Collaborating for Growth - Report on Franchising Industry in - KPMG

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Collaborating for Growth

Report on Franchising Industry in India 2013

kpmg.com/in

Message Message

I am pleased that as a part of our services and activities for the benefit of members and the Franchising Community at large we initiated a study of the Indian Franchising Industry in partnership with KPMG in India about six months ago.

The result in the form of a 'Report on Indian Franchising Industry'- 2013 preparedby KPMG in India is in your hands. As you will notice this is the first and the most authentic study report on the Franchising Industry in India and KPMG in India have done an excellent job of covering a lot of ground in term of the rapid progress made by this Industry in India so far in the context of the International scene and otherwise. The context of growth of the modern retail trade has been an important driving force. The issues and challenges before this Industry including the required Government support are well brought out. The Franchising Industry has great potential going forward and is going to be a significant contributor to GDP growth.

Franchising is clearly a rapidly growing model for business expansion in the retail sector and is going to be an increasingly important part of the growing services sector of the Indian economy in the years to come. Franchising has also got a huge potential for job creation, direct and indirect, particularly for our young and educated class besides of course providing immense entrepreneurial opportunities for young and not so young people wanting to be their 'own boss’

I hope this report will stimulate further and faster growth of the Franchising concept and the related best practices to ensure healthy growth of the Franching Industry in India.

Mr. CY PalPresidentFranchising Association of India

The World Franchise Council (WFC) is an association of 45 National Franchise Associations, whose purpose is to encourage international understanding and cooperation in the protection and promotion of franchising worldwide. Communication between representatives of world franchise organisations helps assist the members of each nation’s franchise association and in turn the economies and wellbeing of the people involved in franchising at the local and national level.

This independent analysis of the past, present and future of franchising in India will assist in a clearer understanding of the opportunities to develop the franchise business model, which can play a major role in the country’s economic development, as well as the potential to become an agent of social change. Franchising, with its multiplier effect in terms of enterprise creation and job generation, has the power to produce the needed sustainable jobs that can provide a better future for hundreds of millions of individuals all over the world. With the evidence from more than 30,000 franchise systems generating at least 2,000,000 business enterprises worldwide, franchising is a proven business strategy worldwide that can have immense positive impact on the Indian economy.

We hope that this report prepared by KPMG in partnership with Franchising Association of India, our only recognized member Association from India, will add a lot of value and be of great help for healthy and faster growth of the Franchising Industry in a large market like India.

Graham BillingsExecutive Director Franchise Association of New ZealandWorld Franchise Council General Secretariat

© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Message Message

I am pleased that as a part of our services and activities for the benefit of members and the Franchising Community at large we initiated a study of the Indian Franchising Industry in partnership with KPMG in India about six months ago.

The result in the form of a 'Report on Indian Franchising Industry'- 2013 preparedby KPMG in India is in your hands. As you will notice this is the first and the most authentic study report on the Franchising Industry in India and KPMG in India have done an excellent job of covering a lot of ground in term of the rapid progress made by this Industry in India so far in the context of the International scene and otherwise. The context of growth of the modern retail trade has been an important driving force. The issues and challenges before this Industry including the required Government support are well brought out. The Franchising Industry has great potential going forward and is going to be a significant contributor to GDP growth.

Franchising is clearly a rapidly growing model for business expansion in the retail sector and is going to be an increasingly important part of the growing services sector of the Indian economy in the years to come. Franchising has also got a huge potential for job creation, direct and indirect, particularly for our young and educated class besides of course providing immense entrepreneurial opportunities for young and not so young people wanting to be their 'own boss’

I hope this report will stimulate further and faster growth of the Franchising concept and the related best practices to ensure healthy growth of the Franching Industry in India.

Mr. CY PalPresidentFranchising Association of India

The World Franchise Council (WFC) is an association of 45 National Franchise Associations, whose purpose is to encourage international understanding and cooperation in the protection and promotion of franchising worldwide. Communication between representatives of world franchise organisations helps assist the members of each nation’s franchise association and in turn the economies and wellbeing of the people involved in franchising at the local and national level.

This independent analysis of the past, present and future of franchising in India will assist in a clearer understanding of the opportunities to develop the franchise business model, which can play a major role in the country’s economic development, as well as the potential to become an agent of social change. Franchising, with its multiplier effect in terms of enterprise creation and job generation, has the power to produce the needed sustainable jobs that can provide a better future for hundreds of millions of individuals all over the world. With the evidence from more than 30,000 franchise systems generating at least 2,000,000 business enterprises worldwide, franchising is a proven business strategy worldwide that can have immense positive impact on the Indian economy.

We hope that this report prepared by KPMG in partnership with Franchising Association of India, our only recognized member Association from India, will add a lot of value and be of great help for healthy and faster growth of the Franchising Industry in a large market like India.

Graham BillingsExecutive Director Franchise Association of New ZealandWorld Franchise Council General Secretariat


Message

The International Franchise Association is excited to see this

research on Franchising in India and commends the

Franchising Association of India and KPMG on assembling the

data to tell the success story of franchising in India. U.S.

Franchisors count India as one of their growth markets. This

research will help educate the media, government officials and

the public about the potential of franchise business to spur

economic growth in India. The Franchising Association of

India’s partnership with the International Franchise Association

and the Institute of Certified Franchise Executives (CFE)

program further shows FAI’s commitment to the growth of

franchising in India.

John Reynolds, CFE

President

IFA Educational Foundation


Message

The International Franchise Association is excited to see this

research on Franchising in India and commends the

Franchising Association of India and KPMG on assembling the

data to tell the success story of franchising in India. U.S.

Franchisors count India as one of their growth markets. This

research will help educate the media, government officials and

the public about the potential of franchise business to spur

economic growth in India. The Franchising Association of

India’s partnership with the International Franchise Association

and the Institute of Certified Franchise Executives (CFE)

program further shows FAI’s commitment to the growth of


John Reynolds, CFE

President

IFA Educational Foundation


Foreword Executive Summary

According to KPMG India estimates’, the franchising industry is expected to quadruple between 2012 and 2017. There is scope for Franchising industry to contribute almost 4% of India GDP in 2017 (assuming 6% Y-o-Y GDP growth between 2012 and 2017), growing from a current estimated contribution of 1.4 percent of GDP. This is also expected to create job opportunities (including both direct and indirect) for an additional 11 million people by 2017. While increasing consumption, willingness to spend, growing preference for branded products, global exposure and use of international brands is driving the demand side of franchising, increasing set of opportunity-driven competent entrepreneurs, growing awareness of Franchising as a business opportunity and its relative low risk profile are driving the supply of new franchisee units.

Services sector which includes Consumer services such as Financial Services, Courier Services, Health & Wellness and Food Service subsegments is expected to contribute to majority of the growth in Franchising in the next half decade. KPMG India estimates’ suggest that franchisees in these areas are expected to form around 55 percent of total estimated Franchisees in 2017. Franchising in Health & Wellness sub-segment is expected to grow to almost 6 times the current penetration. Retail (which includes sectors such as Apparel, Jewelry, Neighborhood stores, Food & Grocery) and Education are expected to be the other major areas where there is huge scope for franchising to succeed. Allowing Foreign Direct Investment (FDI) in single brand & multi-brand retail is expected to generate interest among large international players to adopt the franchising route to enter and expand in the country.

While certain operating models with-in franchising – such as Area development and Regional Master Franchisee - appear more attractive than others, diversity in Indian consumer preferences and degree of localization are expected to impact the choice of final model to be adopted.

Today, India does not have any franchising specific laws; however various generic Indian laws such as Competition laws, Indian contract Act etc are applicable on Franchising operations. Any future consolidation with formulation of franchise specific regulations in this area should allow conducive growth of franchise systems along with protection of franchisee rights. Success of franchising is also dependent on role financial institutions can play in promoting franchising. Changing dynamics in franchising industry would warrant a mindset change as well. A collaborative approach involving Franchisees, Franchisors, Financial institutions and industry associations is the need of the hour.

The analyses and point of view presented in the report have been validated through extensive discussions with industry players. We take this opportunity to thank the industry players for making this endeavor possible.

Ramesh Srinivas Head, Consumer MarketsKPMG in India

India, by witnessing huge demographic branded products, global exposure

transformation fuelled by the and use of international brands is

consumption led growth, stands as an driving adoption of the franchising

attractive destination globally for the route to growth. According to KPMG

franchising fraternity. Consumerism is in India estimates, the franchising

growing rapidly aided by high industry is expected to quadruple

population, increasing household between 2012 and 2017. There is

incomes over the last two decades. scope for the franchising industry to

Overall, the Indian economy has contribute to almost 4 percent of

witnessed a structural shift from an India’s GDP in 2017 (assuming 6

agricultural based economy to a service percent Y-o-Y GDP growth between

based economy. 2012 and 2017), growing from a

current estimated contribution of 1.4 Franchising as a concept has been percent of GDP. This is also expected prevalent in India since a long time. to create job opportunities (including However, shifting consumer trends both direct and indirect) for an including growing preference for additional 11 million people by 2017.

Franchising Market Potential

Contribution of Franchising to GDP and Employment (2012)

Source: KPMG in India AnalysisNote: Bubble size represents size of franchising sector in USD Bn in 2012 except for UK where the numbers are for 2011

People employed by franchising sector as a % of total workforce

769

131

103

0.0%

USA

Australia

Brazil

UK

Germany

Malaysia

Fran

chis

e S

ales

/ G

DP

(%)

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

8

78

20

Source: KPMG in India Analysis

Estimated franchising industry market potential (2012-2017)

2012 2017 (projected)

13.4

50.4

45

168

Val

ue (U

S$ b

illio

n)

No. of outlets ('000)

210

180

150

120

90

60

30

0

60

50

40

30

20

10

0

Both demand and supply side factors are expected to contribute to this growth.

Demand side factors

•

•

•

•

Increasing consumption and willingness to spend

Increasing purchasing power of the middle class.

Growing preference for branded and quality products among consumers

Increased global exposure and growing aspirations to adopt western culture and use international brands.

Supply side factors

•

•

•

Increasing set of opportunity-driven competent entrepreneurs

Increasing awareness of Franchising as a business opportunity and its relative low risk profile

Government initiatives such as the liberalization of FDI in retail which has allowed foreign brands to enter India.

13.4

India


Foreword Executive Summary

According to KPMG India estimates’, the franchising industry is expected to quadruple between 2012 and 2017. There is scope for Franchising industry to contribute almost 4% of India GDP in 2017 (assuming 6% Y-o-Y GDP growth between 2012 and 2017), growing from a current estimated contribution of 1.4 percent of GDP. This is also expected to create job opportunities (including both direct and indirect) for an additional 11 million people by 2017. While increasing consumption, willingness to spend, growing preference for branded products, global exposure and use of international brands is driving the demand side of franchising, increasing set of opportunity-driven competent entrepreneurs, growing awareness of Franchising as a business opportunity and its relative low risk profile are driving the supply of new franchisee units.

