Is the regulatory environment hampering growth?
To some extent definitely! In absence of franchise laws, there is always a sense of insecurity on both sides. Franchising business is based on mutual understanding and trust, a clearly drafted agreement with demarcated areas, advertising and promotion policy, requisite do's & don'ts, royalty and defined support assistance provides the required comfort. And in the current economic scenario a well-drafted statute on franchising would further fuel growth. However, what we have are implications under many other acts viz; Indian Contract Act, IPR Act, etc, which are in place.
What do you seek in your prospective partners?
Adequate educational background (preference is given to those from education background), social standing, non-impulsive approach, a passion for children and education, financial strength, a progressive outlook and entrepreneurial drive.
It's a great area for SMEs?
Yes, that's franchising, we have great examples of franchisees who are first time entrepreneurs.
At what point can the franchisee break even in your venture?
Our Kidzee franchisee breaks even approximately on 35 per cent capacity utilisation (it does not include the additional income from many other revenue lines which are value additions which our franchisee enjoys) with the initial fees structure. There is healthy scope both in terms of enrollment and increased fees after the centre settles down.
| What every franchisee must ask
So you want to be part of the franchise industry. Here are some quick tips that Gaurav Marya, president, Franchise India Holdings Ltd (FIHL) has for you in his book: 'The Science of Reproducing Success.' It's important to ask the right questions, he says. The responses you get, depends on the questions asked. For instance, is the franchiser a one-person company or a corporation with an experienced management that is well trained? Nothing wrong in being part of a pioneering vision, but then it does pay to be clear about where one is headed. What kind of training and equipment does the franchiser provide? Is the exclusive territory offered by the franchiser for the length of the franchise or can he sell a second or third franchise in your market area? Do you have the right of first refusal to adjacent areas? Does the prospective franchiser allow for variances in the contract, what is the nature of those variances? Now that you know what to ask, Marya also points out in his book that a franchisee must also know about disclosure statement. In the U.S, franchisers are legally bound to provide certain critical information through disclosure statement called UFOC. Though this document may not be mandatory in India, but Marya insists that one should not consider the franchise if this information is not forthcoming. A franchiser must provide the following information: |
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In another place, in the book, Marya, suggests that there might be conditions imposed by the franchiser on transferring a franchise agreement and they might require the individual to be the sole owner and operator. We could go on, but it would be worthwhile to grab you copy of the book for more. |
| The taste of India
Pizza Hut opened its first outlet in India in 1996. Today, claims to be the largest restaurant chain here with 126 outlets in 32 cities. KFC, started two years ago, has 20 restaurants in 10 cities. Ajay Bansal, director, business development, Yum Restaurants International, speaks about franchising. The food business is getting very competitive, is it easy to find franchisees? While there are a lot of players in the food business, there aren't many brands of international repute which offer a strong franchisable proposition. Further, Indians have enough entrepreneurial talent and resources to lap up the franchise opportunities in the market. Finding franchisees for an evolved brand in India is, therefore, not an issue. How can franchisees succeed? A good brand, robust franchise model and a structured training and operating process are key to success of a franchise business. Large brands spend considerable amount of resources on building processes and systems which are key to offering consistent quality to consumers across the world. It is critical to follow such systems and processes meticulously to ensure that the franchisee is successful. How do you select franchisees? Besides requisite resources, franchisees must be passionate about service industry and our brands. They must be in it for a long haul and ready to get into the details of the business. After all, retail is in detail! Experience in hospitality industry is not a pre-requisite. |
| Shining glory
It has one of the largest fully integrated diamond and jewellery manufacturing plants in the country. Mehul Choksi, chairman, Gitanjali group about his franchise plans. What is your retail strategy? In 1994 the group introduced India's first ever branded jewellery Gili, which ranks among the top-10 jewellery brands in the country. We have since launched many other brands which include Nakshatra, Asmi, Sangini, D'Damas and sub-brands as Collection G, Gold Expressions (in association with WGC) and Desire Lifestyle. These are available in over 500 retail location, which will surge drastically as we want of take branded jewellery to every nook and corner of the country. On annualized basis, we are expecting a turnover of Rs 175 crore (but there is potential to cross Rs 250 crore) from this expansion during the first year of operation. Why is jewellery franchising such a hot deal? Jewellery franchising is a new concept in the Indian market. Investment in our franchising is like directly investing in jewellery itself. Gold prices appreciate every year -- it has grown since 2001 at around 20 per cent. Diamonds, perennially being in short supply, also appreciate every year by 15 per cent. The group's existing franchisees are pleased with the results so far. When can your franchisee hope to breakeven? The breakeven point is dependent on not just the time but also on the investment amount, region and location. The sales in the jewellery industry are highly skewed due to the seasonality. A period of 18-36 months is quite a good time for any of our dealers to breakeven. |
