspiration. Over the decade, franchising has not only shown the path to profit for several global brands in India, but has eventually transformed into the most preferred route for India entry.

Evolution

What started as a drop has now transformed into a downpour, thanks to the economic deregulation and reform policies of the Indian government way back in the '90s. From apparel to food and beverage to low-cost concepts, franchising in India has undergone a massive evolution. The past decade has been remarkable for several global brands, courtesy the franchise format. Defining this scenario, Rod Young, Executive Director, DC Strategy, Australia, says, “Since its beginning in the early '90s, franchising in India has grown by leaps and bounds though there is still much to explore, based on the successful growth of many franchised brands already present.” Prominent apparel brands like the United Colors of Benetton, Lacoste, Louis Phillipe, Adidas, Nike that arrived in the 1990s have seen phenomenal growth across the years. Even global food and beverage brands that were a rarity during that time made their presence felt through the franchise format across the years. Subroto Mukherjee, Chief Operating Officer, Graviss Foods Pvt. Ltd, divulges, “We started India operations in year 1993-1994. Actual growth and expansion started from year 2003 onwards. From year 2005, we have been in rapid expansion mode and currently stand at 410 outlets across 97 cities in India. Ice cream industry in India initially had no international brands but the entry of Baskin & Robbins opened up the market.”

Quips Bart Denolf, VP-Expansion (Africa, Latin America and Middle East), Mango, “In 2001, when we opened the first store in India, Mango had already realised the huge potential of India as an emergent market and a strong future economy in the international scene. Besides, the profile of Indian women perfectly matched our product and we succeeded easily in this Asian market.”

As the ease of acceptance of franchising amongst entrepreneurs grew, the scenario turned positive and favourable. And by 2005, there was a steady influx of franchise brands.

Business potential

Clocking a resounding growth of 35-38 per cent, with an annual sales turnover of $3.3 billion, the Indian franchising industry is expected to reach $20 billion by 2020. Presently, there are 1,200 franchisors in India, of which 25 per cent are of international origin.  Andreas Gellner, MD, Adidas, India, states, “Over the past few years, we have seen a significant growth in interest towards sports amongst the Indian consumers, and hence, Adidas has grown at a reasonably fast pace.” Mark Hilton, Vice President, International Operations, Sbarro International, enumerates, “The market potential here is phenomenal. Though there are several challenges, I feel that if you want to get into this market, then now is the time.”

Franchisability

Operating a business is much safer and easier in India if done the franchising way. Several international brands vouch for this route as the most feasible alternative for growth in the volatile Indian marketplace. Explains Gellner, “Franchisees are key to the business growth and if the franchisee has the ability to create and build a chain of stores with different sizes and in different categories of markets as well as create the relevant infrastructure, it certainly is a viable option.” Says Manpreet Gulri, Development Agent and Country Head, Subway Systems India Pvt. Ltd, “The support and training that the Subway chain provides mirrors the company's efforts in its domestic and other international markets. The Subway chain provides a wide range of training and support to its franchisees, covering areas from menu development, site selection and lease re-negotiations to store design, advertising and marketing. There are also numerous courses available for franchisees to take online, through the University of Subway, which can assist them and their staff.” A franchisee of a global brand is generally handheld from the time deals are made. Defining the responsibilities of a Baskin & Robbins franchisee, Mukherjee enumerates, “Roles and responsibilities of the franchisee are very simple with total involvement in the business and a thorough understanding of the customer services. The involvement ranges from product development feedback, customer feedback, complaint redressal, maintenance and upkeep of the parlours, staff training and motivation and last but not the least getting local store marketing going. This can never be a part time responsibility and returns are much higher in outlets where the franchisee involvement is high.”

Expansion

Given the high disposable incomes and awareness of the Indian consumer, international brands are on a roll. This is evident from extensive expansion plans even in tier II and III cities. States Gulri, “We currently have 182 Subway restaurants across India and plan to expand that to 250 locations by the end of 2011. We have also set a goal of 500 restaurants by the end of 2015. Over the years, our growth has been very aggressive and sustained with India having the potential of becoming one of the largest markets for the Subway chain around the world.”

Affirms Gellner, “We are a 700+ store brand today and are all poised to even further expansion in 2011.” While Jesper Hougaard, MD, Serena Spa, informs, “At present, Serena Spa has 16 locations, which are all company-owned and operated. We are planning to open four franchise spas in selected cities in India over the next year. We are very careful in the franchisee selection process to ensure that we have a mutually beneficial and long-term business venture.”

Flip side

Doing business in a volatile market such as India with huge diversities and red tapism has restricted the path of progress. Citing the challenges, Gellnar explains, “The challenges are aplenty. Apart from choosing the right partner to identifying the right talent, it has been a learning experience. With rising real estate costs and optimising the sourcing costs, it is a continuous process to meet the challenges and deliver against all odds.” While Houggard adds on thoughtfully, “I do not necessarily think that a brand will make it in India just because it is international. Unless the brand is relevant, the product desirable and the concept strong, it will only experience a very limited success.”

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