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Sep, 19 2013

First Choice for fast returns

With a strong dealer network and 300 franchise stores spread across 170 cities, the brand is now beefing up its expansion in across every tier of India to offer certified second hand cars to budget conscious consumers.

Call it the impact of rupee depreciation against US$ or inevitable inflation, the price-conscious consumer is no more in favour of buying a new car as used cars turn out to be apt choice for value for money consumers. What is really triggering the demand of pre-owned/used car is that consumers get perplexed when it comes to buying a used car owing to the anxiety whether it’s worth spending on it or not. Well, that's a natural phenomenon. The major factor that catapulted the growth of pre-owned car market is  costs of new cars have gone up owing to the excise duty and road taxes. Besides that, one has to put in extra bucks on getting a new car registered.

Mahindra Group’s Chairman and Managing Director, Anand Mahindra, says: “People ask me when the Mahindra Group would launch an “entry level” car. My answer to that is we already have entry level cars – Mahindra First Choice. As per the market facts, the used car market in India is going through boom with sales rising by 24 per cent, compared to just 2.5 per cent growth in the new vehicle market in FY 2013. The facts make it clear that this exponential growth is a result of massive increase in overall vehicle build quality which means that even a three year old car has plenty of life left in it. This has also helped in making used cars more socially acceptable, prompting prospective buyers including two wheeler owners to consider these vehicles over a new one. Shorter replacement cycles are also spurring growth with vehicle ownership periods dropping from 7 to 4 years in the last couple of years.

Mahindra First Choice Wheels Ltd has become the one stop shop that sells high quality used cars with warranty. What makes them unique in this category is the warranty and proper documentation they offer. Currently, the brand is also leading the online B2B wholesale auction site for used cars.

As per the market survey on automotive retail, the potential of the used car market in India is truly massive given the fact that most developed markets have a used to new car ratio of 3:1. In India, current number is 1.1:2, so there is plenty of headroom for growth in the future. Therefore, it's believed that industry will have exponential growth and the time is ripe for franchisees to invest in the business.

Talking about their brand, Rajeev Dubey, President-Group HR & After-Market & Member GEB, M&M Ltd, says: “Mahindra First Choice Wheels stands for the cause of the used car buyer. We believe that a second hand car buyer is not a second class buyer. Our brand value proposition is to provide used cars that are demonstrably superior as compared to new cars at every price point. We at MFCWL, believe in delivering certified used cars with warranty.”

Journey so far

Mahindra First Choice Wheels Limited began its journey in used car retailing way back in 2000 as purely an online player. The brand quickly transitioned to a physical model by setting up company-owned and operated outlets in key cities and thereafter started their expansion via franchise route in 2008. Within a short span of just five years, MFCWL has scaled up its business by adding 300 franchise outlets and three company-owned outlets in its brand's network.

Elaborating on expansion via franchising, Yatin Chadha, Senior Vice-President Retail Business, Mahindra First Choice Wheels Ltd, says: “On the basis of experience at company-owned outlets, our franchise model has been developed. Over the years, the number of outlets added through the franchise route has increased and in the last financial year we operationalised close to 100 outlets through the franchise route which implies about two outlets per week.”

Commenting on brand's growth via dealer network, Dr. Nagendra Palle, CEO, Mahindra First Choice Wheels Ltd, informs: “The automotive retail business worldwide is driven through the dealer route. The dealer brings in a strong entrepreneurial capability to drive business at the local level. Considering the complexity of the used car business at Mahindra First Choice, we started with investment through the company-owned outlets route. Over the years, we understood the needs of the used car buyer and clearly articulated the areas where Mahindra First Choice as a company could add value to the dealer. This includes areas like developing products, procurement channel, training and marketing support. We also identified the areas where the dealer could play a major role. This includes areas like creating the infrastructure and running the operations on a day to day basis.”

