- Franchising is all about economies of scale
- Jun 2021
Franchising is all about economies of scale
There’s much more to franchising than geographical spread or an increase in the number of brand units. One needs to take a larger perspective into account
India has already arrived at a position where it can be treated as among the first 3-4 markets in franchising and yet what is missing is a significant brand. What are the reasons? Here are some of them:
Lack of Credible Systems
While the acceptability of people buying franchisees is very high, considering that we get about 1,00,000 enquiries every month, what I worry about is whether we are producing credible franchise systems. Sustainability has been a big issue in India. Consider this: Despite the fact that Indians don’t like Subway food, the brand has 850 stores through franchising in the country – not a single Indian food company has these many stores. So, clearly there has to be a sustainable businesses model.
Let People Make Money
If your business model can help people make money then that is the greatest marketing idea ever. Indira Nooyi believes that Pepsi is a franchise company and unless and until it helps franchisees in this country their business will not grow. Franchising contributes about USD 4 trillion to the global economy and about USD 35 billion in India. One of the most important things I have realised in franchising is that it is all about relationship. It is not an employer or employee or a principal agent relationship but it’s a relationship between a business owner and a business owner.
There is no definite answer to it. If your business model has a proven track record, there is enough margin in the system which you can share, and if your business model can work in other geographical locations, yes, you can franchise. The cost of capital in India is very high and so most of the business models don’t survive that cost. Franchising for an early stage company is the best form of capital. It is debt-free equity and also a form of responsible capital. It works on the OPM principal – Other People’s Money. Franchising is a Saviour in the Collective World. This means that the franchise business is about economy of scale. If you are in any product business and cannot grow, it implies that an independent business cannot survive. Now we are in a collective world where either you have to grow or have to partner with somebody or then you have to get out of the business.
Franchising for Human Resource
Why would big companies like Reliance or TATA or Mahindra and Mahindra get into the franchise business? It is because of the human resource that helps franchise stores bring in better store-to-store efficiency. India’s brand penetration is only 8% compared to Dubai’s 60% and London’s 70% or more. India is growing and people are becoming aware of what a brand stands for. Around 35% of all business buyers are those becoming entrepreneurs for the first time. India is a nation of the greatest shopkeepers.
Globally, two types of franchise models work: distribution franchise model and the business format franchising where not only the product remains the same but the way the business is going to be conducted is also the same. There are different types of franchisees like single unit, multiple unit, master and area franchising. Most times we do not really relate franchising to a diverse range of industries. Whether it’s a courier agency, petrol pump, dealership, banking, education or food – almost everything you consume is in some way related to franchising. The STD PCO from BSNL at one point of time used to be the largest franchising network in the country with 80,000 franchisees. Give that a thought!
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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