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Jun, 07 2014

Dos & don’ts for India foray

With increasing globalisation, international brands from across sectors have carved their path of trade to India for significant profits. Here below is the complete tool kit of do’s and don’ts for foreign entrants to attract significant market share in In

India being the fastest growing and highly competitive market in the world, many international brands are entering into the country. However, many international players have failed to understand the success mantra of establishing their business as per the consumers here in India while there are a few of them who have sailed through the tough time in the Indian market and have successfully positioned their brands as landmark in franchising industry.

To enter Indian market, a foreign investor needs to understand well the needs of target group before introducing a brand. It is also seen that even some of the most successful brands had committed mistakes while initially entering into Indian market. For instance, many F&B brands that initially introduced standard menus by following standardized global strategies later realised their mistakes and then customised their menus or services according to the tastes and preferences of Indian consumers and became successful.

Brands at a glance

The Subway restaurant chain is the world's largest submarine chain in the Quick Service Restaurant (QSR) industry with over 40,000 restaurants across 103 countries. The franchise-model has been Subway’s preferred model of expansion throughout the world. The same has been implemented in India very successfully.

Going by market trends, in India, the franchise model is likely to grow exponentially in the coming years. The inherent strengths of the model, the low start up cost, ease of operation and flexible floor plans have helped the brands grow at a healthy clip.

 “Franchising is the growth strategy of choice even when the countries are witnessing economic downturn because the franchise model addresses the two fundamental requirements for business growth: raising the funds to expand and finding the right people to manage that growth. The model enables the franchisor to expand his chain through selling the intellectual property rights of the brand to franchisees; the franchisees in turn operate their businesses under the guidance of the franchisor, thus leading to mutual benefit,” says Manpreet Gulri, Country Head, Subway India.

Safari Kid, an International Pre School that has recently entered the Indian market, plans to expand fast via the franchise route. Founded in the Silicon Valley, the pre-school chain offers one of the best preschool and after school programs for children. Providing customised, personalised and international curriculum to suit every child’s learning style.

Jitendra Karsan, CEO India, Safari Kid says: “We are offering both FOFO model (Franchisee Owned Franchisee Operated) as well as FOCO model (Franchisee Owned Company Operated model), we have a very detailed method of shortlisting our partners, however, people with previous education background and passion for making a difference to each and every child are more likely to partner with us.”

He also says that the options of preschool are plenty in India but Safari Kid is amongst the few or probably only preschool to offer global curriculum consistently taught across all our 25 centers in 6 different countries. He boastfully asserts: “Apart from this, we are the only preschool to offer a curriculum customised to each and every child’s needs. Historically, kids graduating from Safari kid are at least one to two levels ahead of their peers. Our conscious effort is to provide all this and much more at a fees which is affordable to all middle/upper middle class parents as well as offer our partners better annual returns on investments.”

A European brand, Vivafit is another fresh new concept in women’s only fitness center format that was founded in Portugal in 2003 and had quickly became the biggest fitness franchise brand that is expanding aggressively, on the international locations. The brand was first brought to India by Rose Red Lifestyles LLP via the pilot centre that was launched in Gurgaon. Presently, there are six centres in India and two more opening soon. “We plan to open up to 200 centers in the next five years. These will be mostly franchised but we will not hesitate from opening company owned outlets also. We are looking at opening more Vivafit centres in metro cities like Delhi, Noida, Gurgaon, Chandigarh and also cities like Jaipur, Ludhiana, Jalandhar, Indore, Bhopal, Kanpur, Dehradun and Lucknow. The exapansion is so aggressive just because international brands bring better quality in service delivery and advanced industry standards and our brand is proving beneficial for the end consumer by encouraging healthy competition,” says Manisha Ahlawat, MD, Vivafit India. Hardcastle Restaurants Pvt. Ltd (HRPL), maintains a Development Licensee (Master Franchisee) relationship with McDonald's Corporation, U.S.A. HRPL spearheads McDonald's operations in West & South India. The brand boasts of introducing the concept of western quick service restaurant in India 17 years back when the QSR market here was at a nascent stage. The company has invested six years and Rs 450 crore to build a strong supply chain which gave us a leg up over our competitors and pioneered the cold storage or the cold chain management system in the nation which today is iconic in its space. Its supply chain, coupled with brand’s focus on menu innovation, dedication to offering the services and value has helped it to create connect with the customers.

Ranjit Paliath, Vice President, Business Operations, Hardcastle Restaurants Pvt. Ltd- McDonald’s India West & South Operations says: “In a franchisor-franchisee relationship, the franchisor provides the license to the franchisee to sell a product or service under the name of the franchisor. This arrangement also involves the transfer of technological know-how, business systems, suppliers, knowledge, operational matters and invention. As a Master Franchisee for McDonald’s in India, HRPL was able to tap into a proven, internationally successful business model with an inimitable brand presence. We found that our values and goals matched those of McDonald’s; additionally McDonald’s gave us the freedom to operate in the complex Indian market scenario – and this ensured that we were able to customize our menu and communication keeping in mind cultural sensitivities.”

Globally, McDonald's has varying franchise structures that are applied based on changing/ differing markets/circumstances and stages of brand development. Today, as the world’s largest quick service restaurant chain McDonald’s has over 34,000 restaurants in 119 countries out of which over 80% are owned and operated by varying franchise models, including 50 Development Licensed countries.

To do and not to do list

 Of late, India has emerged as an attractive target market for international brands. The benefits of the franchising business model lie in the ease of operations and management along with the established relationship with reliable suppliers and a built-in consumer base. On the flip side, high level of standardisation limits the scope of experimentation and variation. The following considerations are important for widespread acceptance and success of a franchise and therefore, are shared  by the industry experts.

