Franchising industry is expected to growth a year-on-year growth of 30% reaching 50 billion USD by 2017.
Franchising industry is expected to constitute almost 4% of India's GDP in 2017 (assuming 6% Y-o-Y GDP growth up to 2017), growing from a current estimated contribution of 1.4% of GDP. KPMG also expects that franchising will create job opportunities (including both direct and indirect) for an additional 11 million people by 2017.
Franchising in India in 2016 looks much better than the last few years. The Franchising World gives you a virtual picture of which industry excelled in franchising in 2015 and where will investors have to put their money in 2016.
Forecast 2016
43,000 franchisee establishments may be required by 2017 to meet the growing demand is retail sector.
H&M has entered as a single-brand retailer complying with Indian FDI regulations; more international brands expected in the coming time.
Service sector expected to contribute to majority of growth in franchising
Health & wellness is expected to grow to almost 6 times by 2017
Indian QSR segment grew by 37% IN TERMS of number of outlets in last 2 years.
The revenue growth for the same period was more than 40% for the segment as a whole.
Services sector which includes consumer services such as Financial Services, Courier Services, Health & Wellness and Food Service sub-segments Are expected to contribute to majority of the growth in Franchising in the next half decade. Franchisees in these areas are expected to form around 55 per cent of total estimated franchisees in 2017 according to the KPMG estimates. Franchising in Health & Wellness sub-segment is expected to grow to almost 6 times its current size. Retail sector (which includes sub segments of apparel, jewellery, neighbourhood stores and Food & Grocery) along with the Education sector are expected to grow rapidly through the franchising model.
Big international players are expected to adopt the franchising route to enter and expand in the country aided by the efforts of the government to allow Foreign Direct Investment (FDI) in single brand & multi-brand retail.
International retailers in fashion
The retail landscape in India is changing rapidly due to factors such as demographic profile, rising disposable income levels and industry appetite to cater to this emergingconsumption boom.
India drives only about 2.5 per cent of total retail sales (organized and unorganized)through franchise formats, as against nearly 50 per cent in the US, indicating hugepotential for the market in future. KPMG estimates that over 43,000 franchiseeestablishments (valued at USD 36billion) may be required by 2017 to meet thegrowing demand in the retail sector from a current base of 13,000.
FDI reforms in single brand and multi-brand retail are likely to lure more globalretailers to participate in India. Existing retail majors are under pressure toconsolidate and increase their franchise network reach. Franchising is expectedto continue to be one of the most popular business formats among organizedretailers to tap the emerging consumption boom, specifically in the tier 2, tier 3 andsmaller cities. However, the recent directives issued by the Indian government on FDI regulations in multi-brand retail allowing foreign retailers to only open company-owned company- operated outlets could be a big blow to growth in retail franchising in India.
According to the law on single-brand retail, up to 100% FDI is allowed, but only49% can come through the automatic route. For FDI above that, a company needsto take approval, and is bound to source locally to the extent of 30% of the value of goods purchased preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen.
Opportunity & trends in franchising
Regional cuisine of Indian origin bringing the next level of growth
The segment grew by 37% in terms of number of outlets in last 2 years. The revenue growth for the same period was more than 40% for the segment as a whole.
According to experts, “There are a lot of changes that are going to happen in the Indian F&B segment. As people are willing to experiment new dishes, they will focus more on local and sustainable produce with little tweaks in the menu.”
“In the coming years, more and more restaurants in hotels and stand-alone will experiment with Local flavours like Oriya, Assamese, Bihari and other community cuisine as more diners will be looking at newer flavours and styles to experience. And it will play in key role in keeping them interested.” says Riyaaz Amlani, Founder & MD, Impresario Foods.
Changing trends & New Formats in Fitness & Wellness Industry
With profound changes in the lifestyle and income levels of people, the wellness industry in India has become a sunrise sector, and is set to grow by 20-30 per cent year on year. In India, people have realized the importance of staying healthier. In the last couple of years, the industry has witnessed a major transformation, with the age group of 20-44 trying out exciting activities like Zumba, aerial yoga, Pilates, Mixed
Martial Arts and kickboxing. PM Narendra Modi has shown immense interest in the wellness industry, especially Yoga. In 2014, he formed a separate Ministry named AYUSH, which is having a Department for YOGA. Investors and incubators are also playing a big role by supporting and mentoring startups in the wellness space. With the increase in the disposable income of people in tier 1 and tier 2 cities, wellness is going to be a major category of expenditure by the common man. Earlier the connotation of a fitness centres suggested lifting heavy weights and performing crunches while the new format of fitness centres have evolved and offer different type of fitness activities such as Zumba and yoga.
Outsourcing bringing better efficiencies to E-commerce players
Over the last decade, with the rise in the penetration of internet and telecommunications, the biggest shift has come from offline shopping to online shopping. Companies have found a new way to reach their customers via internet and e-commerce, and this is becoming a new delivery model.
E-tail companies outsource logistics, inventory storage and management andorder fulfillment to the potential partner bringing better efficiencies in the business.These partners have strong capabilities to warehouse & have experience in logistics which benefits the e-commerce players by a significant reduction in lead time. These fulfillment centres manage returns and exchanges by examining the returned items.
Companies work on inventory-led model like Flipkart or a marketplace model like Amazon India. The industry has undergone several changes in recent times. Earlier,customers used to buy their products through PC and laptop but now Ecommercecompanies offer their service through mobile apps like myntra. These arenoticeably in the Asia-Pacific region with Malaysia (where 42% of online shopping ison mobile), Sri Lanka (39%), Philippines (35%), India (32%) and Indonesia (28%).
In addition to the normal business, firms such as Makemytrip which is a part ofthe online travel portal with no outlet across India in 2009 expanded to 65 outletsin 2015. A large chunk of the firm's holiday packages are sold through offline outletsmajority of which are franchised.
High consumer spending on dining out and entertainment
The Indian food and beverage sector, which is currently growing at 23 to 24 per centannually, is likely to touch INR 38 billion by 2017, according to a survey. A FICCI Grant Thornton report says the sector is largely dominated by unorganised players that would decline significantly in the next four to five years. It added that bigbrands still have a good opportunity to expand in the sector, although despite losing the ground in five years, unorganised sector would control 60 per cent of the market. New concepts have evolved from dine in to QSR to Kiosk and now specialty cafes on the basis of consumer lifestyle.
Market segmentation & emerging categories in franchising
The franchise business in India is increasingly getting popular among domesticand international players across various sectors. Several major industries creditsuccessful franchisees for their rapid progress.
The key industries that possess high prospects for the successful franchise opportunities in India are following:
l Retail franchising
l Food and beverages
l Health, beauty and wellness
l Consumer services
Projected state of retail franchise
industry in India in 2017
l The segment of Consumer durables, mobile and electronics have the highest projected franchise revenues of US $ 11 billion in 2017 with a projection of 7300 outlets followed by apparel with US $ 11 billion and 6200 outlets.
Growing trends
l Master Franchisee is being taken by seasoned entrepreneurs, conglomerates and is the preferred mode of entry.
l Social Media is making the growth journey easier.
l In the last couple of years, the industry has witnessed a major transformation, with the age group of 20-44 trying out exciting things like zumba, aerial yoga, pilates, mixed martial arts and kickboxing.
l Presently, there are more than 4000 franchisors operating in India.
l Major funding options for a franchisors are private equity and IPOs, although bank loan & venture capital is always an open door.
l Shifting consumer preferences, and introduction of global products & services through foreign entrants has supported franchising growth.
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