Services sector which includes Consumer services such as Financial Services, Courier Services, Health & Wellness and Food Service subsegments is expected to contribute to majority of the growth in Franchising in the next half decade. KPMG India estimates’ suggest that franchisees in these areas are expected to form around 55 percent of total estimated Franchisees in 2017. Franchising in Health & Wellness sub-segment is expected to grow to almost 6 times the current penetration. Retail (which includes sectors such as Apparel, Jewelry, Neighborhood stores, Food & Grocery) and Education are expected to be the other major areas where there is huge scope for franchising to succeed. Allowing Foreign Direct Investment (FDI) in single brand & multi-brand retail is expected to generate interest among large international players to adopt the franchising route to enter and expand in the country.

While certain operating models with-in franchising – such as Area development and Regional Master Franchisee - appear more attractive than others, diversity in Indian consumer preferences and degree of localization are expected to impact the choice of final model to be adopted.

Today, India does not have any franchising specific laws; however various generic Indian laws such as Competition laws, Indian contract Act etc are applicable on Franchising operations. Any future consolidation with formulation of franchise specific regulations in this area should allow conducive growth of franchise systems along with protection of franchisee rights. Success of franchising is also dependent on role financial institutions can play in promoting franchising. Changing dynamics in franchising industry would warrant a mindset change as well. A collaborative approach involving Franchisees, Franchisors, Financial institutions and industry associations is the need of the hour.

The analyses and point of view presented in the report have been validated through extensive discussions with industry players. We take this opportunity to thank the industry players for making this endeavor possible.

Ramesh Srinivas Head, Consumer MarketsKPMG in India

India, by witnessing huge demographic branded products, global exposure

transformation fuelled by the and use of international brands is

consumption led growth, stands as an driving adoption of the franchising

attractive destination globally for the route to growth. According to KPMG

franchising fraternity. Consumerism is in India estimates, the franchising

growing rapidly aided by high industry is expected to quadruple

population, increasing household between 2012 and 2017. There is

incomes over the last two decades. scope for the franchising industry to

Overall, the Indian economy has contribute to almost 4 percent of

witnessed a structural shift from an India’s GDP in 2017 (assuming 6

agricultural based economy to a service percent Y-o-Y GDP growth between

based economy. 2012 and 2017), growing from a

current estimated contribution of 1.4 Franchising as a concept has been percent of GDP. This is also expected prevalent in India since a long time. to create job opportunities (including However, shifting consumer trends both direct and indirect) for an including growing preference for additional 11 million people by 2017.

Franchising Market Potential




769

131

103

0.0%

USA

Australia

Brazil

UK

Germany

Malaysia

Fran

chis

e S

ales

/ G

DP

(%)

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

8

78

20




13.4

50.4

45

168

Val

ue (U

S$ b

illio

n)


210

180

150

120

90

60

30

0

60

50

40

30

20

10

0

Both demand and supply side factors are expected to contribute to this growth.

Demand side factors

•

•

•

•



Growing preference for branded and quality products among consumers

Increased global exposure and growing aspirations to adopt western culture and use international brands.

Supply side factors

•

•

•


Increasing awareness of Franchising as a business opportunity and its relative low risk profile

Government initiatives such as the liberalization of FDI in retail which has allowed foreign brands to enter India.

13.4

India


As per KPMG in India analysis, retail and consumer services many successful case studies of franchising in India. From

sectors are expected to emerge as high potential service franchisors such as Aptech and NIIT which have pioneered

sectors within franchising to cater to the prevailing consumption the franchising model in India to new age franchisors such

boom. Non-traditional segments such as food service, jewellery, as Gitanjali and VLCC who are adopting innovative

pre-schools etc. also present a huge opportunity for growth in expansion models within franchising, many

franchising. brands/companies are adopting the franchising model to

expand and provide a consistent and quality experience to Despite the challenges the country presents, there have been its end customers.

Franchising Opportunity: Sector Overview

Estimated Sector wise Franchising growth in India (2012-2017)

Apparel 2017

Consumer Durables 2017

Jewellery 2017

Food & Grocery 2017

F&B 2017

Health & Wellness 2017

Consumer Services 2017

Education 2017

Apparel 2012


Consumer Services 2012F&B 2012

Education 2012

Health & Wellness 2012Jewellery 2012Food & Grocery 2012

Fran

chis

ing

Mar

ket S

ize

(USD

Bill

ion)

Franchising Penetration

12

10

8

6

4

2

0

-2

-10 0 10 20 30 40 50 60 70 80

17%

20%

7.6% 10.4%

10% 6.5%

26% 23.5%

Represents the CAGR growth from 2012 - 2017X %


No-franchising Direct Area Regional Master National MasterFactor/Degree of Attractiveness

Resources For Operation

Time To Market

Profitability

Ease Of Contracting

Relationship Management

Control

Resources Deployed For Localisation

Overall Attractiveness

Low Attractiveness Low-Medium Attractiveness Medium Attractiveness Medium - High Attractiveness Very Attractive

Franchise Business Models

Firms that have created an easily replicable business model, While certain operating models within franchising – such as

often choose franchising as their preferred route to expand their area development and regional master franchisee - appear

operations and scale their brand. However, within the realm of more attractive than others, diversity in Indian consumer

franchising, there are several franchising models that differ preferences and degree of localization impact the choice of

significantly in terms of operation, control and legal scope. the final model to be adopted.


Attractiveness of India in Global Franchising

Many international brands have already entered India and are ?India is not ‘one’ market: Entering a new market

adopting the Franchise route to growth. Global brands such as becomes more complicated in case of India where

Domino’s, KFC, Baskin Robbins have adopted variations of the consumers hail from diverse cultural backgrounds.

franchise models to grow in India. Many other international Several cultures, languages and socio-economic

brands are contemplating entry plans into India. diversities make it a set of multiple markets. It

becomes a challenge for an international franchisor to However, India’s growing but fragmented market can seem

understand all diversified tastes and preferences, to chaotic and difficult to deal with. The international franchisors

establish and expand business in India.consider the following factors as challenges while entering into

India: ?Bribe and corruption: International franchisors remain

threatened with the bribe and corruption cases in India. ?Transparent Legislative framework: Due to no specific rules

Due to no legislation around ‘anti-bribe’ in India, as in or laws promulgated in India to address the functioning of

the US; it not only discourages the expansion strategies franchisors and franchisees, international players perceive a

of many brands, but also impacts India’s credibility in higher risk to business continuity.

the international market.

Franchise Industry Survey – Key Highlights

While the survey carried out by KPMG in India corroborated the primarily offers a safe and relatively easy way of

above key reasons for growth in franchising and operating establishing business and is expected to offer higher

models, it also brought out certain key findings as mentioned than market levels of profitability. This trend

below: necessitates the need for franchisors to educate the

franchisees on potential profitability and investment ?Franchisors believe that they are providing adequate support

returns from the business. Sectors such as jewellery to their franchisees; however the latter are expecting more

where payback periods could range between a support particularly in the post launch phase of operations.

minimum of four to five years are particularly vulnerable Response to another related question in the survey

to such mismatch in outlook.suggested that almost half of those interviewed were not

willing to take up additional franchisees with the existing ?Real estate rentals are posing a major challenge for the

franchisors suggesting certain level of dissatisfaction. success of franchising. Collaborative efforts between

franchisors and franchisees in structuring business ?While franchisors adopt franchising model for growth, many

models that are sustainable even under such conditions entrepreneurs are opting for the franchising route as it

could address this concern.

Regulatory Scenario

While franchising sector in India, per se is not regulated, there

are multiple laws which have an impact on franchise operations.

Any future regulations in this area should allow conducive

growth of franchise systems along with protection of franchisee

rights. KPMG India’s comments on a few areas of regulations

have been highlighted in the table below:

Parameter KPMG Comments

Specific franchising Law Franchising focused rules & regulations are expected to send a positive message to both Indian and global franchising community about the seriousness of Indian government in promoting franchising as a mainstream sector that can contribute to overall GDP growth and employment generation.

Pre-contractual disclosure norms

This will not only protect franchisee rights but also ensures that only seriousplayers consider franchising as a business model. This is expected to reduce overall risk to business continuity.

Control on royalty payments and franchisee fees

Free market pricing should be encouraged while making sure that royalty and fee payments lie within industry standards

Conflicts resolution It is critical to have a transparent dispute resolution mechanism and an independent body to address conflicts that may arise between a franchisor and franchisee

Intellectual property protection

It is important to protect intellectual property rights of all the franchisors to discourage counterfeiting brands.


Bubbles represent the Potential number of outlets required by 2017(This size corresponds to approx 20,000 outlets)


As per KPMG in India analysis, retail and consumer services many successful case studies of franchising in India. From

sectors are expected to emerge as high potential service franchisors such as Aptech and NIIT which have pioneered

sectors within franchising to cater to the prevailing consumption the franchising model in India to new age franchisors such

boom. Non-traditional segments such as food service, jewellery, as Gitanjali and VLCC who are adopting innovative

pre-schools etc. also present a huge opportunity for growth in expansion models within franchising, many

franchising. brands/companies are adopting the franchising model to

expand and provide a consistent and quality experience to Despite the challenges the country presents, there have been its end customers.

Franchising Opportunity: Sector Overview

Estimated Sector wise Franchising growth in India (2012-2017)

Apparel 2017


Jewellery 2017

Food & Grocery 2017

F&B 2017



Education 2017

Apparel 2012



Education 2012


Fran

chis

ing

Mar

ket S

ize

(USD

Bill

ion)

Franchising Penetration

12

10

8

6

4

2

0

-2

-10 0 10 20 30 40 50 60 70 80

17%

20%

7.6% 10.4%

10% 6.5%

26% 23.5%

Represents the CAGR growth from 2012 - 2017X %




Time To Market

Profitability

Ease Of Contracting


Control




Franchise Business Models

Firms that have created an easily replicable business model, While certain operating models within franchising – such as

often choose franchising as their preferred route to expand their area development and regional master franchisee - appear

operations and scale their brand. However, within the realm of more attractive than others, diversity in Indian consumer

franchising, there are several franchising models that differ preferences and degree of localization impact the choice of

significantly in terms of operation, control and legal scope. the final model to be adopted.


