Franchise India

Never Compromise on Quality

sep 2014 quality

I am 30 years old and have worked for almost a decade writing on the retail industry. Now I want to start a business of my own. All I have is the money, a great network with industry people, and I love shopping and trying new stuff. Do you think anything can work out of this?

It is not a surprise that the retail business in India is today a Rs 1,330,000-crore business. Let us just say that it spreads larger than the film and telecom industries. It has so much of potential, and it can easily be touted as a pillar of economy with its 14- to 15-per cent contribution of the GDP. Today, with an 8 per cent of organised retail, a bulk of opportunities awaits entrepreneurs eyeing to carve out their growth stories in the ever-expanding business. The time is ripe for you to start your own retail business.

By ‘love shopping and trying new stuff’ I am assuming you are hinting at the clothing retail business (it is the second largest segment sitting at Rs 1,31,300 crore). Also, it seems like you have cash reserves to start your own business, the contacts (vendors, suppliers, etc) are in place, a decade of experience and the passion to buy and to try out new clothing and accessories. The years spent in the industry should give you a head start into identifying potential customers, evaluating economic conditions, locating competition and suppliers and assessing the value of your business idea. Small retailers in your segment will be your competitors, until, of course, you are not a brand. Focus on personalised service and find an apt location to provide a brilliant service. Good luck!

From past 20 years, I am running an ice cream parlour. Actually, this has been our family business as my father used to make and sell traditional kulfis which is still running. We are quite famous in Rajkot, Gujarat, where I am based, and we have become sort of a local brand. I was thinking if I can start giving franchising as a lot of people here love our work and want to partner with us. But I don’t know as to when do businesses become big enough that they can offer franchising instead of simply opening another new branch. What can be done in this case?

It depends on business to business. The immediate next step after you qualify yourself as a franchisor is to ascertain whether you have a business that lends itself to franchising. Objectively speaking, once you have reached capital break-even, the time is ripe for the business to be called franchise-worthy. And you are there for 20 years. This is the real acid test of franchising a product or service. A franchised business must not only be profitable, but also allow enough profits after paying royalty for the franchisees to earn an adequate return on their investment of time and money.

Profitability is relative, and therefore, must be measured against investment to provide a meaningful number. Typically, a franchisee should achieve a return on investment of at least 20 per cent by the second or third year of operations. After that comes the operational break-even of the first store, which needs to be achieved before venturing out and starting a franchise. Consolidate your operations to be a franchisor. It is difficult to make accurate forecast in the initial days of your business.

As operations stabilise, you will be able to get accurate sale forecast and you should be able to adjust your ordering (procurement) accordingly. The need for attaining operational efficiency is two-fold: first, to ensure that your business operation moves smoothly, and second, you can keep a check on costs while accounting for all expenses. Keep your costs under control and know when you have to increase prices to account for increased costs. A refined prototype (operations) is necessary to demonstrate a proven system, which is generally instrumental in the training of franchisees. The prototype will also act as a testing ground for new products, services, marketing techniques, merchandising and operational efficiencies.

Subjectively speaking, the moment you feel (it could be in a couple of years of starting your business or even more) that you can sell your franchise to yourself, the time is ideal for you to get into franchising.

I am a small manufacturer of plastic products based in Mysore. I sell my products in southern region only. I have started my business few months back. Fortunately, in few weeks after starting the business, I started getting lots of orders but then it also put me under pressure to deliver on time due to manpower crunch. Gradually, I realised that in order to meet the deadline there has been a compromise on quality. How should I take care of both of them?

Never compromise on the quality of your products at all. Quality should be a major consideration. That should answer the second part of the question. To answer the first, explore outsourcing until the situation subdues. Manpower shortage is indeed a serious issue, since your company is unable to meet the growing requirements. Outsourcing is a common and
a viable option. Similarly, it will be good to have recruiting partners to supply you with part-time employees for peak seasons or periods and replacements to take care of attrition. Also efforts should be made to retain the current employees working for you.

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