Evolution of Franchise in India

Franchising is the marriage of

both the franchisor and the
franchisee. -Dwarika Prasad Uniyal
Asst, Prof., Retail Management, Mudra Institute of Communication, Ahmedabad.

Presented by:
Ram Niwash Singh Yadav
Rol – 21, FMS – 1
 OBJECTIVE
 Franchising overview

 Retail Franchising

 Retail Franchising in India

 Franchisor-Franchisee Relationship

 Franchising case study: Levi’s Strauss & Co.

 Franchising Definition
 It is the granting of certain rights (commercial, technical, non-
technical & intellectual knowhow) by one Party (the franchisor) to
another (the franchisee) in return for a sum of money. The franchisee
then exercises those rights under the guidance of the franchisor.

Franchisor
 This is the proprietor/owner of the franchised system. It owns the

know-how of the concept and the brand name. It grants franchises to

third parties.

Franchisee
 This entity is granted by the franchisor the right to carry on business

using the franchisor's know-how under the franchisor's brand.

 Value Proposition from a Franchisor

Ranking Value Proposition Value Proposition

(Franchisors View) (Franchisees View)
1 Brand Name Brand Name

2 Economies of Scale Economies of Scale

3 Proven Business Format Proven Business Format

Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising

 Value Proposition from a Franchisee

Ranking Value Proposition Value Proposition

(Franchisors View) (Franchisees View)
1 Local Market Knowledge Investment / Real
Estate
2 Business Experience / Business Experience /
Background Background
3 Investment / Real Estate Local Market
Knowledge

Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising

 Franchise Success factors
CUSTOMER SUPERIOR BUSINESS AND
RELATIONSHIP LEADERSHIP FINANCIAL
MANAGEMENT PLANING

EXCELLENT OPERATING EFFECTIVE

FRANCHISES SYSTEM THAT MANUALS
MANAGE RESULTS

EXCELLENT EFFECTIVE
FRANCHISOR – FOCUS FIELD TRAINING
FRANCHISEE STUFF PROGRAMME
RELATION
 Franchising in Retailing – A Variety of
Models

Model Pure Franchise Management Contract Hybrid*

Player Franchisee Franchisor Franchisee Franchisor Franchisee Franchisor

Input

Premises      
Interiors      (50%)  (50%)
Equipment      (50%)  (50%)
Stocks      
(Consignment)
Management      
Franchisee’s Margin on Sales Rent + %age of Sales Higher of Minimum Guarantee or
Returns Margin on Sales

*many more varieties of the hybrid model exist.

 7 key Steps in Retail Franchising
 Evaluation of own skills, interests, and financial
situation
 Research of opportunities
 Research of the market
 Selection of prime location
 Securing of financing and choosing a franchise
 Attending training/hiring staff
 Collecting the necessary permits and insurance
 Franchising background in India
 International soft drink and hotel franchises arrived in India as
early as in 1960s
 But in 1977 the Government of the day had expelled foreign
brands from India.
 The foreign brands started returning gradually from the mid
‘80s. In 1990’s as the market opened, foreign franchises started
coming in gradually, and faced many difficulty along the way
especially KFC, Schweppes etc.
 Some Franchisors in India
Pepsi, Coke, Baskin Robbins, Movenpick,
Subway, McDonalds, TGIF, Geoffrey's, Taco
Bell, Pizza Hut, Pizza Piazza, Dominos Pizza,
KFC, Schweppes, O’Brian’s Sandwich Bar,
Ruby Tuesdays & Barista, Levi’s Strauss Co.,
PUMA, Marks & Spencer, West Side, Evita
Peroni, Pepe Jeans and Adams, Reebok, Air
Action and DHL
 Franchising facts in India
 Approximately 600 franchisors spread across industries like
education, retailing, professional services, healthcare etc
 Over 40,000 franchisees
 Annual turnover from Franchising – anywhere between
Rs.8000-Rs.10,000 crores
 Total investments made by Franchisees – over Rs.5000 crores
 Over 300,000 people directly employed by franchised
businesses
 Variety of hybrid formats in practice
 Number of International franchises already existing, more
coming in
 Acceptability growing by the day
 Fairly conventional industry spread
Source: Annual Surveys of the Indian Franchise Sector, conducted by FirstFranchising
 Franchising Trends in India
 The Education sector dominates the Indian
franchising scenario, although Retail is fast catching
up
 Most of the franchisors are relatively new and small
 Several large Indian corporates are also going the
franchising way
 Newer & innovative concepts being introduced
 Substantial interest from international franchisors as
well as Indian business houses for master franchises
 Factors Defining the Growth of
Franchising in India

 Positive Factors

• Huge consuming class

• Fast-growing consumerism
• Shift towards Services from Agriculture &
Manufacturing
• Franchising has already proven to be successful in
several sectors
• Large entrepreneurial pool
 Factors Defining the Growth of
Franchising in India

 Negative Factors

• Lack of regulatory framework

• Financing mechanisms not in place
• Skewed real estate markets
 Problem for the Indian Franchise Sector
 Herd mentality – both franchisors as well as franchisees

 Several wrong standards of franchisors as well as

franchisees

 To an extent:
› many franchisee’s commitment to service quality is missing
› many franchisor’s commitment to provide the promised support
to their franchisees is in doubt

 Result – a tense relationship, which doesn’t help anyone

 Problem for the Indian Franchise Sector
 Financing for franchises is a problem area with financial
institutions
› soft expenses not recognised as part of project cost by many
institutions

 Legal & disclosure framework for franchises is not in place

› increases chances of fraud by fly-by-night franchisors makes it
difficult to resolve disputes

 Real Estate markets completely unstructured & unrealistic

› make Franchising unviable for start-up entrepreneurs
 NEED IMPROVEMENT
 Need for a Controlling Body on Franchising to
identify problem and decide solution

 Need for open norms & legal framework on

the regulatory side

 Most importantly, Franchisors as well as

Franchisees need to understand & honour
promise & responsibilities towards each other
 Franchise India Holdings Limited (FIHL)
 Franchise India Holdings Limited (FIHL) is
Asia’s largest integrated franchise and retail
solution provider since 1999. Franchise India
is an authority on franchising, licensing, retail,
real estate and marketing.
 Levi’s Strauss & Co.
franchise case study
 Levi Strauss Asia Pacific Division was established in
1995

 Levi Strauss & Co.'s Asia Pacific Division is comprised

of subsidiary businesses, licensees and distributors
throughout Asia Pacific, the Middle East and Africa.

 The division sources, manufactures and markets

Levi's®, Dockers®, and Levi Strauss Signature®
products through affiliates.
 Franchise steps

Arrange Fashion show

Design Asia-Pacific
fashion show attended by
developed in head choose
in Mumbai & Franchisor &
Europe design
Delhi Franchise
 Franchise steps

Franchisee Franchisor,
Franchisor
gives order Asia division
Franchisee like source raw
based on sales accepts and
some product material &
data and gives order to
give to vendor
forecasting vendor
 Franchise steps

Vendor Franchisor Franchisee Franchisee

manufactures distribute sell product gives margin
& give to product to and earn on sales to
franchisor franchise profit franchisor
THANK YOU