Attractiveness of India in Global Franchising

Many international brands have already entered India and are ?India is not ‘one’ market: Entering a new market

adopting the Franchise route to growth. Global brands such as becomes more complicated in case of India where

Domino’s, KFC, Baskin Robbins have adopted variations of the consumers hail from diverse cultural backgrounds.

franchise models to grow in India. Many other international Several cultures, languages and socio-economic

brands are contemplating entry plans into India. diversities make it a set of multiple markets. It

becomes a challenge for an international franchisor to However, India’s growing but fragmented market can seem

understand all diversified tastes and preferences, to chaotic and difficult to deal with. The international franchisors

establish and expand business in India.consider the following factors as challenges while entering into

India: ?Bribe and corruption: International franchisors remain

threatened with the bribe and corruption cases in India. ?Transparent Legislative framework: Due to no specific rules

Due to no legislation around ‘anti-bribe’ in India, as in or laws promulgated in India to address the functioning of

the US; it not only discourages the expansion strategies franchisors and franchisees, international players perceive a

of many brands, but also impacts India’s credibility in higher risk to business continuity.

the international market.

Franchise Industry Survey – Key Highlights

While the survey carried out by KPMG in India corroborated the primarily offers a safe and relatively easy way of

above key reasons for growth in franchising and operating establishing business and is expected to offer higher

models, it also brought out certain key findings as mentioned than market levels of profitability. This trend

below: necessitates the need for franchisors to educate the

franchisees on potential profitability and investment ?Franchisors believe that they are providing adequate support

returns from the business. Sectors such as jewellery to their franchisees; however the latter are expecting more

where payback periods could range between a support particularly in the post launch phase of operations.

minimum of four to five years are particularly vulnerable Response to another related question in the survey

to such mismatch in outlook.suggested that almost half of those interviewed were not

willing to take up additional franchisees with the existing ?Real estate rentals are posing a major challenge for the

franchisors suggesting certain level of dissatisfaction. success of franchising. Collaborative efforts between

franchisors and franchisees in structuring business ?While franchisors adopt franchising model for growth, many

models that are sustainable even under such conditions entrepreneurs are opting for the franchising route as it

could address this concern.

Regulatory Scenario

While franchising sector in India, per se is not regulated, there

are multiple laws which have an impact on franchise operations.

Any future regulations in this area should allow conducive

growth of franchise systems along with protection of franchisee

rights. KPMG India’s comments on a few areas of regulations

have been highlighted in the table below:

Parameter KPMG Comments

Specific franchising Law Franchising focused rules & regulations are expected to send a positive message to both Indian and global franchising community about the seriousness of Indian government in promoting franchising as a mainstream sector that can contribute to overall GDP growth and employment generation.


This will not only protect franchisee rights but also ensures that only seriousplayers consider franchising as a business model. This is expected to reduce overall risk to business continuity.


Free market pricing should be encouraged while making sure that royalty and fee payments lie within industry standards

Conflicts resolution It is critical to have a transparent dispute resolution mechanism and an independent body to address conflicts that may arise between a franchisor and franchisee




Bubbles represent the Potential number of outlets required by 2017(This size corresponds to approx 20,000 outlets)


One of the key criteria of franchisors while selecting a A comprehensive and collaborative mechanism is once

franchisee is investment capability and financial strength. This in again needed to address this issue. While lending

itself is an indicator of how difficult it is for a franchisee to tap institutions can offer innovative financial products to

the debt route to investment. Most lenders do not treat franchisees, adequate support from the franchising

franchisees as a separate customer segment and usually cover ecosystem including that of franchisors and industry

them under the ambit of the broader Small & Medium sized associations is necessary to make this a success.

Enterprise (SME) sector classification. This gets particularly

magnified in case of ‘services’ franchising where there is an

absence of asset base on which a collateral can be taken to

provide a loan.

Financing the Franchise Business

Franchisor Lending Institutions

Franchising IndustryAssociations

•

explaining the business

concept and business plan to

banks when franchisee is

availing loan

• Should consider providing first

loss default guarantee to the

lending institutions to bear

losses up to a certain specified

limit, say the first 5-10% of

loss on a franchisee loan

portfolio.

• Should come forward to

support promising

entrepreneurs by offering

initial funding or by reducing

the franchising fee

Provide increased support in

Enhancing Funding Ecosystem in Franchising

Franchisee

• Needs to prepare a robust

business plan document

describing the business

concept, business viability,

risk mitigation strategy

• Franchisees should insist on

a First Loss Default

Guarantee by the franchisor

as it would be affected

adversely right from the start

• Build and offer innovative

financial products suited to the

needs of franchisors

• Enhance their knowledge of

innovative business models

which are different from

traditional business models

and build policies and

processes to fund such

business ventures

• Need to develop detailed

understanding of the franchise

intellectual property,

associated value and

underlying cash flow while

evaluating franchisee business

• Could spearhead formation of

collective and mutual credit

guarantee consortia comprising of

franchisors, franchisees, lending

institutions and government

• Provide greater reassurance to the

lending institutions by offering

services such as due-diligence of

the franchisee business plans

• Increase awareness of innovative

asset-light business models

amongst lending institutions

• Provide a common platform for the

interaction of franchisors,

franchisees and lending

institutions



One of the key criteria of franchisors while selecting a A comprehensive and collaborative mechanism is once

franchisee is investment capability and financial strength. This in again needed to address this issue. While lending

itself is an indicator of how difficult it is for a franchisee to tap institutions can offer innovative financial products to

the debt route to investment. Most lenders do not treat franchisees, adequate support from the franchising

franchisees as a separate customer segment and usually cover ecosystem including that of franchisors and industry

them under the ambit of the broader Small & Medium sized associations is necessary to make this a success.

Enterprise (SME) sector classification. This gets particularly

magnified in case of ‘services’ franchising where there is an

absence of asset base on which a collateral can be taken to

provide a loan.

Financing the Franchise Business



•




availing loan







portfolio.


support promising



the franchising fee



Franchisee




















business ventures




















interaction of franchisors,


institutions



Contents

Franchising - Pushing India Ahead

Current market landscape for franchising in India

Case studies in the Indian Franchising Space

International Franchising Scenario

Franchise Industry Survey

Franchising Regulatory Scenario

Business Models in Franchising

Employment potential in the Franchising Industry

Financing Franchising Business

Franchising Success: Role of the government

Conclusion

Appendix

Acknowledgement

01

05

15

27

37

47

53

61

63

69

75

79

83


Contents

Franchising - Pushing India Ahead


Case studies in the Indian Franchising Space


Franchise Industry Survey



Employment potential in the Franchising Industry

Financing Franchising Business

Franchising Success: Role of the government

Conclusion

Appendix

Acknowledgement

01

05

15

27

37

47

53

61

63

69

75

79

83


02Franchising Industry in India01 Franchising Industry in India

Franchising – Pushing India ahead

02Franchising Industry in India

1 Report on Microfranchises as a Solution to World Poverty sourced from website http://marriottschool.byu.edu"."http://www.smartbrief.com/03/06/13/growing-nigerian-middle-class-spurs-franchise-expansion"

With a potential to push the Indian such as KFC, Dominos etc have

economy forward, franchising has Franchising, though as a concept is already set up franchisee outlets in

been playing a significant role in western, is not limited to the the country to tap this potential.

generating new employment (both developed nations only. It has Franchising accounts for almost 10-

in terms of numbers and job spread its mark to developing 25 percent of the GDP of most of

quality), provide revenue options for countries like India, Brazil, and China the OECD (Organization for

the government in the form of etc. Even the African nations, over Economic Cooperation and 1taxes, duties etc. Along with its the last few decades have started Development) countries.

contribution to the country's gross tasting the flavors of franchising.

domestic product (GDP), it has also Nigeria is one such country which is

helped many national and attracting a lot of attention in the

international brands to spread their Franchising space given the huge

presence in the country. consumer class. Foreign brands

International Scenario

A brief look at the chart indicates

the contribution franchising made to

GDP and employment of various

countries. While US stands

relatively high on generating

employment through the franchising

mode, Australia has been able to

generate significant income for the

country through the franchising

route. Close to 10% of Australian

GDP is contributed by Franchising in

Australia.




The following table illustrates the growth of franchising in a few countries

Country Franchisors in 2012

Growth in the last 5 years (CAGR)

Franchisee Establishments in 2012


Franchisees / Franchisor Ratio (2012)

USA

Australia

Brazil

UK

China

Malaysia

Germany

~3500

~1200

2426

929

5000

550

960

n.a

~4.2%

~15.2%

~2.8%

~7.4%

~5.5%

~1.1%

~7,50,000

~73,000

~100,000

~40,000

300,000-350,000

~13,000

~66,000

-0.6%

2.8%

9%

2.1%

22.4%

7.6%

3.4%

~213

~62

~41

~43

~24

~69

~66


769

131

103

0.0%

USA

Australia

Brazil

UK

Germany

Malaysia

Fran

chis

e Sa

les/

GD

P (%

)

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

8

78

20


13.4

India





1 Report on Microfranchises as a Solution to World Poverty sourced from website http://marriottschool.byu.edu"."http://www.smartbrief.com/03/06/13/growing-nigerian-middle-class-spurs-franchise-expansion"

With a potential to push the Indian such as KFC, Dominos etc have

economy forward, franchising has Franchising, though as a concept is already set up franchisee outlets in

been playing a significant role in western, is not limited to the the country to tap this potential.

generating new employment (both developed nations only. It has Franchising accounts for almost 10-

in terms of numbers and job spread its mark to developing 25 percent of the GDP of most of

quality), provide revenue options for countries like India, Brazil, and China the OECD (Organization for

the government in the form of etc. Even the African nations, over Economic Cooperation and 1taxes, duties etc. Along with its the last few decades have started Development) countries.

contribution to the country's gross tasting the flavors of franchising.

domestic product (GDP), it has also Nigeria is one such country which is

helped many national and attracting a lot of attention in the

international brands to spread their Franchising space given the huge

presence in the country. consumer class. Foreign brands

International Scenario

A brief look at the chart indicates

the contribution franchising made to

GDP and employment of various

countries. While US stands

relatively high on generating

employment through the franchising

mode, Australia has been able to

generate significant income for the

country through the franchising

route. Close to 10% of Australian

GDP is contributed by Franchising in

Australia.




The following table illustrates the growth of franchising in a few countries

Country Franchisors in 2012


Franchisee Establishments in 2012


Franchisees / Franchisor Ratio (2012)

USA

Australia

Brazil

UK

China

Malaysia

Germany

~3500

~1200

2426

929

5000

550

960

n.a

~4.2%

~15.2%

~2.8%

~7.4%

~5.5%

~1.1%

~7,50,000

~73,000

~100,000

~40,000

300,000-350,000

~13,000

~66,000

-0.6%

2.8%

9%

2.1%

22.4%

7.6%

3.4%

~213

~62

~41

~43

~24

~69

~66


769

131

103

0.0%

USA

Australia

Brazil

UK

Germany

Malaysia

Fran

chis

e Sa

les/

GD

P (%

)

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

8

78

20


13.4

India


03 Franchising Industry in India

Though US has seen a major

closure of establishments during

2008-2011 when they decreased

from 7.74 Mn establishments in

2008 to 7.36 Mn establishments in

2011. However the country is seeing

a reversal of the trend and has

grown by 1.5% in 2012 and 2expected to grow by 1.4% in 2013.