Challenges to overcome

A major challenge for an international QSR brand like Subway is to engage with the local consumer. Keeping in view the local preferences, the brand has adapted to the local palate by introducing vegetarian and non-vegetarian offerings such as Chicken Tandoori and Paneer Tikka. “For a sensitive market like India, vegetarian and non-vegetarian service counters are kept separate as far as possible. The chain has also opened fully-vegetarian restaurants at select locations. Our another challenge is to have a system in place wherein standardisation of the products and their quality has to be ensured throughout the market. Logistics management of the whole supply chain, right from material management to physical distribution, is a big challenge which becomes further accentuated due to lack of infrastructure in the country,” says Gulri. However, Subway franchisees are supported by locally-based development agents and their staff who provide additional business expertise and help overcome operational challenges.

 Apart from franchising industry being unorganised, changing mindset of the partners/prospective partners is the biggest challenge. This is what Karsan of Safari Kid feels as their challenge. He says: “Safari Kid has a defined mechanism to control quality at each and every center and most of the prospective partners find it astonishing that we are able to replicate the same learning environment across all our centers crossing all barriers of host location culture. Some partners dislike the fact that Safari Kid corporate office controls quality and has surprise quality checks not only to supervise the premises but also the quality of teaching and student or parent interaction.”

However, Ahlawat opines that there is not much scope for customisation as they follow a very simple system that has universal appeal. “Fitness needs of women are same all over the world. However, there are differences in the diets from one region to the other. We take that into account for nutrition advice,” she adds.

Pros and cons of franchising

Although franchising is not a new concept here in India but the incessant changes in consumer trends have fuelled the growth of franchise industry. Growing preference for branded products, global exposure and rise in disposable incomes are some of the growth drivers for foreign brands that made ingress to India. The fast growing and fragmented QSR market in India may, at times, appear difficult to deal with but sectors like retail and service have managed to position itself cordially in the Indian market. However, seamless engagement between franchise-owners, development agents and franchisees has helped the brand surpass all challenges.

  When talking about franchising and the dos and don’ts related to it Tarek Gineina, a franchise professional and expert, says: “I prefer adopting franchise business model while penetrating Indian market. It should be called as a positive rather than a negative approach.”

 

WORDS OF WISDOM

 

MANPREET GULRI, COUNTRY HEAD, SUBWAY INDIA

“The success of any franchise rides on a number of factors such as uniqueness of the product or service, an acute understanding of the consumer mindset and above all, the brand appeal. Franchisees must associate themselves with a brand that represents a futuristic proposition & cutting edge technology. The brand must be compatible with consumer expectations. Subway’s brand value, its unique proposition and low start up costs have helped us gain a foothold in India.”

RANJIT PALIATH, VICE PRESIDENT, BUSINESS OPERATIONS, HARDCASTLE RESTAURANTS PVT. LTD- MCDONALD’S INDIA WEST & SOUTH OPERATIONS

“The key to success in doing business in India is learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. To realise India’s potential, organisations must show a strong and visible commitment to the country, empower local operations, and invest in local talent. Franchising aspirants must pay closer attention on customisation as per the needs.”

Manisha Ahlawat, MD, Vivafit India

“We plan to open up to 200 centres in the next five years, mostly franchised but we will not hesitate from opening company owned outlets also. We are looking at opening more Vivafit centres in metro cities bringing better quality in service delivery and advanced industry standards.”

Tarek Gineina, Franchise Expert

“I prefer adopting franchise business model while penetrating Indian market. It should be called as a positive rather than a negative approach.”

 

DOS

= International brands planning to foray in India must have know-how of the legal framework of the market

= Adapt to the local taste and preferences since India is a relatively competitive market wherein the consumers’ choices are highly diversified and domestic players have a set consumer base

= Maintain high standards of quality and service for which they are known

= If one is investing in a franchise, it is advisable to study the industry growth and within industry the potential for the particular brand.

= Search and recruit a local market representation company which helps represent you and provide all support from knowing your target market to finding right franchise partner to pre-launch and launch stage.

= During market research must have a core chapter on known brands which entered the market and failed and the reasons for failure rather than focus on the best brands and best selling locations should be a must have.

= Be very concrete and hands on your real estate and marketing 

= Have at least one of your management dedicated to launching and post launch management and support to the franchisees and empower him to succeed.

 

DON’TS

= A brand should not hurt the ethnic sentiments of local people. There has to be a feeling of ‘oneness’ between the brand and its consumers.

= Accept optimistic studies and forecasts

= Prioritise finding a partner and signing a deal over finding the right partner and the right approach. In other words rush to sell.

= Focus on franchise brokers or resellers to sell the brand fast for the biggest franchise fees rather than on long term vision and approach

= To easy or too sophisticated approach to the market in everything

= Failing to or neglecting to develop contingency and exit plans.

PROS

= Partnering with the right entrepreneurs and investors

= Quality maintenance is relatively simpler

= Brand positioning

= Market knowledge

= Established partner who has the platform and necessary foundations to allow a new franchise to be born and prosper.

= Relatively, cheaper startup investment and lead time till first launch

= In franchising, usually engaging with local full time partner running the business is more mature approach.

CONS

= Time consuming method of selecting partners · Higher rate of rejection

= Changing mindset might take more time

= Failure to find the right franchise group/partner.

= Inability to get your Indian franchisee to manage the launching and growth plans efficiently.

= The Indian business culture is generally a more slow to react to business environment changes and less flexible to change action plans or take fast decisions due to the collective and family culture in the society.

= This may be a barrier against franchise success. 

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