Franchising the growth of organised retail

Industry figures indicate that as much as 90% of all self-started small businesses in India have floundered over the past ten years. By contrast, 85% of businesses based on the franchisee-model have been successful.

Although this system is relatively new in the country, industry insiders say it has so far proven to be a beneficial starting point for new entrepreneurs.

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“People may have ideas as well as money, but without a strong model, businesses are likely to fail when faced with cut-throat competition. A franchise is an attempt to organise an unorganised industry. Though the concept of franchising is new in India compared with the West, it has proved as an important model for any industry - at least for new entrepreneurs, or initiators,” said CEO, Franchise India Holding Ltd (FIHL), Sachin Marya. “Transparency and trust are essential factors for any franchise. So, as much as 85% of franchises in India have been successful, while 90% of individual businesses have failed,” he explained.

“In the Indian model, franchises break even after about 12-18 months. This is quite impressive, compared with other business models,” Marya added.

Globally, the franchise model is most popular in sectors such as education and training, financial services, apparel, and retail. The food segment is the major biggest, in terms of franchises, with players such as McDonald’s and Pizza Hut. In India, however, this segment is still untouched, despite the growing popularity of Indian cuisine across the world. International food brands have made handsome profits in the Indian market, while Indian brands are still to gain much exposure.

“The biggest challenge for any entrepreneur is finding the perfect location. At the same time, one cannot forget that the business is more important than the location. Nowadays, people launch businesses on the basis of location, even if they don’t have the perfect business plan. In such situations, the franchising model works better” said president, Real Estate Bank India Pvt Ltd, R Laxminarayan.

“We act as arbitrators when required, providing knowledge resources and a platform for networking. We are here to safeguard the interest of the franchise as well as the franchisor,” said Col. Upendra Sachdev, executive director of the Indian Franchise Association, in response to a query from a prospective franchise holder, or franchisee.

The association also promises to ensure that the franchising fraternity is well represented. “For a normal franchisee, it would be difficult to voice their needs and grievances to the government. However, the association will act as a proper channel for them to be heard,” Col. Sachdev added.

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Ahmedabad hosted FRO2008, the 14th instalment of India’s biggest multi-city franchise and retail show, over the weekend. The two-day event saw participation from more than 50 companies.

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While there are no precise franchise laws, Col. Sachdev says, “The selection of the franchise should be done only after proper research. The franchisee should be aware, and ask for the franchise agreement, the disclosure document and the document manual, which are the three key documents.”

He added that it was advisable for every franchisee to get the documents framed and checked by an advocate to avoid being duped.

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