Brazil and China have seen relatively

higher growth both in new brands

resorting to franchising as a

business model for expansion as

well as new franchisees.

Franchisee to Franchisor Ratio

US leads other countries when it relative maturity of the concept and every franchisee also enables

comes to number of Franchisees for widespread acceptability of company to leverage economies of

every Franchisor (Brand) operating in franchising as a business model. A scale and scope.

the country. This suggests the higher number of franchisees for

Franchisee / Franchisor Ratio

213

50.0

Malaysia

Brazil

UK

Australia

China

Germany

USA

69

66

62

43

41

24

100.0 150.0 200.0 250.00.0

USA Leader in the world of franchising with around 84 of the top 100 franchised brands globally, has

seen a continuous growth as is evident in the following figure. Except for the recession years of 2008

- 09, franchising growth has exceeded the GDP growth rate. Employment generated by the

franchising sector also has been growing over the last 4 years in the US suggesting the immense

potential for the sector to contribute to job creation.

Source: http://www.tradingeconomics.com/unitedstates/gdp, Report on “The Franchise Business Economic Outlook:2012” by International Franchise Association

United States of America

Franchising Growth In USA Employment through Franchising

Sale

s (in

$ B

illio

n)

Sales ( in $ Billion) Franchising Growth (Y-O-Y)

GDP Growth Rate (Y-O-Y)

2007 2008 2009 2010 2011 2012 2013

3.1%

-3.2%

3.7%

4.9% 4.9% 4.3%4.9%

2.2%

-1.8%

3.8% 3.5%

850

800

750

700

650

600

0.1

0.05

0

-0.05

Direct Employment by Franchising Sector

Franchise Employment Growth Rate

8.40

8.25

8.10

7.95

7.80

7.65

7.50

0.50%

-2.86%

-0.26% 1.93%

2.14%

2.00%

2007 2008 2009 2010 2011 2012 2013

0.04

0.02

0

-0.02

-0.04


As corroborated by the above analysis, there is a large scope for franchising to

contribute to India's economic growth while generating employment (both direct and

indirect). Franchising as a business model also allows efficient flow of capital from the

unorganized segment into organized business. Such a model is well suited for an

emerging economy like India where there is wide spread distribution of capital.

Brazil

Brazil has seen a tremendous growth in franchising over the last decade with a CAGR of around 16%

from 2005 to 2012. The total turnover of the franchising sector in 2012 stood at $103 Billion, which is

around 4.16% of the Brazilian GDP in 2012 ($2476 Billion). The double digit growth of franchising far

exceeds the GDP growth rate as can be seen in the figure which is a proof of popularity and

acceptance of franchising in this country.

Source: http://www.tradingeconomics.com/brazil/gdp

United Kingdom

Franchise sales in the United Kingdom have seen a continuous rise over the last couple of years.

According to the British Franchise Association, the total sales from the franchising sector stood at

$20.4 Billion in 2011, up from around USD 19 Billion in 2010. The growth of the UK's franchising

sector, except in 2005 and 2008, exceeds the country's GDP growth rate. With a growth rate of

around 8% in 2011, franchising has helped the country increase revenue for the government as well

as creates more jobs for the public. With an employment potential of close to 6 lakhsin 2011, this

sector holds a lot of promise for the UK economy.

Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)"

Franchising Growth in Brazil Employment in the Franchising sector

Franchising Growth in UK Employment in the Franchising sector

Sales ( in $ Billion)

Sale

s ( i

n $

Billi

on)

Franchising Growth (Y-O-Y)

Brazillian GDP Growth Rate (Y-O-Y)

13.2% 11.0%15.6%

19.5%14.7%

20.4%17% 16.2%

3.2% 4.0% 5.7% 5.1%-0.3%

7.5%2.7% 0.9%

2005 2006 2007 2008 2009 2010 2011 2012

30.0%

20.0%

10.0%

0.0%

-10.o%

120

100

80

60

40

20

-

Direct Employment by Franchising Sector (in million)

Number of unit franchises (franchisees) (in million)

0.53 0.56 0.59 0.65

0.72 0.77

0.84 0.94

0.061 0.063 0.065 0.072 0.080 0.086 0.093 0.1

1.00

0.80

0.60

0.40

0.20

-2005 2006 2007 2008 2009 2010 2011 2012

in m

illio

n

Franchise Sales (in $ Billion) Franchising Growth (Y-O-Y)


15.7 16.4

18.9

17.3

17.9 18.9 20.4

25.0

20.0

15.0

10.0

5.0

-

in $

Bill

ion

20.0%

10.0%

0.0%

-10.0%

-20.0%

-30.0%2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011

Number of unit franchises (franchisees)

Total Employment by Franchising Sector

0.33 0.34 0.36 0.366 0.365 0.386 0.4

3.65 4.31

4.80 4.67 4.65 5.21

5.94 7.00

6.00

5.00

4.00

3.00

2.00

1.00

-

In L

akhs

2 "The Franchise BusinessEconomic Outlook: 2012 prepared by IHS Global Insight" and "http://www.franchise.org/Franchise-News-Detail.aspx?id=58916"

Source: “The Franchise Business Economic Outlook report:2012” prepared by IHS Global Insight for The International Franchise Association Educational Foundation

Source: Brazilian Franchise Association

Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)





Though US has seen a major

closure of establishments during

2008-2011 when they decreased

from 7.74 Mn establishments in

2008 to 7.36 Mn establishments in

2011. However the country is seeing

a reversal of the trend and has

grown by 1.5% in 2012 and 2expected to grow by 1.4% in 2013.

Brazil and China have seen relatively

higher growth both in new brands

resorting to franchising as a

business model for expansion as

well as new franchisees.

Franchisee to Franchisor Ratio

US leads other countries when it relative maturity of the concept and every franchisee also enables

comes to number of Franchisees for widespread acceptability of company to leverage economies of

every Franchisor (Brand) operating in franchising as a business model. A scale and scope.

the country. This suggests the higher number of franchisees for

Franchisee / Franchisor Ratio

213

50.0

Malaysia

Brazil

UK

Australia

China

Germany

USA

69

66

62

43

41

24

100.0 150.0 200.0 250.00.0

USA Leader in the world of franchising with around 84 of the top 100 franchised brands globally, has

seen a continuous growth as is evident in the following figure. Except for the recession years of 2008

- 09, franchising growth has exceeded the GDP growth rate. Employment generated by the

franchising sector also has been growing over the last 4 years in the US suggesting the immense

potential for the sector to contribute to job creation.

Source: http://www.tradingeconomics.com/unitedstates/gdp, Report on “The Franchise Business Economic Outlook:2012” by International Franchise Association

United States of America

Franchising Growth In USA Employment through Franchising

Sale

s (in

$ B

illio

n)

Sales ( in $ Billion) Franchising Growth (Y-O-Y)


2007 2008 2009 2010 2011 2012 2013

3.1%

-3.2%

3.7%

4.9% 4.9% 4.3%4.9%

2.2%

-1.8%

3.8% 3.5%

850

800

750

700

650

600

0.1

0.05

0

-0.05

Direct Employment by Franchising Sector

Franchise Employment Growth Rate

8.40

8.25

8.10

7.95

7.80

7.65

7.50

0.50%

-2.86%

-0.26% 1.93%

2.14%

2.00%

2007 2008 2009 2010 2011 2012 2013

0.04

0.02

0

-0.02

-0.04


As corroborated by the above analysis, there is a large scope for franchising to

contribute to India's economic growth while generating employment (both direct and

indirect). Franchising as a business model also allows efficient flow of capital from the

unorganized segment into organized business. Such a model is well suited for an

emerging economy like India where there is wide spread distribution of capital.

Brazil

Brazil has seen a tremendous growth in franchising over the last decade with a CAGR of around 16%

from 2005 to 2012. The total turnover of the franchising sector in 2012 stood at $103 Billion, which is

around 4.16% of the Brazilian GDP in 2012 ($2476 Billion). The double digit growth of franchising far

exceeds the GDP growth rate as can be seen in the figure which is a proof of popularity and

acceptance of franchising in this country.

Source: http://www.tradingeconomics.com/brazil/gdp

United Kingdom

Franchise sales in the United Kingdom have seen a continuous rise over the last couple of years.

According to the British Franchise Association, the total sales from the franchising sector stood at

$20.4 Billion in 2011, up from around USD 19 Billion in 2010. The growth of the UK's franchising

sector, except in 2005 and 2008, exceeds the country's GDP growth rate. With a growth rate of

around 8% in 2011, franchising has helped the country increase revenue for the government as well

as creates more jobs for the public. With an employment potential of close to 6 lakhsin 2011, this

sector holds a lot of promise for the UK economy.

Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)"

Franchising Growth in Brazil Employment in the Franchising sector

Franchising Growth in UK Employment in the Franchising sector

Sales ( in $ Billion)

Sale

s ( i

n $

Billi

on)

Franchising Growth (Y-O-Y)

Brazillian GDP Growth Rate (Y-O-Y)

13.2% 11.0%15.6%

19.5%14.7%

20.4%17% 16.2%

3.2% 4.0% 5.7% 5.1%-0.3%

7.5%2.7% 0.9%

2005 2006 2007 2008 2009 2010 2011 2012

30.0%

20.0%

10.0%

0.0%

-10.o%

120

100

80

60

40

20

-

Direct Employment by Franchising Sector (in million)

Number of unit franchises (franchisees) (in million)

0.53 0.56 0.59 0.65

0.72 0.77

0.84 0.94

0.061 0.063 0.065 0.072 0.080 0.086 0.093 0.1

1.00

0.80

0.60

0.40

0.20

-2005 2006 2007 2008 2009 2010 2011 2012

in m

illio

n

Franchise Sales (in $ Billion) Franchising Growth (Y-O-Y)


15.7 16.4

18.9

17.3

17.9 18.9 20.4

25.0

20.0

15.0

10.0

5.0

-

in $

Bill

ion

20.0%

10.0%

0.0%

-10.0%

-20.0%

-30.0%2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011

Number of unit franchises (franchisees)

Total Employment by Franchising Sector

0.33 0.34 0.36 0.366 0.365 0.386 0.4

3.65 4.31

4.80 4.67 4.65 5.21

5.94 7.00

6.00

5.00

4.00

3.00

2.00

1.00

-

In L

akhs

2 "The Franchise BusinessEconomic Outlook: 2012 prepared by IHS Global Insight" and "http://www.franchise.org/Franchise-News-Detail.aspx?id=58916"

