Franchising – Refining Distribution

Many businesses reach the point where they are running successfully and it becomes obvious that there is opportunity for further growth. A young expanding firm has two options to secure the capital it needs for expansion: sell equity or sell franchises. A third option, selling debt may not be a possibility in the early stages of a firm’s existence as it may lack required collateral and a proven track record. Franchising may help many companies grow to an optimum size and at the same time maximize profitability.

Franchising is small business with the capacity to become a big business. A perfect example is the massive expansion of McDonald’s. The difference between franchising and the other forms of business, such as manufacturing and retail is that it provides opportunity, prosperity, security and a sense of continuing growth. Franchising allows entrepreneurs to partner with others for the benefit of the brand thereby ensuring rapid expansion of a business much quicker than what can be achieved through company-owned expansion. By attracting investors to open up additional outlets or stores of the company, the investment is coupled by the personal focus and resources delivered by the investor, that is, the Franchisees himself. A franchisee with necessary knowledge about local trading conditions and empowered by brand name, standardization systems and procedures of the franchise system may operate with much greater drive and motivation than perhaps an employee operating in the same role. Given the diversity and the sheer size of the country, Franchising is the only viable model, for both small companies and large corporation to actually penetrate the tier II and tier III cities in India. Franchising can be broadly distinguished in two distinct categories: Product Distribution franchising and Business Format Franchising. In today’s competitive tie ups, product has to be offered to a customer with high level of customer service which has bought the brand into a dilemma of either adding a franchise channel or conversion of existing dealer/distributor into a franchise. While there maybe a possibility of channel conflict, franchising is viable business development tool as it provides two important elements that other channels may lack: increased control of unit operations and the brand association and an ability to generate fees for the services that many dealers are forced to give away. Moreover, the increased control, provided by franchising, can often lead to improved performance and the associated improvement in sales. In country like Australia, there is documented evidence that having converted to franchises, corporate stores net a sales increase of 200%. This essentially proves the franchisees dedicated and sincere involvement with the business and franchising as the superior business modus operandi.

Business Format Franchising is characterized by an ongoing business relationship between franchisors and franchisees that covers the product, services and trademark as well as the entire business concept. This includes a marketing strategy and plan, operating manuals and standards, training, quality control, and a continuing process of assistance guidance and supervision. Retail Revolution is still in its early days and has Retail Companies both domestic and international, feverishly scouting for the right real estate and looking of the right channels for product distribution alongside quality HR to manage stores at the unit level, but in the process, the realization which has come to happen for many early moving brands is the need to have a more profitable network as opposed to only having a network. Retail Franchise Development tends to be driven by consumer demand and more and more companies are now finding Hybrid Models or Minimum Guarantee Models redundant over Business Format Franchising. Business Format Franchising is a great incubator of small businesses and responsible for bringing the service sector at the forefront in any economy. The maximum growth in the franchise sector in all developed countries in the world has been within the services segment and franchising is usually responsible for the transition a country makes from a manufacturing economy, the size of the service sector is 75% whereas manufacturing and other sectors comprise 25% with franchising being the biggest inspiration.

Today, countries like US & Australia regard Franchising as an export entity, while Indian Franchising is still at a nascent stage, but at the same time, the gap indicates an opportunity that lies ahead and the growth curve of the Indian franchising industry is headed upwards

The Franchise & Retail Expo to be held at Mumbai, India in Feb 2008 will be an ideal springboard for the Indian and international franchise and retail companies for development of franchisees. The original vent will bring all the well known brands intending to pass on their formula for success in the same place at the same time thus presenting hundreds franchising concepts in more than 75 sectors of activity.