| 'Young ones turned out to be cry-babi'
As a wholly owned subsidiary of Apollo Hospital, Apollo Health and Lifestyle Ltd (AHLL), seeks to leverage brand equity and domain knowledge through innovative facility formats. Ratan Jalan, CEO, speaks to Shamni Pande on why franchising makes sense for growth. What is your growth plan? It is encouraging to note that The Apollo Clinic and The Cradle today are recognised as trend setters of a successful business models. We have a network of 50 Apollo Clinics across the country including one in Qatar. Similarly, two Cradles, in Bangalore and Gurgaon, are scheduled to commence operations soon. How does franchising help? Resources have never been a constraint for Apollo. We believe, franchisees offers their knowledge of the local market conditions and also their entrepreneurial skills, which ensures success at diverse geographical locations. Do you go through a recruitment firm? We don't go through a recruitment firm. We spend a lot of time with our prospective franchisees and essentially assess them on parameters like their belief in the healthcare segment, their earlier business experience, people orientation, quality focus, and most importantly their commitment to success. One factor, we overlooked initially, has been the 'family' factor prevalent in India. While we assessed the 'seniors' in the family, we did not realise that the business is being set up to 'support the young one in the family'. In a few cases, the young ones turned out to be cry-babies instead of try-babies! How do you support your franchisees? In the initial phase, we provide assistance in virtually every area ranging from site selection and architecture to equipment procurement and training. Thereafter, our support is largely in the area of marketing assistance, new product development and service quality through audits and training. Are you open to giving out master franchise? Like other leading franchiser brands, we have a one-time fee and a continuing license fee. Also, we don't guarantee success or returns. At this stage, we are also reluctant to offer more than one location to the same franchisee or master franchise in the domestic markets. |
| We are family
Franchising Association of India (FAI) is only such association, which is a member of the prestigious World Franchising Council (WFC). It is connected with franchising associations of a large number of countries, which are members of WFC. C.Y. Pal, president, FAI speaks to Shamni Pande. About its vision and achievements Our vision is to be a representative body of the entire franchising community in the country and our mission is to promote the best practices in the industry. Towards this end, we conduct seminars and workshops to improve education and awareness among franchisers, franchisees (both exiting and potential) and those interested in the concept. We do this ourselves as also in collaboration with other bodies such as CII, FICCI and Assocham. We have over 200 members which include renowned companies like HLL, Kodak, Aptech, McDonalds, Pepsi, Apollo Health Care, Gold Gym amongst many others. We now have regional councils to provide services in the north and south of India and conduct events on national scale to provide a platform for new business connections. About key activities of the association FAI has come out with a quarterly newsletter 'Franchising Focus.' FAI has also tied up with 'Franchise Plus,' a bi-monthly magazine. We have also ventured into the virtual world with its website http://www.fai.co.in/, which sends out news alerts to the fraternity. On being the voice of the industry FAI provides an important forum for representing the industry related issues to the Government, banks and other related bodies. FAI has an databank of 5,000 active prospects that are pursuing franchise opportunities. Franchise opportunities are regularly sent by emails and other publications. We are lobbying with the government to relax foreign exchange payments. We have many examples of successful match making for franchisers with potential franchisees. As the industry grows in size and matures there may be a need for a separate franchising law as in some countries. Typically, such a law would cover disclosure norms for franchisers to enable franchisees to take an informed decision before entering the fray. The government is already begun to talk about this and as an association we are in contact with the concerned officials. As of now this need is served to an extent by the FAI's code of conduct which each new member signs while becoming a member. Currently the brand protection is provided by the Trade Makers Act and the important operational aspects are typically covered by a formal franchise agreement that come under the Law of Contracts. About some issues of the industry Lack of dedicated support team, high royalty payments, marketing assistance, training of franchisees, new product/ service development are some common areas where we often notice miscommunication. About the various franchising models Only the pure franchise model works, wherein the franchisee invests money and devotes 100 per cent to make it successful. Management franchise and other hybrid models have so far not been very successful. |
