All Systems Go

It is “All Systems Go” for franchising in India. The Indian sector has outperformed the economy and continues to be optimistic about the short and medium term outlook and franchisors are feeling very confident that their businesses and franchisees will experience strong over the next one to three years. Unlike other industries of slashing marketing budgets, cutting staff numbers or delaying capital investment, franchisors focused on supporting their franchisees putting particular effort into collaboration and relationship management & closely monitoring distress areas if any, and now that Reserve Bank of India has officially announced that the downturns is behind us, franchising is all set to turbo charge growth.

Growth statistics:

Of 1500 franchisors in India, three quarters of franchisors in the new and emerging category are focused on organic growth 86 per cent are targeting domestic market expansion and nearly 7-8 per cent building strategies to diversify into new product or service markets. The Business Concepts that have combated the downturn successfully are now gearing up to follow the route of franchising and replicating their success mantra across various locations.

Franchising: The Go to market strategy:

Today most service and retail based brands have the ultimate goal of being a nationwide or global player in their industry but even a great concept would at one time or the other face resource scarcity or feel inhibited due to lack of deep capitalization. Herein Franchising is the best way to take a Business Concept forward that has scope of profitable multiplication at various locations as it involves low capital investment by the franchisor since that capital used to expand the network comes from fr6anchisees who also bring other optimum resources alongside their local market knowledge to open outlets as fast as possible across the country.

Also over and above the resources, the franchisor places the expansion of his / her business in the hands of people who are motivated to make it work. Having invested what in many cases are their life savings in a franchise, franchisees strive to make the business. Their livelihood may depend on it. By using indigenous franchisees, the franchisor also taps into local business knowledge which may prove beyond his or her capability to obtain otherwise. Thus franchising also allows the franchisor for the business to expand without spreading managerial resources across too many business units.

Less Costs, Higher Returns for Franchisors:

The cost of expansion for the franchisor is usually limited to the cost of franchisee recruitment, training and assistance prior to opening. Franchisees invest their own equity & funds in premises, equipment, fixtures, furnishings, inventory and the working capital necessary to establish a franchise unit. The only cost to the franchisor is that of the overheads not met by the franchisee’s initial franchise fee.

The return on investment is much higher for businesses that expand through franchising. Because there is less capital employed, the franchisor’s profits are generated on a much lower capital investment which also compensates for the less revenue received from franchise units than that could have been received had they been company owned outlets.

Franchising is a comprehensive business relationship whose four essential elements to the than the brand name or the Trademark use ensures a better success rate for a franchise over starting a non- franchised business. These are:

1)A legal agreement between the franchisor and franchisee
2)An operations manual, on the workings of the business written by the franchisor
3)A training program, provided to the franchisee.
4)On going support, for the franchisor to the franchisee during the term of the contract.

In return for these the franchisee pays the franchisor an initial franchise fee and a continuing management services fee based on a small percentage of turn over. Franchising is being employed by more businesses and more types of businesses than ever before. Today, almost any product or service can be distributed through franchising. In India the current trends point towards education, retail, food & Beverages, health, beauty and wellness, and specialty or niche concepts as franchises with the most potential.

If your business has the following attributes, it may have strong franchising prospects:

*A profitable track record Protected intellectual property brand name, trade dress etc.
*A clear identity in the market place
*A transferable operation that can be replicated, providing consistency of product / service.