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Franchising Begins to Bite in India

Guest post by: Rod Young

Article Overview: Western style franchising is starting to have a major impact on the Indian business scene. Rod Young, Executive Director of DC Strategy and the Program Director of Franchise India 2009, explains why franchising in India is growing rapidly and Aussie firms are positioning themselves to grow.

Franchising Begins to Bite in India

FORMER INDIAN Finance Minister P Chidambaram's policies of economic deregulation and general reform during the early '90s have proven not only the catalyst for consistent and sustained world-leading GDP growth rates, but also a change in the psyche of the swadeshi (home-grown) business community and educated middle class in India. From the centuries-old Indian tradition of family-owned and operated organisations content with generating enough to support the extended family, the prevailing attitude has undertaken a shift towards conducting business as a science - a process of thorough planning, execution and refinement. Whereas growth was previously a phenomenon of chance and the grace of God, it is now the mantra for even the most modest business.

An increased willingness to explore all avenues of growth has led to the increased awareness of business models that will propagate a founder's vision, maintain the quality of products and services and standardise the customer experience across the network. Particularly for retail businesses, franchising is increasingly viewed as the model through which to achieve these goals in India. Since its beginning in the early '90s, franchising in India has grown in leaps and bounds and there is still much to explore, based on the successful growth of many franchised brands already present. The future of franchising in India will continue to show a rapidly increasing trend line. It is estimated that India has over 25 million businesses operated mainly by individual proprietors or family members. Of these, over 14 million are retail businesses and the vast majority fall into what is described

as the unorganised retail sector.

The emergence of branded chains, (organised retailing) is just beginning. At the same time, an emerging aspirational consumer middle class, fuelled by the socio-demographics of India with 54 per cent of India's population under the age of 25, is looking for opportunities and a retail experience. As a result the opportunities for franchise networks to grow in India are enormous. For the uninitiated, a franchise is often just seen as fried chicken and hamburgers. This impression has been created because the likes of McDonald's, KFC and Subway are some of the more renowned examples of global franchised businesses.

Australian franchises in India

However, the concept and essence of franchising can be applied to almost any business in practically every industry. In Australia alone, businesses as diverse as ANZ Mortgage Solutions (home loans), Jenny Craig Weight Loss Centres, Life Resolutions (professional psychology services), Terry White Chemists, Forty Winks and RedClean (commercial cleaning services) have implemented franchise models in their quest to become the number one brand in their category. Australian franchise companies are only just emerging in India. A pioneer of Australian franchising in India is Cookie Man. This company had discovered that there is a well developed demand for sweet biscuits across India, and it has been operating in India since January 2000 as an Indo-Australian joint venture establishing both company owned and franchised locations.

Cookie Man now has 19 stores across India and is the leading branded retailer of fresh baked cookies. Some of the highest volume Cookie Man stores in the world are now located in India. Newer entrants such as Gloria Jean's now have five stores established under a master franchise arrangement to Citymax, a leading Indian hospitality, leisure and food retail company, and they expect to have 10 stores trading in India by the end of 2009 - just 18 months after opening their first store. Just Cuts has granted a master franchise to an Indian lifestyle and leisure company and established its first location in 2008 with several more to follow as the concept is proven in the Indian market.

While this may seem a modest beachhead for Australian franchising, the opportunities are evident. EXPORT INDIAIn spite of its 1.1 billion inhabitants, business success in India is not a birthright. A dilettante will always miss the forest for the trees. The apparel retail, food and beverage retail, education, health and beauty and real estate sectors are likely to witness a lot of activity in the form of a significantly increased presence of Australian franchised businesses. Even during these early stages of franchising in India, many successful Australian franchised businesses such as LJ Hooker, Fernwood Women's Health Clubs, Boost Juice bars, Cookie Man, Just Cuts and Gloria Jean's Coffees have selected growth in India as a pillar of their international expansion strategy.

The Indian business environment poses challenges similar to those faced domestically by Australian businesses, among other things: high rents, complex customer preferences (it took Domino's three attempts before its pizzas became popular in Australia) and geographical challenges. It is commonly noted that Australian businesses which overcome these challenges are some of the better managed brands on a global basis. With this in mind it would appear that Australian franchised businesses that include international expansion as a vital component of their growth aspirations, will find it easier to gain market share in India, compared to many of their American and European competitors. Over the previous decade many global brands have sought to grab the first mover advantage by rushing to India. During the early stages of this gold rush the common perception was that the owner-operator effect, when combined with the local knowledge of franchisees, would

guarantee success. However, inadequate consideration of complex cultural and social dynamics and supply chain issues served to thwart many initial forays. Yum Brands, with its KFC outlets, was one of the more prominent early failures due to a combination of the above factors as well as the selection of an inappropriate Master Franchisee.

