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\nBy Rajshree Kukreti <\/i><\/p> \nBy Rajshree Kukreti <\/i><\/p>
\n<\/i>May 2, 2008 <\/i><\/p>
In Chennai, Vinay G Nagpal juggles cookies, hot \ndogs and steamed corn and comes up with a delicious profit. In Vadodara, Shamini \nPatel provides personalised matchmaking services at Shaadi Point, the real-world \nversion of matrimonial website www.shaadi.com. In Delhi, Pragati Rao of BrainOBrain \nteaches kids mathematics using the abacus. In Mumbai, Shabbir Poonawala sells \nMonginis cakes to tired commuters. Not one of the people mentioned are entrepreneurs \nin the strict sense of the word. Nor are they really businessmen. Rather, they \nare members of the country’s growing tribe of franchisees.<\/p>
“India \nhas literally millions of individuals who would prefer to be their own boss and \nrun a business, rather than being an employee. There are joint families, where \nresources may be available in the form of some real estate and family members \nwho can be part of the business. Personal loans are available from family and \nfriends, in the close social fabric of our communities. This is ideal ground for \nfranchising“, says Devangshu Dutta, chief executive, Third Eyesight, a consulting \nfirm focused on the retail and consumer products sector.<\/strong><\/p> People \nlike Nagpal, Rao and many other franchisees are proving Dutta right. As the case \nstudies profiled through this story proves, people running franchises come from \nvaried backgrounds – former employees, homemakers, shop or showroom owners and \neven retired professionals and employees. Nagpal was an executive with Rediffusion \nbefore he dabbled into franchising, Rao was a homemaker who liked mathematics, \nShamini Patel of Vadodara was a graphic designer-turned-wedding card maker who \nfound her calling in franchising for Shaadi Point.<\/p> An interesting feature \nof the franchising market in India is that while a large chunk of it is taken \nby franchises of foreign, mainly American, brands, small investors and small enterprises \nare happier to take franchises of home-grown companies. The McDonald’s, \nKFC, Nike and Pizza Hut franchisees are those who can afford to pay the huge franchisee \nfee and start-up costs that these companies demand. Smaller franchisees look at \ndomestic companies or relatively unknown foreign brands in areas such as computer \neducation, restaurants, health care, courier logistics, beauty parlours and apparel.<\/p> It \ndoesn’t matter what your educational or professional background is; chances \nare that you’ll find a franchise to suit you. “Since I am no businessperson, \nI thought a franchise would help me do what I love best—teach in an ambience \nand system that was to my liking,” says Jamshedpur’s Nandita Sinha, \nonce a franchisee of Erudite, a pre-MBA coaching institute.<\/p> A report released \nby Franchising Association of India (FAI) says that while franchising as a business \nmodel has been known in India for decades, there is clearly an unprecedented interest \nin adopting this model in recent times as is evident from the growth rate of 30-40% \nper year as witnessed in the last four to five years. There are already more than \n600 franchising systems operating in the country. Adds Dutta: “The \nIndian market is at a stage where franchising is a great model that allows both \nfranchiser and franchisee tremendous potential for growth.<\/strong><\/p> According \nto the FAI, the global franchise industry grew by over 18% between 2001 and 2005. \nIn a report, the president of the FAI, CY Pal, says: “In spite of the rapid \ngrowth of franchising in the recent years, it constitutes as of now about 2% of \nthe total retail sale of about $405 billion, while in developed markets, such \nas the US, franchising accounts for more than 50% of total retail sales. This \nis indicative of the enormous potential that lies ahead for the growth of franchising \nin India.”<\/p> Why Franchising<\/font><\/strong> For the franchisee, this business model makes sense, since \nhe will have to spend less on infrastructure and processes than he would have \nin an independent business. The franchiser helps the franchisee establish and \nget over teething troubles and franchisees are free to grow their operation. Expanding \nbusiness and revenues is what matters the most. Chennai’s Nagpal, for instance, \nstarted with one Cookie Man franchise. Today, in addition to Cookie Man he has \nadded HogDog and sweet corn Hot & Juicy franchises to his kitty.A franchisee \nis in an ideal position to make profits, since the business he is entering has \nalready been proven to be successful. The success or failure of the franchise \nwill then largely depend upon the franchisee. Of course, if a franchisee takes \non a franchise without conducting adequate due diligence, he might find himself \na far sight poorer.