Source: “The Franchise Business Economic Outlook report:2012” prepared by IHS Global Insight for The International Franchise Association Educational Foundation


Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)




Franchising Industry in India



Source: Centre for Monitoring Indian Economy (CMIE), Ministry of Statistics and Programming Implementation (MOSPI)

05

Structural shift in Indian economy

Agriculture Industry Services

1991? 92 2012? 13

42%

24%

44%

59%

27%

17%

06


Understanding franchising

Franchising is perhaps the most period, with or without assured Trade name franchising, where

widely used way of business financial returns to the franchisor. the franchisee uses the trademark

expansion method adopted by both The Black's Law Dictionary defines / business name of the franchisor

international and domestic players. a franchise as “a license from the in order to sell its own products or

While Indian law does not officially owner of a trademark or trade name services

define franchising, the term permitting another to sell a product

indicates a way of doing business or service under that name or Business format franchising, a

involving the use of a person mark”. combination of the other two

('franchisee'), pursuant to a license, There are three distinct types of types of franchising, using the

of another person's ('franchisor') franchising: franchisor's trademark/ business

business model, name, image and name in order to distribute the

business identity along with his/her Product distribution franchising, franchisor's goods or services.

confidential know-how to exploit involving a co-operation for the

his/her intangible assets in a distribution of goods, mostly in

particular territory for a specified the retail business

•

•

•

Since liberalization, the Indian Consequently, retail and service Today India is home to more than

economy has witnessed steady sectors are expected to play a major 3000 brands which adopt the

evolution. Consumerism has risen role in this consumption boom. The franchising model. Bata, one of the

on account of a growing young macro statistics reveal that leading footwear companies, was

population, high disposable income agriculture is no longer the chief among the first franchisors in India.

and growing urbanization. contributor to the Indian economy. Other pioneers of Indian franchising

The country is gradually moving were NIIT, Apollo Hospitals and

towards being a manufacturing and Titan Watches. In addition, today

service-based economy in last the several leading global franchise

two decades. companies, such as Dominos,

McDonald's, Yum Brands, Baskin This growth has also given impetus

Robbins and Subway, have already to a huge entrepreneurial appetite.

established a presence in India. The Over the last decade, franchising

franchise industry is expected to has surfaced as one of the most

continue to benefit greatly from prolific and feasible ways of

government support across various expanding businesses in India.

sectors through various measures Several industry verticals such as

including allowing foreign direct food and beverage, education,

investments (FDI) in single brand fashion, tourism and hospitality are

and multi-brand retail.leveraging their growth by

franchising their products under

various formats.





Source: Centre for Monitoring Indian Economy (CMIE), Ministry of Statistics and Programming Implementation (MOSPI)

05

Structural shift in Indian economy

Agriculture Industry Services

1991? 92 2012? 13

42%

24%

44%

59%

27%

17%

06


Understanding franchising

Franchising is perhaps the most period, with or without assured Trade name franchising, where

widely used way of business financial returns to the franchisor. the franchisee uses the trademark

expansion method adopted by both The Black's Law Dictionary defines / business name of the franchisor

international and domestic players. a franchise as “a license from the in order to sell its own products or

While Indian law does not officially owner of a trademark or trade name services

define franchising, the term permitting another to sell a product

indicates a way of doing business or service under that name or Business format franchising, a

involving the use of a person mark”. combination of the other two

('franchisee'), pursuant to a license, There are three distinct types of types of franchising, using the

of another person's ('franchisor') franchising: franchisor's trademark/ business

business model, name, image and name in order to distribute the

business identity along with his/her Product distribution franchising, franchisor's goods or services.

confidential know-how to exploit involving a co-operation for the

his/her intangible assets in a distribution of goods, mostly in

particular territory for a specified the retail business

•

•

•

Since liberalization, the Indian Consequently, retail and service Today India is home to more than

economy has witnessed steady sectors are expected to play a major 3000 brands which adopt the

evolution. Consumerism has risen role in this consumption boom. The franchising model. Bata, one of the

on account of a growing young macro statistics reveal that leading footwear companies, was

population, high disposable income agriculture is no longer the chief among the first franchisors in India.

and growing urbanization. contributor to the Indian economy. Other pioneers of Indian franchising

The country is gradually moving were NIIT, Apollo Hospitals and

towards being a manufacturing and Titan Watches. In addition, today

service-based economy in last the several leading global franchise

two decades. companies, such as Dominos,

McDonald's, Yum Brands, Baskin This growth has also given impetus

Robbins and Subway, have already to a huge entrepreneurial appetite.

established a presence in India. The Over the last decade, franchising

franchise industry is expected to has surfaced as one of the most

continue to benefit greatly from prolific and feasible ways of

government support across various expanding businesses in India.

sectors through various measures Several industry verticals such as

including allowing foreign direct food and beverage, education,

investments (FDI) in single brand fashion, tourism and hospitality are

and multi-brand retail.leveraging their growth by

franchising their products under

various formats.



The economic significance of Franchising market in India

Franchising contributes to the 2008, as risk-averse Indian 2012 and is expected to witness

economic growth of a nation in entrepreneurs consider it as the CAGR of 30 percent over the next 5

multiple ways such as job creation, most viable option to tap the years. This amounts to about 1.4

access to necessary goods and nation's vast consumer market. percent of the country's GDP in

services and expansion of a 2012.

country's tax base. The concept of KPMG in India estimates suggest

franchising in India has been that the Franchising business in

growing at an impressive rate since India was worth USD 13.4 billion in

KPMG in India expects both demand and supply side factors to contribute to this growth.

Demand side factors

•

•

•

•



Growing preference for branded and quality products among

consumers

Increased global exposure and growing aspirations to adopt

western culture and use international brands.

Supply side factors

•

•

•


Increasing awareness of Franchising as a business

opportunity and its relative low risk profile

Government initiatives such as the liberalization of FDI in

retail which has allowed foreign brands to enter India

Source: KPMG India Analysis

07

Key assumption: KPMG in India has considered the sectors of Retail, Food Service, Health & Wellness, Education, Consumer Services and other niche areas while estimating the franchising potential in India.

Franchise revenues growth - 30.2%

No. of franchise outlets growth - 30%



13.4

50.4

45

168

Val

ue (U

S$ b

illio

n)


210

180

150

120

90

60

30

0

60

50

40

30

20

10

0


The franchise business in India is

increasingly getting popular among

domestic and international players

across various sectors. Several

major industries credit successful

franchisees for their rapid progress.

The key industries that possess high

prospects for the successful

franchise opportunities in India are

following:

Retail franchising

Food and beverages

Health, beauty and wellness

Consumer services

Education and training

The individual growth and potential

of these industries are driving the

growth of the overall franchise

sector in India.

•

•

•

•

•

Franchise: Sector watch

Education and training:

a. Vocational training:Pre-schools:

Food service sector:

Owing to the sector and hence investments in in the country from a current base

demographics, education is one of franchising in vocational education. of around 5000 (2012).IT training (vocational programs) the most sought-after sectors by constitutes the largest size of the franchisors. The formal education education industry through sector includes pre- schools, K-12, franchising. The total franchise Higher Education, and vocational revenues from this segment in 2017 services. Within education, are expected to become 2.5 times following are the attractive sub-of that in 2012. KPMG estimates a sectors that have a potential for franchising potential of 8,500 expansion through franchising:outlets by 2017 in this segment

As per the India has large Planning Commission, in 2011, only

population of about 158.8 million about 2 percent of the existing children in the age group of 0–6 workforce in India was skilled. The

4years (~5 million since 2001). corresponding numbers for Korea, Currently, existing pre-school Germany and Japan are 96 percent, franchise businesses cater to only 75 percent, and 80 percent, about one tenth of the total children respectively. Another report by the

5in this range. The segment has high same agency states that India potential for franchising needs to create 10-15 million jobs opportunities in tier 2 and 3 cities, per year over the next decade to which lack quality education provide gainful employment to services and facilities.Indian youth. By 2020, India needs

to create employment for about 140 Our estimates suggest that million skilled workers. revenues from franchisee pre-Confederation of Indian Industry schools are expected to reach (CII) also has launched a Skills almost USD 94 million from a

The food Development Initiative, which is current value of USD 16 million. It is service industry in India is estimated aligned, to the National Skills estimated that a total of 21000 to be worth USD 48 billion in 2012, Development Agenda to skill 500 franchisee establishments may be and expected to grow at 13 percent million people by 2022.Therefore, required by 2017 to meet

6CAGR over the next 5 years.there is a huge scope of growth in the growing demand for pre-schools

4 “Major highlights of the Census 2011”, The Economic Times, accessed on 23rd April, 20135 http://www.smallenterpriseindia.com/index.php?option=com_content&view=article&id=1030:potential-sectors-for-franchising-in-2013&catid=79:top-stories&Itemid=112, accessed on 23 April, 20136 KPMG Estimates

Food & beverages

Health & Wellness

Financial services

Courier services

Consumer

Services (others)

Education

Apparel

Pharmacy

Jewelry

Food and

grocery retail

Furniture & fittings

Retail (others)

TOTAL

2012 (Estimated)

2017 (Projected)

No. of outlets

~27,000

~17,700

~19,000

~26,300

~3,800

~29,500

~6,200

~15,000

~8,300

~1,600

~2,700

~11,200

~168,000

~5,700

~2,750

~5,200

~8,600

~1,000

~8,100

~2,800

~3,000

~1,500

~330

~1,250

~4,400

~45,000

• Food & beverages

Health & Wellness

Financial services

Courier services

Consumer Services (others)

Education

Apparel

Pharmacy

Jewelry

Food and grocery retail


Retail (others)

•

•

•

•

•

•

•

•

•

•

•

2012 2017 (Projected)

32%

13%

2%3%

4%

5%

4%3%3%1%

5%

25%

US $13.4 billion

US $51 billion

9%

6%

4%3%1%

6%

21%

8%

6%

3%

11%

23%

Source: KPMG India Estimates

08

Franchise revenues and outlets growth projections

~4X growth

US $ 2900 Million

US $ 710 Million


9%

89%

26%

71%

2017- Franchise

projections

Revenues in US$ million

No. of outlets

Pre-schools 94 21000

IT training(Vocational education)

2700 8500

Others* 86 NA

*Note: Others include the segments such as trainings in multi-media and animation Source: KPMG estimates

Pre-school IT Training(Vocational education)Others



The economic significance of Franchising market in India

Franchising contributes to the 2008, as risk-averse Indian 2012 and is expected to witness

economic growth of a nation in entrepreneurs consider it as the CAGR of 30 percent over the next 5

multiple ways such as job creation, most viable option to tap the years. This amounts to about 1.4

access to necessary goods and nation's vast consumer market. percent of the country's GDP in

services and expansion of a 2012.

country's tax base. The concept of KPMG in India estimates suggest

franchising in India has been that the Franchising business in

growing at an impressive rate since India was worth USD 13.4 billion in

KPMG in India expects both demand and supply side factors to contribute to this growth.

