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Feb, 04 2012

SMALL IS BEAUTIFUL & PROFITABLE TOO

In a world obsessed with large, big, huge, whichever way you put it, small business formats come as a pleasant and profitable surprise. Not just low rentals, but improved operational efficiencies, enhanced customer experiences, profit-loaded opportunity a

ONE are the days when bigger was better and growth of a business was related to the size of its store. Now, whether it's opening a retail store or a services centre, majority of franchise businesses are inclined to operate via small formats. This trend was an outcome of the phase of recession after which many big-box retailers and service centres started reducing in size and investment to adapt to urban settings and increasing demands.

After witnessing success across the globe, petite franchise models are gaining momentum in India too. Franchising of small outlets, service centres and education institutes have augmented the number of opportunities for potential franchisees, who have not been able to begin their entrepreneurial journey because of huge investment involved in big sized stores. Franchising has triggered the extension of these small format stores. As compared to medium and large retail formats, small formats are more eye-catching. Other benefits include small capital and space, low risk factor, high footfall, easy accessibility, high portability and flexibility, good visibility and maximum returns.

As per Devanshu Gandhi, MD, Vadilal Enterprise Ltd, “This concept is making strides in Indian market owing to various factors like space crunch and changing lifestyle. Going by the current trend, it seems that in future, kiosk will dominate over the shop concept.”

Small yet lucrative to invest

Regardless of products or services, there are three key reasons a franchisee should invest in a small format franchise.

Low investment, high RoI: With rentals in tier I and II cities sky rocketing, small formats bring about faster turnaround as compared to the large ones, which bring in more value for franchisees. Chandru Kalro, Executive Vice President (Marketing), TTK Prestige, avers, “The franchisee gets good RoI at a reasonable entry cost and the brand gets an exposure that it otherwise would not have got in the multi-brand outlets. The Prestige Smart Kitchen has set new benchmarks for retailing in the category, it has been a distribution driver, a ready funnel for new products and brand extensions and a good listening post from customers.” He added it's definitely a better business model. “The other thing is that India is a country of small format stores. Large format stores can be intimidating for many lower sections. We would like to be relevant to all sections. Our mission is to have a Prestige product in every Indian kitchen,” he states.

Easy to operate: The expenses involved in operating a small business are nominal. In these business formats, upfront investments are low and manpower requirements are minimal. This makes the venture more sustainable. Profitability is also good when compared to the initial investment.

As per Sumit Shital, Director, Om Ganeshaya Food & Beverages Private Limited, “Small formats have high visibility, are cost-effective and require minimal staffing, sanitation and maintenance cost is low and the most important, rent is less. The monthly expenses tend to be much lower than a traditional retail store. Thus, this is a less risky business for a lay man, who wants to enter the F&B industry through franchising.”

Pleasurable shopping experience: A shopper prefers small format store as he finds retailer/ salesperson more amicable to deal with. With better lifestyle and increasing disposable incomes, consumers have shifted their value proposition. Smaller stores are no longer considered as stores with low-quality products. Another shortcoming of operating via large stores is that consumers with low spending power are not comfortable shopping at large stores because of non-personalised services.

Besides, there are many other reasons that have led to the permissibility of this format even in sectors like education, high- end accessories, health and beauty, niche services business etc. For franchisees, it is an effortless procedure to look out for a small space for business operations than an enormous retail area or an area to run educational services. A franchisee seeking a place in a mall has more probability of getting a smaller space than a big store because small stores and kiosks have lesser lock-in period. However, smaller format stores do bring long a multitude of challenges, like back-end strategies, hygiene problems and visual display troubles. But the demand of the same is increasing like never before.

To know more, read our special coverage on 'Small Format Franchises' in the ensuing pages of the magazine and contemplate and choose the category you wish to invest in.

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