<\/p> Investments Required<\/font><\/strong> The \ngood news is that the seed capital is shared between the franchisee and franchiser. \nYou will ideally bring in the premises and some working capital, but the intellectual \nproperty (in case of educational\/software businesses) and stocks are provided \nby the brand owner on soft credit. Even better, franchisees can benefit from the \ncost savings associated with bulk purchasing power that the mother company has \naccess to. They can also benefit from the pooling of resources into effective \nlocal, regional or national marketing programmes.<\/p> Depending on the franchise, \nstock and equipment is likely to be supplied to you, along with decor and help \nwith accounting and any other training that you may need to get started. Says \nPragati Rao, a BrainOBrain franchisee in Delhi: “The franchiser provided \nme with intensive training to set up the business. Initial investments included \nthe franchise fee of Rs 65,000.” By doing this, the franchiser ensures that \nthe franchisee has few commitments, leaving him free to run the business. Shabeer \nPoonawala, a Monginis franchisee in Mumbai, says: “Monginis assisted me \nin the entire set-up, right from identifying a location, buying a suitable property \nand arranging a contractor for interior designing. They made sure everything was \nas per their standards.”<\/p>\n Compared to starting your own business, this \nkind of financial burden is light. You are paying for a part of an established \ncompany’s brand—effectively ensuring a head start on someone starting \nfrom scratch. Says Pavan Gadia, vicepresident, Ferns ’n’ Petals: “We \nprovide products worth Rs 2 lakh when a person opts for our franchisee model. \nWe also help and facilitate loans for those who looking at borrowing money and \nnot dipping into their reserves.”<\/p> Some companies use the initial sum \nto help the franchisee in building the business. Those taking up the franchise \nof Lakme Salons get the benefit of start-up fee being invested back into the business \nin the form of support.<\/p> The drawback is that the franchiser will demand \na percentage of the profits you achieve, as well as fees to retain the franchise \nlicence (see box: Who Gets What). Vivek Seigell, country head, retail, e-tail \nand consumer finance, HCL Infosystems, explains this: “The vision for the \nbusiness is set by the promoter. It is like paying a royalty for using someone \nelse’s intellectual property.” (see box: The Fundamentals) Surviving \nthe gestation period is the biggest test.<\/p> Payment to the franchiser starts \nbefore one can record the first profit. Some companies defer fee till the turnover \nis substantial. This initial handholding makes certain franchising options quite \nattractive Says Himanshu Jain, associate vice-president, \nCareer Launcher: “We train the owner and the employees for about a week \nwith our proprietary knowledge bank.” Says Meerut-based Shilpa Sarin, a \nFerns ’n’ Petals franchisee: “The biggest question running through \nmy mind was, what can the franchiser offer me as training, aid or support to run \na flower shop? But, the kind of orientation, the flexibility to source flowers \non my own, to be sure of certain quality checks, has helped me a lot. No wonder, \neven after other similar shops have opened in the vicinity, people are drawn to \nme for the quality and service that we offer.”<\/p> Sarin’s is not \na one-off case. Says Surat-based Naresh J Patel, a Monginis franchisee: “A \nbranded product definitely sells better.” Running a bakery shop of his own, \nPatel now sells under the Monginis brand and is also free to sell other products \nfrom his shop. Proven and successful franchise systems generally offer a greater \nchance of success compared to independent businesses. These systems have removed \nmost of the trial-anderror inherent in start-up operations. This advantage only \nexists, however, where the system has a proven history of successful franchising.<\/p> New \nfranchise systems, which guarantee returns and profits, and which claim to have \nopened 20 or so franchise outlets in a year or so, are neither proven nor successful. \nThese systems are like the “penny stocks” of franchising. The people \nwho promote them often share similar characteristics, and the people who buy them \noften share the same fate.<\/p> hat said, the growing popularity of franchising \nprovides a golden opportunity for today’s successful start-ups to grow their \nbusiness at a much faster pace and at much lower cost than was possible even 10 \nyears ago. Mumbai-based Dheeraj Gupta started an eatery called Jumbo King in 2001. \nThanks to franchising he has set up 45 outlets in seven years and his annual turnover \nhas zoomed from Rs 40 lakh to Rs 12 crore during the same period. So successful \nhas his franchising been that Gupta is looking at a 1,000-outlet chain in the \nnext 3-4 year with a turnover of Rs 500 crore. Says Ashish Gupta, CEO of Delhi-based \nInvest Shoppe India: “When I looked at expanding, the biggest stumbling \nblock was real estate cost, the additional responsibility of branches and running \nthe show at each of the branches. The franchisee helps in growing the business— \nthe front end is out sourced to him and the back-end headache is all ours. If \ntoday I have expanded from five outfits of my own to over 12 in all, it’s \nbecause of the franchising option.”