Demand side factors

•

•

•

•



Growing preference for branded and quality products among

consumers

Increased global exposure and growing aspirations to adopt

western culture and use international brands.

Supply side factors

•

•

•


Increasing awareness of Franchising as a business

opportunity and its relative low risk profile

Government initiatives such as the liberalization of FDI in

retail which has allowed foreign brands to enter India


07

Key assumption: KPMG in India has considered the sectors of Retail, Food Service, Health & Wellness, Education, Consumer Services and other niche areas while estimating the franchising potential in India.

Franchise revenues growth - 30.2%

No. of franchise outlets growth - 30%



13.4

50.4

45

168

Val

ue (U

S$ b

illio

n)


210

180

150

120

90

60

30

0

60

50

40

30

20

10

0


The franchise business in India is

increasingly getting popular among

domestic and international players

across various sectors. Several

major industries credit successful

franchisees for their rapid progress.

The key industries that possess high

prospects for the successful

franchise opportunities in India are

following:

Retail franchising

Food and beverages


Consumer services

Education and training

The individual growth and potential

of these industries are driving the

growth of the overall franchise

sector in India.

•

•

•

•

•

Franchise: Sector watch

Education and training:

a. Vocational training:Pre-schools:

Food service sector:

Owing to the sector and hence investments in in the country from a current base

demographics, education is one of franchising in vocational education. of around 5000 (2012).IT training (vocational programs) the most sought-after sectors by constitutes the largest size of the franchisors. The formal education education industry through sector includes pre- schools, K-12, franchising. The total franchise Higher Education, and vocational revenues from this segment in 2017 services. Within education, are expected to become 2.5 times following are the attractive sub-of that in 2012. KPMG estimates a sectors that have a potential for franchising potential of 8,500 expansion through franchising:outlets by 2017 in this segment

As per the India has large Planning Commission, in 2011, only

population of about 158.8 million about 2 percent of the existing children in the age group of 0–6 workforce in India was skilled. The

4years (~5 million since 2001). corresponding numbers for Korea, Currently, existing pre-school Germany and Japan are 96 percent, franchise businesses cater to only 75 percent, and 80 percent, about one tenth of the total children respectively. Another report by the

5in this range. The segment has high same agency states that India potential for franchising needs to create 10-15 million jobs opportunities in tier 2 and 3 cities, per year over the next decade to which lack quality education provide gainful employment to services and facilities.Indian youth. By 2020, India needs

to create employment for about 140 Our estimates suggest that million skilled workers. revenues from franchisee pre-Confederation of Indian Industry schools are expected to reach (CII) also has launched a Skills almost USD 94 million from a

The food Development Initiative, which is current value of USD 16 million. It is service industry in India is estimated aligned, to the National Skills estimated that a total of 21000 to be worth USD 48 billion in 2012, Development Agenda to skill 500 franchisee establishments may be and expected to grow at 13 percent million people by 2022.Therefore, required by 2017 to meet

6CAGR over the next 5 years.there is a huge scope of growth in the growing demand for pre-schools

4 “Major highlights of the Census 2011”, The Economic Times, accessed on 23rd April, 20135 http://www.smallenterpriseindia.com/index.php?option=com_content&view=article&id=1030:potential-sectors-for-franchising-in-2013&catid=79:top-stories&Itemid=112, accessed on 23 April, 20136 KPMG Estimates

Food & beverages

Health & Wellness

Financial services

Courier services

Consumer

Services (others)

Education

Apparel

Pharmacy

Jewelry

Food and

grocery retail


Retail (others)

TOTAL

2012 (Estimated)

2017 (Projected)

No. of outlets

~27,000

~17,700

~19,000

~26,300

~3,800

~29,500

~6,200

~15,000

~8,300

~1,600

~2,700

~11,200

~168,000

~5,700

~2,750

~5,200

~8,600

~1,000

~8,100

~2,800

~3,000

~1,500

~330

~1,250

~4,400

~45,000

• Food & beverages

Health & Wellness

Financial services

Courier services

Consumer Services (others)

Education

Apparel

Pharmacy

Jewelry

Food and grocery retail


Retail (others)

•

•

•

•

•

•

•

•

•

•

•


32%

13%

2%3%

4%

5%

4%3%3%1%

5%

25%

US $13.4 billion

US $51 billion

9%

6%

4%3%1%

6%

21%

8%

6%

3%

11%

23%


08

Franchise revenues and outlets growth projections

~4X growth

US $ 2900 Million

US $ 710 Million


9%

89%

26%

71%

2017- Franchise

projections

Revenues in US$ million

No. of outlets

Pre-schools 94 21000

IT training(Vocational education)

2700 8500

Others* 86 NA

*Note: Others include the segments such as trainings in multi-media and animation Source: KPMG estimates

Pre-school IT Training(Vocational education)Others



Growth projections of the franchise penetration in key segments of the food service industry over 2012-17

Food & Beverages - Sub-categories

Quick service restaurants

Fine and casual dining

Café/Bars, Pubs

Confectionary

Kiosks / Street stalls

Share in Food service franchising revenues (2012)

Estimated additional revenues from Franchising during 2012-17 (USD million)

Share in Food service franchising outlets (2012)

Estimated potential additional outlets during 2012-17 (Nos.)

37%

35%

25%

2%

1%

~ 1,290

~1,140

~1,000

~100

~170

24%

13%

52%

3%

8%

~ 4,800

~2,700

~11,000

~600

~2,200

Total USD 731 million ~USD 4.4 billion 5700 ~27000

Franchising in new concepts such as Quick service restaurants (QSR), Café/bars and fine & casual dine is expected to see a rapid jump. Our estimates suggest an opportunity to the tune of USD 1.5 billion, USD 1.4 billion and USD 1.2 billion for franchising by 2017, in each of the three segments respectively.


sector:awareness toward hygeine and saloons. However, the same is

The market size of the wholesome lifestyle coupled with a expected to change given the

overall beauty and wellness industry surge in retail business in India. expanding base and inclusion of

in India (organized and unorganized The sector is going mainstream innovative wellness themes such as

put together) is estimated to be through franchised based business stress conditioning spas and

USD 4.5 billion in 2012. It is models. Since the sector requires specialized segments such as Tai

expected to grow at nearly 20-25 high capital investment for growth, Chi and power yoga. Consultation,

percent annually. The key industry players in this segment are diagnostic services, health

segments include Salons (60 increasingly relying on franchising to checkups and pharmacy are also

percent of total market), Fitness and scale up businesses and extend some high potential and profitable

Slimming (25 percent) and Spa reach to Tier 2 and 3 cities. franchise options in the healthcare

(includes alternate therapy with 16 sector.

percent industry share).The sector is largely unorganized;

the organized share is primarily The key drivers behind this

limited to grooming spas and exponential growth include more

Our estimates suggest that franchising is expected to grow by almost 6 to 7 times the current value by year 2017

both in value and volume terms. Franchising in this sector is expected to contribute around USD 3.2 billion in

revenues by 2017 coming from about 17000 franchisee units.


Retail sector: The retail industry billion) may be required by 2017 to

landscape in India is changing meet the growing demand in the

rapidly on the back of factors such retail sector from a current base of

as favorable demographic profile, 13000 (valued at USD 10.6 billion).

rising disposable income levels and

the industry appetite to cater to this

emerging consumption boom. The

organized retail (including Food &

Grocery) is estimated to be USD 24

billion in 2012, largely concentrated

by retail franchisors in the Apparel,

Consumer Durables and Food

Groceries space with around 80

percent share. However, India drives

only about 2.5 percent of total retail

sales (organized and unorganized)

through franchise formats, as

against nearly 50 percent in the US,

indicating huge potential for the

market in future. KPMG estimates

that over 43000 franchisee

establishments (valued at USD 36

Indian retail industry

Indian retail scenario 2012 US $445 billion

Organized retail US $24 billion

Franchise retail market US $10.6 billion

Indian retail scenario 2017 (projected) US $ 926 billion

Organized retail US $ 79 billion

Franchise retail market US $36 billion

Projected franchise penetration in Indian retail industry 2017

Apparel US $10.5 billion,

~6,200

Consumer D

urables,

Electronics

& Mobile

US $11 billion,

~7,300

Food & grocery

US $1.6 billion,

~1600

Jewelry US $2.9 billion, ~8,200

Books, Music Stationery

US $578 million, ~4,000

Furniture

& furnishings

US $5,3 billion,

~2,700

Pharmacy US $4 billion,~15,000

Projected state of retail franchise industry in India in 2017

Recent FDI reforms in single brand and multi-

brand retail are likely to lure more global

retailers to participate in India. Existing retail

majors are under pressure to consolidate and

increase their franchise network reach.

Meanwhile, several multinationals such as

IKEA, Wal-Mart are looking to establish their

brands in India. Franchising is expected to

continue to be one of the most popular

business formats among organized retailers to

tap the emerging consumption boom,

specifically in the tier 2, tier 3 and smaller

cities.

However recent clarifications issued by the

Indian government on FDI regulations in multi-

brand retail allowing foreign retailers to only

open company owned company operated

outlets could be a big blow to growth in Retail







09 10

Figures indicate franchising revenues and franchisee outlets respectively



Growth projections of the franchise penetration in key segments of the food service industry over 2012-17

Food & Beverages - Sub-categories


Fine and casual dining

Café/Bars, Pubs

Confectionary

Kiosks / Street stalls

Share in Food service franchising revenues (2012)

Estimated additional revenues from Franchising during 2012-17 (USD million)

Share in Food service franchising outlets (2012)

Estimated potential additional outlets during 2012-17 (Nos.)