Local businesses embrace franchising

Domestic Indian businesses have embraced franchising, especially over the past five years and the types of businesses that are franchising are diverse. Motilal Oswal, one of India's biggest financial services companies has over 1500 franchisees selling broking and other financial services and plans to have over 5000 franchisees by 2012. Pre-schooler provider, Euro Kids, is the market leader in India with over 350 franchisees and is projecting growth of 20 per cent per year over the next 10 years. Café Coffee Day now operates from over 733 company-owned and franchised locations in 103 Indian cities providing a cafe lifestyle experience to the younger aspirational consumer.

There are currently over 600 businesses offering franchises in India and over 40,000 franchisees and the majority of these have grown from local businesses. At the franchise expo held in New Delhi last December there were over one hundred exhibitors offering franchises, most of which were domestic brands. Over 20,000 prospective franchisees visited the expo and early results indicate that there will be over 500 franchises sold from this one expo alone. There are at least 10 franchise expos scheduled across the various large cities of India during 2009 and a major franchising conference in New Delhi in November will attract over 400 franchise executives from India and abroad. An application of this line of thinking has seen Yum Brands and a host of other international franchised brands such as Dominos, McDonald's, Gold's Gym, Kodak, Holiday Inn, Reebok, Levi's and many others launch or re-launch successfully in the Indian market. While many of these brands have had to tinker with their product to suit local demands and preferences, the core values, business systems, and processes of these entrants have largely remained unchanged.

Rapid growth in franchising

According to reports, revenues from the franchise sector in India have recorded growth of 30 to 35 per cent per annum, for each of the past five years. If anecdotal evidence that franchisors are able to attract better quality franchisees during an

economic downturn holds true, then the current conditions could prove to be the most favourable yet for rapid expansion of franchised businesses in a country where most international businesses have still only scratched the surface in terms of

growth and returns. Over the previous 5-6 years there has been a concerted effort by the federal government and many state governments to improve crucial infrastructure like roads and power in metropolitan and larger non-metropolitan centres. With air and rail links

already on par with most other developed countries, supply chain issues are becoming easier to manage. This is yet another reason for Australian and other international businesses entering India to look beyond just the four best-known metropolitan centres: Mumbai, Delhi, Chennai and Kolkata.

While these four cities alone have a combined population of approximately 50 million, there are nine other cities with populations in excess of two million people and at least 23 other cities with populations in excess of one million. Non-metropolitan centres are less frequented by tourists and are also generally not included in tourist guide books. For this reason, they are below the radar for many businesses expanding throughout India. However, cities such as Bangalore, Jamshedpur, Ludhiana, Nagpur and Hyderabad (just to name a few) are hotbeds of manufacturing, IT services and other industry. Such cities are home to an ever increasing middle class that is educated, values quality products and services, and has money to burn but has, as yet, not been tapped by brands that are stubbornly (maybe foolishly) committing the majority of their resources to stay afloat in the all-consuming dogfight for market share in the better known metropolitan centres.

Expansion in India is not, and will never be a cakewalk for Australian franchised businesses. However, a combination of the right desire, expert professional advice and thorough planning and execution will make your Indian journey that much more

rewarding.

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INTRESTED IN - Hi Shesagiri here form India. Can you mail me the details to shesagiri@consultant.com, Would be interested in doing the business. We got rich Quality cashew nuts here in India and many more .Lets discuss and move forward.
Re: Re Franchise etc - [quote="bmueller47":e0j0nu4t]Can you see a shift of various types of franchises? What I am thinking about is that today it is more difficult to create franchises, that has great appeal. More and more people want to have their business, but no interference of someone else.[/quote:e0j0nu4t] Not sure what you mean exactly but it is certain that more and more people want to have their own business but not more and more people know what they really want to do, or how to do it. And that's what franchising is all about. Franchising is not for an entrepreneur. An entrepreneur will do his own thing. People who buy franchises want a turn key business, with a proven model. Franchising in the US had never been that good. I don't have the exact numbers in mind but I know for sure that franchising is growing more and more as people are getting more and more aware of this business model.
Re: Looking to outsource my sales - Let me know if you would like to outsource it to India ??
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Franchising vs. Licensing? - What is your opinion on Franchising vs. Licensing? Which is better?


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