<\/p> Most franchise companies often \nput newcomers in touch with more experienced franchisee owners for advice. Says, \nCareer Launcher’s Jain: “We have refresher and reorientation courses \nfor our franchisees, because ours is a dynamic business where trends and teaching \nmodules keep changing and evolving.”<\/p>\n Here’s where the franchise model comes up trumps again. \nAs a franchisee, you’ll have the clout of a large, often well-known, brand \nbehind you. You’ll be given all the marketing tools you need and will benefit \nfrom advertising, sometimes on a national level.<\/p> A large franchise company \nwill have dedicated marketing departments that will be able to provide you with \nall the advice and material required. Says Shaadi Point franchisee, Patel: “We \npay a royalty for every customer to the franchiser and this reduces the profits \nconsiderably but the company takes care of the entire advertising, which I cannot \nafford.”<\/p> Rakshit Hargave, business head, Lakme Salon, says: “Our \nfranchisees benefit most from Hindustan Unilever’s huge marketing scale. \nThis is one of the biggest draws for them, apart from the brand pull.” <\/p> Your \nJob<\/font><\/strong> Patel happened to be in \nthe right place at the right time. She had also done her homework thoroughly. \nAnd that, say experts, is something not all franchisees do. Only a few conduct \neven the basic due diligence, and there are very few like Abhinav Garg. A Gwalior-based \nCareer Launcher franchisee, Garg studied the market, gathered information from \nseveral sources, met innumerable franchisers, and only then decided upon Career \nLauncher. He hasn’t regretted this decision. In six years, he has grown \nfrom one centre to five centres.<\/p> It pays to do your homework before you \nmeet a prospective franchiser (see What to Check Before you Sign). Sinha, who \ninvested Rs 3 lakh in an Erudite franchise (a pre-MBA coaching institute) in Jamshedpur, \ndid little research and had to shut shop in just about a year. “I found \nit very difficult to cope with the stress that I had not foreseen in the administration \nof a franchisee. There were hidden costs that no one talked about before the agreement. \nIn retrospect, I feel I should have been more assertive while negotiating the \ndeal,” she says. Your first step is to do some research on your own to see \nthe demand for the product or service.<\/p> Take a close look at your competition \nand see how they are doing. Competition is good because it helps you to learn \nmore about the market or industry. Moreover, franchising incorporates the features \nof both a start-up and an existing operation. Therefore, aspects of both will \nbe evident in the running of your franchise company. If you are concerned about \nthe risks involved in a new, independent business venture, then franchising may \nbe the best business option for you. Remember, however, that hard work, dedication \nand sacrifice are key elements for success.<\/p> Getting a franchisee business \nof your liking is one thing and to keep it running successfully is another. Even \nthough you are the boss, you will have to undertake tasks you may not be too keen \non—book-keeping, managing staff and their rota, looking after local marketing, \namong others. Getting the company to renew your agreement when the term expires \ncan be tough if the estimated targets have not been met. This puts a question \nmark on the future of your investment.<\/p> Finally, never forget that a franchise \nis not the same as your own business. Franchisers have their own set of criteria \non how each of their outlets should look and operate. However much it feels like \nyou’re the ultimate boss on a day-to-day basis, you will always be working \nto someone else’s vision, not your own.<\/p> “The amount of freedom \nafforded varies, but you have to check with the parent what a strict no-no is \nand where you can bring in your creative business pursuits,” says Sarin. \nFor instance, you will almost certainly be briefed on how the company wants to \nbe represented, from the uniforms of staff to what suppliers to use.<\/p> You \nwill also need to check how you can expand the scope of your operations. For instance \nwhen Rao wanted to expand her BrainOBrain franchise from one outlet to another, \nthe promoter was encouraging and helped her with her second outlet. It’s \nimportant that you are comfortable with these circumstances before you purchase \nthe franchise, or you could become extremely frustrated.