May be very few people can understand the difference between a distributor and a franchisee. Distributor or Agent or Stockist has to only buy certain value of goods per week or per month. In some cases like HUL it has to be daily on payment against delivery. In weekly or monthly, it is mostly payment against delivery basis. In some special cases credit is given.
In franchising, the franchisor stipulates his conditions and the franchisee has to adhere to them. First the franchisee must have adequate space in a prominent area and in case of fast food joints on the road front. If not the space should be in a prominent commercial area. The franchisee must have the financial capacity to buy certain specified materials from the franchisor and run the business. In case of a food joint the franchisee must adhere to the guidelines given by the franchisor for quality, quantity and layout. Remember the difference is not just buying valuable goods but adhering to other conditions as stipulated above as well.
Franchisors are feeling very confident that their businesses and franchisees will experience good profits over the next one to three years. Franchisors concentrated on supporting their franchisees. India has officially announced that franchising is all set to grow.
Of the 1500 franchisors in India, three quarters of them are in the new and emerging category. The Business Concepts that have combated the downturn successfully are now gearing up to follow the route of franchising and replicating their success across various locations.
Franchising is the best way to take a Business Concept forward that has scope of profit at various locations as it involves low capital investment by the franchisor. The capital used to expand comes from franchisees and they also bring other resources along with local market knowledge to open outlets as fast as possible across the country.
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 appears to be their life savings in a franchise, franchisees strive to make the business. Their livelihood may depend on it.
By using local 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 of the business to expand without spreading managerial resources across too many business units.
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 the 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 business relationship to the brand name or the Trademark used ensures a better success rate for a franchise over starting a non-franchised business. The business relationship is formed by,a legal agreement between the franchisor and franchisee, an operations manual on the workings of the business written by the franchisor and a training program, provided to the franchisee. The franchisor will be providing the support 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 the turn over. Franchising is being employed by 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.
World Over, franchise contracts are typically governed by the laws of the land. Over the last 15 years, franchising as a format of retail is also attracting business houses in India. In India global franchisors like Pizza Hut, Marks and Spencer, McDonald’s, Subway, HP, Holiday Inn, Domino’s, and Kentucky Fried Chicken have set up franchises in India.
The Franchise showrooms of various ready-made garment manufacturers like Arvind, Madura Garments, Color Plus etc and Titan are perhaps the most visible successes of franchising in India. Today, the chain of Shahnaz Hussain parlours has more than 200 franchisers in India. Education is a key area in India, where there has been significant developments in franchising. In the education category NIIT is performing well. NIIT is aiming to nurture rightly skilled manpower which is industry ready and high on the employability index.
A franchiser network has to be managed, and a franchise needs to make money, so it does have its challenges like maintaining brand equity and quality of service. Many international retailers are also tapping the Indian market through franchising.