37%

35%

25%

2%

1%

~ 1,290

~1,140

~1,000

~100

~170

24%

13%

52%

3%

8%

~ 4,800

~2,700

~11,000

~600

~2,200

Total USD 731 million ~USD 4.4 billion 5700 ~27000

Franchising in new concepts such as Quick service restaurants (QSR), Café/bars and fine & casual dine is expected to see a rapid jump. Our estimates suggest an opportunity to the tune of USD 1.5 billion, USD 1.4 billion and USD 1.2 billion for franchising by 2017, in each of the three segments respectively.


sector:awareness toward hygeine and saloons. However, the same is

The market size of the wholesome lifestyle coupled with a expected to change given the

overall beauty and wellness industry surge in retail business in India. expanding base and inclusion of

in India (organized and unorganized The sector is going mainstream innovative wellness themes such as

put together) is estimated to be through franchised based business stress conditioning spas and

USD 4.5 billion in 2012. It is models. Since the sector requires specialized segments such as Tai

expected to grow at nearly 20-25 high capital investment for growth, Chi and power yoga. Consultation,

percent annually. The key industry players in this segment are diagnostic services, health

segments include Salons (60 increasingly relying on franchising to checkups and pharmacy are also

percent of total market), Fitness and scale up businesses and extend some high potential and profitable

Slimming (25 percent) and Spa reach to Tier 2 and 3 cities. franchise options in the healthcare

(includes alternate therapy with 16 sector.

percent industry share).The sector is largely unorganized;

the organized share is primarily The key drivers behind this

limited to grooming spas and exponential growth include more

Our estimates suggest that franchising is expected to grow by almost 6 to 7 times the current value by year 2017

both in value and volume terms. Franchising in this sector is expected to contribute around USD 3.2 billion in

revenues by 2017 coming from about 17000 franchisee units.


Retail sector: The retail industry billion) may be required by 2017 to

landscape in India is changing meet the growing demand in the

rapidly on the back of factors such retail sector from a current base of

as favorable demographic profile, 13000 (valued at USD 10.6 billion).

rising disposable income levels and

the industry appetite to cater to this

emerging consumption boom. The

organized retail (including Food &

Grocery) is estimated to be USD 24

billion in 2012, largely concentrated

by retail franchisors in the Apparel,

Consumer Durables and Food

Groceries space with around 80

percent share. However, India drives

only about 2.5 percent of total retail

sales (organized and unorganized)

through franchise formats, as

against nearly 50 percent in the US,

indicating huge potential for the

market in future. KPMG estimates

that over 43000 franchisee

establishments (valued at USD 36

Indian retail industry

Indian retail scenario 2012 US $445 billion

Organized retail US $24 billion

Franchise retail market US $10.6 billion

Indian retail scenario 2017 (projected) US $ 926 billion

Organized retail US $ 79 billion

Franchise retail market US $36 billion

Projected franchise penetration in Indian retail industry 2017

Apparel US $10.5 billion,

~6,200

Consumer D

urables,

Electronics

& Mobile

US $11 billion,

~7,300

Food & grocery

US $1.6 billion,

~1600

Jewelry US $2.9 billion, ~8,200

Books, Music Stationery

US $578 million, ~4,000

Furniture

& furnishings

US $5,3 billion,

~2,700

Pharmacy US $4 billion,~15,000

Projected state of retail franchise industry in India in 2017

Recent FDI reforms in single brand and multi-

brand retail are likely to lure more global

retailers to participate in India. Existing retail

majors are under pressure to consolidate and

increase their franchise network reach.

Meanwhile, several multinationals such as

IKEA, Wal-Mart are looking to establish their

brands in India. Franchising is expected to

continue to be one of the most popular

business formats among organized retailers to

tap the emerging consumption boom,

specifically in the tier 2, tier 3 and smaller

cities.

However recent clarifications issued by the

Indian government on FDI regulations in multi-

brand retail allowing foreign retailers to only

open company owned company operated

outlets could be a big blow to growth in Retail







09 10

Figures indicate franchising revenues and franchisee outlets respectively



Following are the few case studies highlighting 'innovation' as one of the key success factors in franchising in the consumer services sector in India:

Segments 'Innovation' is the key Franchise spread till 2012

Car cleaning and grooming segment

3M Car Care recently launched 'germi-clean treatment” in metros, for the car owners who generally eat and spend most of their time inside their cars. This treatment ensures 99 percent decline in the microbial and bacterial growth on the mats or the upholstery of their cars.

3M operates seventeen franchisees of its car-care centers in India.

Laundry services Village Laundry Services (VLS) operates under the trade name 'Chamak' and offers affordable and high quality washing, drying, and ironing services. VLS has got funding from Procter & Gamble and Calvert (a US-based fund). Both these companies aim to build a completely new-service concept (high-quality, affordable, Laundromats) and to help low-income individuals get sustainable livelihoods.

The company operates through 20 franchise stores in southern India.

11 Franchising Industry in India 12

Consumer services: The Consumer to meet the growing demand in the opportunities for new and existing

services industry basically deals services sector. Currently it is players. Need for closer presence to

with customer-centric services, estimated that franchising in end customer is driving brands/

which means understanding new services sector contributes to companies to open new outlets in

consumer trends and requirements; almost USD 1 billion of revenues multiple locations/ catchment

and generating products and from around 15,000 outlets. regions. Franchising is seen as a

services accordingly. Innovation viable way to expand without

remains the key to service the compromising on service standards With rapid growth in consumerism industry for the franchisors; and quality. Customers can expect in India and growing brand however relatively lower similar service levels at any outlet.awareness among customers, the investments and moderate domain consumer services sector is poised knowledge suffice the business to leap in the future. The key Innovation driven consumer need. consumer services in India include services companies/ brands are also

travel services, financial services, resorting to Franchising as the route KPMG in India estimates that a total cleaning, and real-estate and to growth.of around 50,000 franchisee transaction services. These establishments (contributing USD segments give immense franchise ~4 billion) may be required by 2017

Services industry state in India


6000

4500

3000

1500

0

US$

mill

ion

834

3922

36% CAGR

387

365

55

25

2

1,991

1,572

140

185

34

Financial Services

Courier

Travel

Matrimony

Dry cleaning

Industry size in US$ billion

2017 (projected)

2012

Organized market - ~12%Franchise penetration in organized market - ~20%

Other niche sectors: The franchise KPMG in India estimates a steady

industry in India is growing rapidly in growth in the franchise penetration

multiple sectors. Despite strong in aforesaid sectors.

penetration in the retail, food Overall, the franchising industry in

service, healthcare, education and India is expected to witness an

services sectors, franchise above average growth rate over

operations have gained momentum 2012?17 across sectors. The growth

in some niche sectors. would be fuelled by rising income

Entertainment, agriculture, real- and expenditure levels of the young

estate, telecom, gaming, media, population along with the recent FDI

entertainment and personalized policy changes, economic and

services such as home cleaning are socio-cultural developments.

among emerging niche sectors.

Franchise penetration in the key service sectors


Source: Source: http://www.dnaindia.com/money/1748194/report-bright-as-a-new-car, accessed on 28 May 2013; http://articles.economictimes.indiatimes.com/2009-12-11/news/27652895_1_vls-washing-clothes-clayton-christensen, accessed on 28 May 2013.



Following are the few case studies highlighting 'innovation' as one of the key success factors in franchising in the consumer services sector in India:

Segments 'Innovation' is the key Franchise spread till 2012

Car cleaning and grooming segment

3M Car Care recently launched 'germi-clean treatment” in metros, for the car owners who generally eat and spend most of their time inside their cars. This treatment ensures 99 percent decline in the microbial and bacterial growth on the mats or the upholstery of their cars.

3M operates seventeen franchisees of its car-care centers in India.

Laundry services Village Laundry Services (VLS) operates under the trade name 'Chamak' and offers affordable and high quality washing, drying, and ironing services. VLS has got funding from Procter & Gamble and Calvert (a US-based fund). Both these companies aim to build a completely new-service concept (high-quality, affordable, Laundromats) and to help low-income individuals get sustainable livelihoods.

The company operates through 20 franchise stores in southern India.

11 Franchising Industry in India 12

Consumer services: The Consumer to meet the growing demand in the opportunities for new and existing

services industry basically deals services sector. Currently it is players. Need for closer presence to

with customer-centric services, estimated that franchising in end customer is driving brands/

which means understanding new services sector contributes to companies to open new outlets in

consumer trends and requirements; almost USD 1 billion of revenues multiple locations/ catchment

and generating products and from around 15,000 outlets. regions. Franchising is seen as a

services accordingly. Innovation viable way to expand without

remains the key to service the compromising on service standards With rapid growth in consumerism industry for the franchisors; and quality. Customers can expect in India and growing brand however relatively lower similar service levels at any outlet.awareness among customers, the investments and moderate domain consumer services sector is poised knowledge suffice the business to leap in the future. The key Innovation driven consumer need. consumer services in India include services companies/ brands are also

travel services, financial services, resorting to Franchising as the route KPMG in India estimates that a total cleaning, and real-estate and to growth.of around 50,000 franchisee transaction services. These establishments (contributing USD segments give immense franchise ~4 billion) may be required by 2017

Services industry state in India


6000

4500

3000

1500

0

US$

mill

ion

834

3922

36% CAGR

387

365

55

25

2

1,991

1,572

140

185

34

Financial Services

Courier

Travel

Matrimony

Dry cleaning

Industry size in US$ billion

2017 (projected)

2012

Organized market - ~12%Franchise penetration in organized market - ~20%

Other niche sectors: The franchise KPMG in India estimates a steady

industry in India is growing rapidly in growth in the franchise penetration

multiple sectors. Despite strong in aforesaid sectors.

penetration in the retail, food Overall, the franchising industry in

service, healthcare, education and India is expected to witness an

services sectors, franchise above average growth rate over

operations have gained momentum 2012?17 across sectors. The growth

in some niche sectors. would be fuelled by rising income

Entertainment, agriculture, real- and expenditure levels of the young

estate, telecom, gaming, media, population along with the recent FDI

entertainment and personalized policy changes, economic and

services such as home cleaning are socio-cultural developments.

among emerging niche sectors.

Franchise penetration in the key service sectors


Source: Source: http://www.dnaindia.com/money/1748194/report-bright-as-a-new-car, accessed on 28 May 2013; http://articles.economictimes.indiatimes.com/2009-12-11/news/27652895_1_vls-washing-clothes-clayton-christensen, accessed on 28 May 2013.



Franchising Opportunity Attractiveness

While there is huge potential for from 2 to 3 years, there is a higher

franchising to grow in the Retail, degree of risk of failure. This

Consumer Services and Education predominantly stems from the fact

space in India, Food Service sector that these sectors are driven by

and Health & Wellness sectors experience of end consumer and

present a great opportunity from a any gaps in providing the expected

profitability perspective. While level of experience could result in

payback periods for successful loss of customer.

franchisees in these sectors range

While market potential is huge in the retail sector, KPMG in India

estimates that franchising opportunity would be relatively high in

Consumer Services, Food Service, Education and Health &

Wellness sectors. Cumulatively these sectors have a potential to

add 1 lac franchisees in the next 5 years.

