Franchising World Over and in India

World Over, franchise contracts are typically governed by the laws of the land. In the United States, franchising falls under the jurisdiction of a number of state and federal laws. Franchisors are required by the Federal Trade Commission to provide a uniform Franchise Offering Circular (UFOC), to disclose essential information to potential franchisees about their purchase. States may require the UFOC to contain specific requirements but the requirements in the state disclosure documents must be in compliance with the federal rule that governs federal regulatory policy. There is no private right of action under the FTC Rule for Franchisor violation of the rule, but fifteen or more of the states have passed statutes that provide a private right of action to franchisees when fraud can be proved under these special statutes.

In the United Kingdom, on the other hand, there are no franchise specific laws, franchises are subject to the same laws that govern other businesses. Some self regulation exists through the British Franchise Association (BFA).

Over the last 15 years, franchising as a format of retail expansion, has gradually matured international franchising is also in an interesting phase in India as global organizations like Pizza Hut, Marks and Spencer, McDonald’s, Subway, HP, Holiday Inn, Medicine shoppe, Domino’s, Old’s gym and Kentucky Fried Chicken have set up franchises in India.

Industry sources claim that, franchising in India has been clocking a 60 % year on year growth which is likely to accelerate to 100 per cent over the next five year period. In India three are close to over 40,000 franchisees with an annual turnover anywhere between Rs 8000-Rs 10,000 crores from franchising. It is estimated that the total investments made by franchisees is over Rs 5000 crores and over 300,000 people are directly employed by franchised businesses.

The Franchise showrooms of various readymade garment manufacturers like Arvind, Madura Garments, Color Plus etc and Titan perhaps the most visible successes of franchising in India. One of the pioneers in this field, in the area of beauty and personal care products has been Shahnaz Hussain. Today, the chain of Shahnaz Hussain parlors has more than 200 franchisers in India. As the economies evolves, retail as sector continues to grow, various new avenues in franchising are emerging on the Indian franchise scenario. Education is a key area in India, where there have been significant developments in franchising. The IT education sector is fairly substantial at 40%. Franchising in the IT enabled services sector stands at 14%. The portfolio in the education sector is diverse – from children education in computer basics to expertise in languages and competitive exams including foreign universities admission exams. In the education category, NIIT, Euro kids and ZLS are performing well. Instead of large pool of IT talent, NIIT is aiming to nurture rightly skilled manpower which is industry ready and high on the employability index.

Franchising is also gaining acceptance among online companies as a means to expand their network and other personalized services. is one such which is considered a success in franchising in India, with 153 centers across 87 Indian cities. saw an opportunity to further its offerings through the franchise model, and hence, launched Shaadi Point which is an example of an online business doing very well in the brick and mortar space through franchising in India.

Franchising is useful as it is characterized by quick reach, but a franchiser network has to be managed, and a franchise needs to make money, so it does have its challenges like maintaining consistency of brand, brand equity and quality of service.

Many international retailers are also tapping the Indian market through franchising. Britain’s coffee chain Costa Coffee, is one such example, who is eyeing massive expansion across the country. The international chain, which entered India in September 2005 through a master franchise, has long term plans top open 300 outlets in the next three to four years. It would be looking at an investment of over Rs 150 crore. Besides opening new stores, the coffee chain is also introducing the concept of cart and kiosk in corporate offices. While the kiosk model is a full fledged structure that serves the entire menu of Costa F&B, the cart model is a smaller version, a hot counter that serves only coffee. —