The year 2014 has seen an increasing number of global F&B brands entering India via franchise business model, backed by a growing confidence in the business format.
According to market research firm Crisil, the Indian fast food market is set to double in size from Rs 3,500 crore in 2012 to Rs 7,000 crore over the next two years.
Witnessing great opportunity in the Indian food business, local as well as global brands are expanding their footprints in India taking the franchisee route as the local partner knows the local tastes and preferences better and thus can prove profitable.
“I think if you have an ambition to grow and if you have fund and want it to intelligently deploy then franchising is a necessity, it is no option because what really happens is when you get into franchising you are able to have inorganic growth with a faster pace," said, Dheeraj Gupta, MD, Jumboking Pvt Ltd.
The business format
The restaurant industry earlier chose to operate via single unit franchising, but multi-unit franchising and master franchising is gaining popularity for several well established global QSRs today.
Not only this, the country is increasingly witnessing the growing popularity of Area Development Model (ADM) and Area Representational Model (ARM).
In the case of ADM, partners of a chain are singularly focused on managing outlets within a specified region as well as ensuring a suitable customer experience. In contrast, in ARM, the emphasis is on expanding the presence of a restaurant via finding new franchisees.
Sharing his views on the business format, Gupta said, “Business model should be such that the franchisee makes a margin higher than he would have done in his own business (without the franchisor’s brand name).”
Deciding on location
Location is the most important aspect when one is planning to enter into a new city. And this is the part most people get wrong. In the need to expand fast they hope that the number of stores will take care of quality. But as per the experts in the industry, in the franchisee business, each store needs to be profitable, franchisees don’t average out the profits across stores, for him, his store has to make money. However, each business has a different requirement when it comes to real estate and the call on locations should be centralised and taken by the highest authority who is investing his money for expansion.
Robert Beausoleil, Director-Business Development, Barbecue Garden said, “As part of this strategy, we would provide our franchisees with training on various operational aspects, including selecting location, food preparation and service, amongst others.”
Sharing his views on the same, Sam Chopra, Chairman, CybizCorp, which has signed a master franchisee agreement with California-based burger chain, Carl’s Jr, said, “Do not over expand, preserve capital and ensure that you have enough capital for your expansion. Build a very strong management team keeping a smart marketing budget.”
Be cautious while choosing partners
As per Chopra, getting the right partner in franchising business is like getting into a marriage where you have to struggle for a few years! Many a time, people go wrong in choosing the right partner for them and hence, that leads to failure of the franchisee business. The experts in the industry believe that the selection criteria should revolve around three basic aspects, the franchise partner should be an owner operator; the investment required should be fully funded through internal resources by the franchisee, no bank loans especially on the first store should be taken and most importantly; the franchisee should have some prior business experience because business requires a lot of effort.
“When you sign a franchisee, he may or may not be a best prospect for you, but you have to play with the rules of integrity, transparency and honesty. Set the right expectation with the person you are going to franchise and you will definitely sell right,” believes Chopra.
Also, managing and working for different brands is difficult at times, therefore, each brand should have a separate P&L head (Profit & Loss) and a separate CEO so that the functioning could be done smoothly. At the same time, common functions like accounts etc may have shared resources, however, all other teams like real estate, marketing, and product development etc should be separate, share experts.
While expanding geographically, western brands feel that franchising is the best model to place their brands in other countries.
Jhonny Rockets, which entered India in February 2014, has chosen Prime Gourmet Private Limited as its franchisee partner in the country. On the other hand, Burger King is entering the country by opening its outlet in Mumbai and Delhi-NCR through a partnership with Everstone Capital. Carl’s Jr, which is set to open its outlet in January 2015, has signed a master franchisee deal with Sam Chopra led CybizCorp based on his tremendous success in franchise channel. On the other hand, FatBurger has signed a franchisee deal with Vazz Foods Pvt Ltd, to operate its brand in India.
It is apparent that the market potential is encouraging home-grown and existing players to expand their footprint, while new European and US brands are charting India entry plans via franchising.