MFCWL’s franchise business registered a volume growth of 56 per cent year-on-year (YOY) and product revenues increased by 30 per cent. Besides that, a total of 99 dealers were added in FY13, taking the company's presence to 170 cities, which is a validation of its successful business model. With its current network of 300 franchisees, MFCWL is all set to cross 350 outlets in FY14 with a volume of over 60,000 units

Reward and recognition for franchisees

MFCWL conducts (Dealer Performance Excellence Programme – DPEP) annually wherein, brand’s dealers are rewarded on the basis of overall performance. The programme focuses on five major parameters to dealer performance, encompassing critical aspects of the buying or selling experience which further involves: Business Performance, People and Processes, Infrastructure Facilities, Financial Performance and Corporate Sustainability (Corporate Social Responsibility-CSR). The idea behind DPEP is to motivate franchisees, so as to bring in best in terms of sales, customer service and delivery. This year, MFCWL celebrated its phenomenal growth with 21 dealers who qualified for 25 awards in 7 categories.

Train for profits

Training at MFCWL begins with MFC team that further supports the franchisees in selecting and designing the site to deliver best customer experience. They offer complete expertise and support for building a business on professional lines. MFCW operations team continuously works with the franchisee to improve profitability of the business. The company has well defined processes for all aspects of the used car industry be it procurement, refurbishment or sales.

Marketing support is essential to achieve success in any kind of business. MFCWL’s focus is to do activities which help in creating brand awareness and drive footfalls at our outlets. The company has sued the digital platform very effectively and the traffic on website has increased by 50% in FY 2013 as compare to the previous year.

The company also provides support in creating necessary infrastructure, arranging working capital and recruiting manpower. The stress is on ethical business practices by following necessary processes as laid down in the manual.

Growth tapped so far

In terms of company's turnover over the last financial year, MFCWL achieved 35 per cent growth by selling 46,000 cars and is planning similar growth in current financial year. Presently, 96 per cent of business comes from franchise model. As of today, MFCWL has 24 existing franchisees that operate multiple outlets in various cities and this number is growing. The company always gives first preference to its existing franchisees to go for another outlet.

Getting bigger at rapid pace

Anand Mahindra, says: “By creating an eco-system in the used car market that mirrors the one in the new car market, Mahindra First Choice Wheels has emerged as the brand of choice for used car buyers who appreciate the trust, transparency and peace of mind it offers, a matter of great pride for all of us at Mahindra.” The brand expects to continue the current level of expansion over the next five years and reach a level of close to 1,000 physical outlets under the MFC brand.

MFCWL is planning to add another 100 outlets in current financial year, this growth will come from all A/B/C category towns where new car dealers exist. The vision of the company is to build a dominant used car ecosystem for India by bridging wholesale and retail channels while leveraging physical and online infrastructure.

In conversation

HEADING TOWARDS A SUCCESSFUL LANE

MFCWL is offering a profitable boulevard for franchisees looking to get into automotive sector. Yatin Chadha, Senior Vice-President, Retail Business, Mahindra First Choice Wheels Ltd, in a one to one with TFW Bureau, talks about making a mark in automotive sector.

What kind of business model are you offering to franchisees?

Mahindra First Choice Wheels offers to its franchisees a fixed fee royalty model in which the norms varies from town class category. The franchisee is supposed to follow the brand's certain processes and systems.

How beneficial do you think is a franchise concept in pre owned car market?

Its very successful, also proved from the fact how we expanded our network in last few years. Today, our 24 franchisees have multiple outlets with us.

With the influx of numerous brands, what kind of competition are you facing and what steps have you taken to overcome that?

We are continuously working on strengthening our value proposition delivery to our customers and franchisees. We are the only company in multi-brand used car space that connects with consumers in offline and online space (Brick n Click).

In the past few years, what mistakes your brand has made in understanding the demand of the industry? How can one turn the business into success after failure? What would be your advice to the aspiring entrepreneurs?

We have done right estimate on market potential and industry growth, this has made us grow at 35% CAGR, we are getting positive response from all category markets. Our advice to aspiring entrepreneurs is please go for well reputed and established business model like MFCW.  In our business model entrepreneur can start business at low cost (easier entry) and returns are high inspite of faster payback period compared to new car industry (5-6 year).

Franchise facts

  • Annual turnover: 46,000 cars sold in the last financial year
  • Operational since: 1999
  • Franchising since: 2008
  • Cities present in: 162
  • Franchise units: 300
  • Investment: Varies for A/B/C cities
  • Area: Varies for A/B/C cities
  • Location: All A/B/Cities
  • Franchise fee: Refundable deposit varies for A/B/C cities
  • Royalty fee: Varies for A/B/C cities        
  • RoI: 30 - 40%
  • Break-even: 6 to 9 months
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