<\/p> Seek \nto understand, not negotiate<\/font><\/strong><\/p> For the franchise model to \nsucceed, certain rules must be followed. The franchise agreement signed by the \nfranchiser and franchisee defines many of these rules.<\/p> But can the terms \nof the franchise agreement be negotiated? Yes and no. Seasoned franchisers generally \ndo not as a rule negotiate. The only exception to this is the definition of protected \nterritory offered to the franchisee and the franchise finance terms (if the franchiser \nhas tie ups with banks for such assistance).<\/p> Franchisers do not negotiate \nthe agreement because loopholes could not only damage the brand, but also harm \nother franchisees. Also, it’s a nightmare for a franchise system if every \nfranchisee has a different contract form, terms and provisions. There’s \na significant cost to doing business this way, because every question requires \na contract review before an opinion can be given.<\/p> The key to a franchisee’s \nsuccess is understanding why a provision is included in the agreement. Most franchisers \nare willing to spend time to explain any provision in their contracts, and many \neven issue letters of clarification. Be sure to ask for an explanation of any \nclause you don’t understand. And always seek legal counsel before accepting \nthe franchise agreement.<\/p>\n","protected":false},"excerpt":{"rendered":" By Rajshree Kukreti May 2, 2008 In Chennai, Vinay G Nagpal juggles cookies, hot dogs and steamed corn and comes up with a delicious profit. In Vadodara, Shamini Patel provides personalised matchmaking services at Shaadi Point, the real-world version of matrimonial website www.shaadi.com. In Delhi, Pragati Rao of BrainOBrain teaches kids mathematics using the abacus. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-3108","post","type-post","status-publish","format-standard","hentry","category-press-quotes"],"yoast_head":"\n
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Given that the survival rate of a franchised business is more than twice \nthe survival rate of independent small businesses, it makes sense to start your \nown business riding on the back of an established and proven model. The franchise \nmodel is a great way for a franchiser to expand operations rapidly, with relatively \nlow overheads and expenses, coupled with the local expertise that franchisees \nprovide. Says marketing and brand consultant, Harish Bijoor: “The ship works \nprimarily in three formats: where both players are small, when the franchiser \nis big and the franchisee is small, and when the franchisee is big and franchiser \nis small.”<\/p>
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Says Dhawal Shah, executive officer, FAI: “This is one business opportunity \nthat you can start with Rs 50,000 onwards.” However, a good franchise costs \na bit more—at least Rs 3 lakh, going up to over Rs 25 lakh, and sometimes \nrunning into crores of rupees (see tables: Franchising Options for All).<\/p>
Franchiser Support<\/strong><\/font>
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When you set up shop, would you rather get on with running the business, \nor spend hours every day dealing with suppliers, accounts, inventory, sales and \nthe like? The former, obviously. That’s why the franchise model succeeds. \nThe franchiser gives the franchisee a proven and tested format, which can be customised \nto suit specific requirements.<\/p>
Help \nIn Publicity<\/strong><\/font>
If you set up shop on your own, it’s \npart of your job to get your message to the right audience through carefully targeted \nnewspaper, online or local cable advertising. There’s also the ongoing process \nof building and maintaining a reputation. Get this right and you will begin to \nthrive from positive recommendations from satisfied customers. But this can be \na long, timeconsuming and expensive process—and it might not have the best \nimpact anyway.<\/p>
Patel was a trained graphic designer, who decided \nto get into the business of designing and printing wedding cards in 1999. She \nbanked on the contacts and experience she had built up in her career in advertising. \nSome research showed her that an alliance with shaadi.com could help her promote \nher cards. “I had approached them to place my cards on their site and expand \nmy existing business,” she says. But the company was in the process of setting \nup Shaadi Point, and offered Patel a chance to get in early. “One trip to \nMumbai to check on an existing similar format and I was ready,” she says. \nOver the past six years, Patel has added to her infrastructure and has now has \neight computers and on an average gets 10 clients a week. Business has been so \ngood that she no longer designs wedding invites.<\/p>