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Dec, 10 2012

BIG OPPORTUNITIES AWAIT INVESTORS

The franchise fraternity across the country witnessed a massive surge with the evolution of new concepts in franchising that are ready to soar, pushing India to the next level of growth.

A s 2013 is round the corner, new brands from across the franchise industry are gearing up to make a comeback by offering  a plenty of business opportunities to hungry investors and entrepreneurs looking to invest in concepts that offer proven business models for rapid growth. During the fiscal year of 2011-12, we have experienced the launch of various unique yet fresh concepts across varied industries that have taken the rest of the world by storm. Every year brings in multiple opportunities to pick from. Likewise, 2013 is also speculated to pull in fresh trends that are expected to set the world on fire!

After a meticulous research and direct interactions with industry experts, we have cherry-picked a few concepts from the world of franchising that are all set to evolve in a bigger way. Sneak a quick look at the trends below:

Brand+franchising= Branchising

Naturals, Chennai's most famous salon chain, launched a business model called 'Branchising'. Branchising is defined as a franchise business model wherein the franchisor / brand co-invests along with the franchisee. “We have used this business model specifically to promote entrepreneurship within the system. Employees, who wish to set up a salon and have access to a certain amount of funds, will be supported by Naturals.  Branchising as a concept generates a lot of goodwill within the system,” says Veena Kumaravel, Founder and MD, Naturals.

FranRecruit

FranRecruit, through its wide spectrum of network of top level professionals, powered by the Indian Franchise Association, aims to identify and assess outstanding talents and recruit them to acquire leadership roles in leading organisations in the franchise sector.

Allowance of 100% FDI in retail

Now, 100 % FDI in single brand retail has been approved by the government. The Indian franchise industry has witnessed a tremendous change in the last one year with a virtual facelift in FDI policy which has opened up new opportunities for foreign investors as well as Indian entities. The Government of India (GoI), vide Press Note No. 1 of 2012, dated January 10, 2012, permitted 100% FDI in single brand retail trading subject to certain restrictive conditions and riders, which were proving to be a deterrent for the brands wanting to enter the Indian retail segment. Given the industry's lukewarm response thereto, GoI, vide Press Note No.4 of 2012, dated September 20, 2012, relaxed some of these restrictive conditions. On her take about FDI in India, Seema Jhingan, Partner at LexCounsel, says: “The foreign investor need not be the owner of the brand, and permitted licensees, sub-licensees or franchises are now allowed to invest in Indian companies undertaking single brand retailing. Only one non-resident entity (whether owner of the brand or a licensee, sub-licensee or franchisee) has been permitted to undertake single brand product retail trading in India for that specific brand, thereby necessitating exclusivity of relationship between the brand owner and the authorised entity. In case the investor is not the owner of the brand, it has to provide evidence of its contractual arrangement with the brand owner at the time of seeking approval for the FDI.”

She also adds: “The foregoing change in policy has softened the norms for entry into India by multinational brands, providing them with greater options to enter India, i.e., joint ventures, subsidiaries, franchises, etc. Single-brand foreign retail players, who have so far restrained themselves from entering the country for reasons, including control, may now enter the Indian market and exercise complete operational control (through ownership of controlling interest of the Indian entity).” Further, present licensing, distributor or franchise arrangements can now be converted to joint ventures with the respective foreign retailer or brands, or foreign retailers completely buying out the Indian licensee, franchisee or distributor, subject to their existing contracts/negotiations. While advantages for the foreign brand owners are apparent, existing Indian partners/franchisees may have to share control with the foreign brand owner. Additionally, although considerably relaxed, the 30% sourcing requirement may prove to be a deterrent for foreign brand owners conscientious with respect to quality of the goods, who may still prefer the franchise/distributor/license model. While the franchise model may suffer on account of brands preferring complete control/ownership, the influx of various brands in the country would surely create a whole new market.

Foray into tier II & III cities

After squeezing all the opportunities in big cities, franchisors are eyeing the dormant zones or areas to add to their brand's exclusivity. What's truly attracting them to invest in small towns is the easily accessible location with minimised real estate rentals, higher expectancy of RoI and the modest cost needed for executing marketing activities.

With this, small towns and cities have nowadays become the viable and favourite hotspot for franchisors to make bigger investments, as the cost of running a store in a small city is comparatively lower than the metros or big cities. Says Anupam Bansal, Executive Director, Liberty Group: “Changing lifestyle and consumer behaviour of people living in these cities and towns has influenced big brands to take a dip into business expansion in these small towns.”

Diversification of retail formats

Be it education & training, food & beverage, fashion or specialty retail, diversification into other business segments has started in almost every sector. To rake in the extra money, brands/ franchisors have begun exploring newer yet feasible business models and making a move into varied retail formats to target prospective franchisees.  Other than this, achieving a maximum RoI at a given time period has to become every brand's major priority and that's probably the reason which has actually propelled the franchisors to diversify into formats that assure multitude of profits. For instance. Yo! China, India's largest chain of Chinese restaurants, has also forayed into fine dining restaurant business with the launch of its new brand, Dimsumbros, a Chinese cuisine fine dining restaurant. The brand is set to mark expansion through the route of franchising. After the sterling success of Go! Chaatzz..,Yes India Hospitality Services Pvt. Ltd (YIHSPL) also introduced other f &b brands such as Go! Foodiezz.., Go! Foodiezz.. 'Xpress and Go! Bakezz. Thomas Cook also launched its training academy, 'Centre of learning', so as to supply skilled manpower to the travel & tourism industry. Jawed Habib Hair & Beauty Salon will soon be launching another of its brand, “Hair Yoga”, which will operate on a franchise mode. The investment will be less than Rs one lakh and the business can be opened in an area of 10 sq ft.

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