- 8-8-8 Indian Franchise Ecosystem
- Nov 2020
8-8-8 Indian Franchise Ecosystem
In the last 19 years of my involvement in the growth of the franchise industry, I have seen the franchise fraternity acting more like a catalyst for change in the entire business ecosystem not just in India but all over the world. The key factors which I call them the triple 8 rule will decide the course of action in the franchise industry in the times to come. These triple 8 rules include 8 threats, 8 opportunities and 8 business trends that will rule the roost in franchising in India.
- 1. Under capitalization – Today entrepreneurs may have the energy, ambition and enthusiasm but often lack in capital. Franchise financing is underdeveloped in India and needs more debt banking, NBFC Financing that could bring 3X growth in the industry.
- 2. Training – Companies are still passing on orthodox distribution models of training to franchisees. There is no investment in knowledge and infrastructure to give substantial training. Franchise brands need to design superior training capabilities.
- 3. Sustainability and Performance– Franchise systems need to create dividends for everyone. Adequate margin needs to be built in the franchise model for everyone to profit. More economies of scale R&D can help input costs to come down.
- 4. India Size – India is a diverse country. The apparent opportunity in diversity has its own challenges as well. The franchise model often finds it hard to define and adapt across all markets in India.
- 5. Regulation – We need regulations that are not very stringent but definitive enough to ensure the franchise industry -especially new franchise concepts that come in the market, take money from people and don’t perform are brought under jurisdiction.
- 6. Industry Status - We are in talks with Ministry of Commerce to accord industry status to franchising, that would bring talent and capital muscle to the industry.
- 7. Infrastructure – In 2003, we had the first mall. Between 2004-2009 we had 600 malls. And now we have only 12 malls in the country which are under process. So growth of real estates havs been in spikes. The industry needs good infrastructure and real estate to compliment growth in retail sector. Disproportionate Urban
- 8. Development – Urban development is not skewed towards small businesses. Like Khan Market or Bandra would need pharmacy, milk booths but rentals don’t permit for small businesses to co-exist in such locations.
- 1. Consumption Economy - In consumption focused market like India, franchise model helps brands to reach out to where the consumer demand is by engaging franchise partners in local areas.
- OPM – Franchising concept brings Other People’s Money into a business which is collateral, equity and debt free form of capital to grow businesses.
- Era of Diversification - The past few years have seen a lot of business diversification towards retail and services. While the Prime Minister Narendra Modi has a great vision for – Make in India – but actually manufacture is shrinking. At present it is 33% manufacturing and 67% service and retail, by 2020 the industry will be 80% service and retail oriented. Franchising will make the biggest impact in this area.
- New-age media – News of store launched spread like wildfire all over the country thanks to the dynamic media. Within just 15 days of launching your business you start getting franchise enquiry. Hence building franchise market by market is changing
- White Collar Jobs – Beyond 6-7 main cities there is no provision to make Rs.70,000 a month in a job in tier 2 and 3 cities. Franchising makes it possible.
- Micro Distribution – Businesses that build last mile connect will create tremendous opportunity. Whether businesses are digital or brick-n-mortar will require having a franchisee in every pin code, that are led by service oriented companies which have the promise to reach your doorstep in 20-30 minutes.
- 24/7 – Businesses that work around the clock thanks to ease in government regulation will have a definite advantage of longer working hours and face time with consumers.
- Shop keepers’ nation – In India, for every 60 Indian there is one store. But these mom-and-pop stores have realized that things are changing and brands are becoming omnipotent. And this change will bring about modernisation of retail and grow franchising.
8 DEFINING TRENDS
- 1. DIY Models - As opposed to what we say that India is a Do-it-for-me market, but in the next two to three years, India is going to be a do-ityourself market with people light models like launderettes.
- 2. Man and the truck concept - Where people drive to your house to provide product and services will be a multi-billion dollar industry catering B2B, B2C and institutional needs.
- 3. Sharing Economy – Asset -light business models that promise less fixed cost and more sweat for your asset are becoming popular. Ola and Uber have set an example.
- 4. FSOP - In a franchise business, franchisees generate income while it is the brand which is building the value. So just like ESOPs where you get a equity in the company, franchise models where the franchisee will get some equity in the parent company will emerge. It promises huge value creation for franchisee and chances of franchisee retention and make him part of growth.
- 5. Tech Connect - All the businesses including the brick and mortar can connect with technological services which will give it more engagement, predictability and analytics. E.g, Surge Pricing in Restaurants.
- 6. Celebrity Led Businesses- People rate personalities higher than industrial brands. Brands led by top chefs, sports stars, actors will be followed more by people as they believe in them.
- 7. Personalised & Globalised - Today people want more belonging to the product and to know about its origin and also demand more choice. Global products personalized to Indian needs is the future.
- 8. Cool & Innovative – Today tradition is not what people want to buy. Global iconic brands are not in demand any more as business concepts. Rather business investors relate to traditional knowledge in modern avtar.
When Agency Problems Arise
Most brands are in a hurry to spread their reach by taking franchisees on board. The aim here is to maximise profits…
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