Investment VS ROI / sq ft - Volume based plot

Pre-schools

Books, Music and Stationery

Pharmacy

Financial Services

Travel Services

IT Training

Salon

Consumer Durables,

Cafe/Bar

QSR

Spa

Apparel

Furniture and Furnishing

FSR

Fitness and Slimming

Food & Grocery

Jewellery

Inve

stm

ent (

in IN

R la

khs)

100

90

80

70

60

50

40

30

20

10

-10

(500) 500 1000 1500 2000 2500

ROI / sq ft (in INR)

Bubbles represent the Potentialnumber of outlets required by 2017(This size corresponds toapprox 3,000 outlets)

13

Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013, India Retail Report 2013,Euromonitor Reports, Netscribes Report, Published Newspaper Articles, KPMG in India analysis


However market potential in absolute terms is highest for sectors with-in retail. Revenue per

square feet of area in this sector could range anywhere between INR 20000 to INR 50000.

14

Franchising growth from 2012 - 2017 (e)

ROI / sq. ft. VS Average sq. ft.

Apparel 2017


Jewellery 2017

Food & Grocery 2017

F&B 2017



Education 2017

Apparel 2012



Education 2012


Fran

chis

ee M

arke

t Siz

e (U

S $

billi

on)

Franchisee Penetration (%)

12

10

8

6

4

2

0

-2

-10 0 10 20 30 40 50 60 70 80

17%

20%

7.6% 10.4%

10% 6.5%

26% 23.5%

Represents the CAGR growth from 2012 - 2017


X %

Avg

sq

ft


Travel Services

IT Training

Salon

Consumer Durables

Cafe/Bar

QSR

Spa

Apparel


FSR


Food and Grocery

(500) - 500 1000 1500 2000 2500

1900.00

1800.00

1700.00

1600.00

1500.00

1400.00

1300.00



Bubbles size representrevenue per sq. ft.(This size corresponds toINR 8,000 per sq. ft.)



Franchising Opportunity Attractiveness

While there is huge potential for from 2 to 3 years, there is a higher

franchising to grow in the Retail, degree of risk of failure. This

Consumer Services and Education predominantly stems from the fact

space in India, Food Service sector that these sectors are driven by

and Health & Wellness sectors experience of end consumer and

present a great opportunity from a any gaps in providing the expected

profitability perspective. While level of experience could result in

payback periods for successful loss of customer.

franchisees in these sectors range

While market potential is huge in the retail sector, KPMG in India

estimates that franchising opportunity would be relatively high in

Consumer Services, Food Service, Education and Health &

Wellness sectors. Cumulatively these sectors have a potential to

add 1 lac franchisees in the next 5 years.

Investment VS ROI / sq ft - Volume based plot

Pre-schools

Books, Music and Stationery

Pharmacy

Financial Services

Travel Services

IT Training

Salon

Consumer Durables,

Cafe/Bar

QSR

Spa

Apparel


FSR


Food & Grocery

Jewellery

Inve

stm

ent (

in IN

R la

khs)

100

90

80

70

60

50

40

30

20

10

-10

(500) 500 1000 1500 2000 2500



13



However market potential in absolute terms is highest for sectors with-in retail. Revenue per

square feet of area in this sector could range anywhere between INR 20000 to INR 50000.

14

Franchising growth from 2012 - 2017 (e)

ROI / sq. ft. VS Average sq. ft.

Apparel 2017


Jewellery 2017

Food & Grocery 2017

F&B 2017



Education 2017

Apparel 2012



Education 2012


Fran

chis

ee M

arke

t Siz

e (U

S $

billi

on)

Franchisee Penetration (%)

12

10

8

6

4

2

0

-2

-10 0 10 20 30 40 50 60 70 80

17%

20%

7.6% 10.4%

10% 6.5%

26% 23.5%

Represents the CAGR growth from 2012 - 2017


X %

Avg

sq

ft


Travel Services

IT Training

Salon

Consumer Durables

Cafe/Bar

QSR

Spa

Apparel


FSR


Food and Grocery

(500) - 500 1000 1500 2000 2500

1900.00

1800.00

1700.00

1600.00

1500.00

1400.00

1300.00



Bubbles size representrevenue per sq. ft.(This size corresponds toINR 8,000 per sq. ft.)



Case studies in the Indian franchising space


Despite the challenges the country age franchisors such as quality experience to its end

presents, there have been many Makemytrip.com and VLCC who are customers. Many international

successful case studies of adopting innovating expansion brands such as McDonald's,

franchising in India. From models with-in franchising, majority Dominos, KFC, Subway, Booster

franchisors such as Aptech and NIIT of the brands/ companies are Juice have entered the country

which have pioneered the adopting the franchising model to through the franchising route.

franchising model in India to new expand and provide a consistent and


15 16





Despite the challenges the country age franchisors such as quality experience to its end

presents, there have been many Makemytrip.com and VLCC who are customers. Many international

successful case studies of adopting innovating expansion brands such as McDonald's,

franchising in India. From models with-in franchising, majority Dominos, KFC, Subway, Booster

franchisors such as Aptech and NIIT of the brands/ companies are Juice have entered the country

which have pioneered the adopting the franchising model to through the franchising route.

franchising model in India to new expand and provide a consistent and


15 16



Siyaram’s

• Siyaram has extensive presence in larger cities and is actively targeting smaller cities for expansion. It has plans to reach all Tier II and III cities. Franchising model presents Siyaram with a low cost avenue to expand presence across India, especially beyond metros.

• Siyaram’s strong brand awareness and connect with consumers act as key enablers of growth.

Accelerated growth in smaller cities

• The apparel business requires extensive knowledge of local tastes and preferences, which vary widely across India. The franchise model has helped Siyaram leverage local expertise that franchisees would bring to the table.

• Therefore, franchisees must have a good understanding of local tastes and preferences.

Leveraging local expertise

• Prior experience in the textile industry is not a must for becoming a franchisee, as the company helps franchisees in setting up operations.

• Siyaram supports franchisees in various areas, including marketing, advertising, software, store layout, inventory management and billing.

• It also assists franchisees by providing soft loans.

360 degree support to franchisees

Tailoring success for franchisees

Siyaram’s performance

1000

800

600

400

200

0

590

648

796

856

FY8 FY9 FY10 FY11 FY12

925

(INR

10 m

illio

n)

Sales Turnover

Siyaram Silk Mills (Siyaram)

Area of operations

Start of operations

Key brands

Franchise units

Presence across cities

Turnover (INR million)

Net profit (INR million)

Apparel retail

2006 (franchise)

Siyaram's, J. Hampstead,

Mistair, MSD and Oxemberg

120 (as of May 2013)

-

9251

567

Key investment considerations

Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity

800 - 1,000 square feet

INR 2.5 - 2.8 million

2 - 3 years

15 - 16 percent

Stores should be in high streets or popular shopping destination.

5 years

Siyaram has signed 27 franchise

agreements from April-May 2013.

It aims to sign 90 such agreements

until FY14.

Siyaram seeks to increase its

franchise outlets to 500 by FY17 and

sales from franchise outlets to 20 percent

(from 10 percent in 2012).

Source: Moneycontrol website, Siyaram website, The Economic Times, KPMG Analysis


Lakme Salon

Source: Images Retail (October 2012 edition), Hindu Business Line, Lakme Salon website, Reevolv Research Report (Financials), KPMG Analysis

Lakme’s performance How lakme ‘grooms’ franchisees for success

12 - Salons2000

175 - Salons

2013

• Lakme is expanding through the franchising route and 135 out of its 175 salons are operated by franchisees.

• Thirty percent of the total franchisees own multiple salons. This reflects their brand loyalty to Lakme.

• Hindustan Unilever proactively ties up with unbranded players (with a minimum scale of operations) instead of setting up operations from scratch (in addition to

the normal franchise route).

Training and support

• Lakme realizes that the success of a salon largely depends on the staff’s skills. Therefore, to train its stylists, Lakme has launched a beauty academy. Lakme has also tied-up with the beauty training company Pivot Point.

• An initiation training is conducted before a franchisee starts operations. Refresher training are carried out throughout the year to keep the staff updated.

• Apart from training, Lakme also extends managerial support to franchisees. It also helps them select sites, negotiate rents, understand standard operating procedures and design salons.

Ensuring customer loyalty

Lakme’s loyalty programs ensure repeat walk-ins, which accounts for about 80 percent of customers.

Association with industry experts

Association with industry experts is important to stay abreast with latest trends. Lakme’s association with experts such as Paul Mitchell and Lucie Doughty has helped it train stylists and introduce global trends across franchisee centers.

Area of operations

Start of operations

Key brands

No of outlets



Beauty and wellness

2000 (franchise)

Lakme Salon, Lakme Ivana

135

40

307 (FY11)

Lakme Salon (Lakme)

• Lakme is an established brand and a leading player in the beauty industry. This drives demand for Lakme products and services among consumers and strengthens its premium positioning.

• A constantly evolving service portfolio to suit consumer needs is a key USP of Lakme salons. The portfolio includes advanced facial services, new bridal looks, hair spas and other luxury treatments.

•Lakme has also launched its unisex salon format - Lakme Ivana that provides greater investment options to franchisees.

International product portfolio and range of services


INR3 - 5 million

2.5 - 3 years

More than 18 percent

Lakme seeks partners who are

interested in the business, have

a proven business track record

and are committed to local

marketing.

5 years

Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity


Source:Moneycontrol.com

Source: Images retail, Lakme website

17 18



Siyaram’s

• Siyaram has extensive presence in larger cities and is actively targeting smaller cities for expansion. It has plans to reach all Tier II and III cities. Franchising model presents Siyaram with a low cost avenue to expand presence across India, especially beyond metros.

• Siyaram’s strong brand awareness and connect with consumers act as key enablers of growth.

Accelerated growth in smaller cities

• The apparel business requires extensive knowledge of local tastes and preferences, which vary widely across India. The franchise model has helped Siyaram leverage local expertise that franchisees would bring to the table.

• Therefore, franchisees must have a good understanding of local tastes and preferences.


• Prior experience in the textile industry is not a must for becoming a franchisee, as the company helps franchisees in setting up operations.

• Siyaram supports franchisees in various areas, including marketing, advertising, software, store layout, inventory management and billing.

• It also assists franchisees by providing soft loans.

360 degree support to franchisees

Tailoring success for franchisees

Siyaram’s performance

1000

800

600

400

200

0

590

648

796

856

FY8 FY9 FY10 FY11 FY12

925

(INR

10 m

illio

n)

Sales Turnover

Siyaram Silk Mills (Siyaram)

Area of operations

Start of operations

Key brands

Franchise units




Apparel retail

2006 (franchise)

Siyaram's, J. Hampstead,

Mistair, MSD and Oxemberg

120 (as of May 2013)

-

9251

567


Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity


INR 2.5 - 2.8 million

2 - 3 years

15 - 16 percent

Stores should be in high streets or popular shopping destination.

5 years

Siyaram has signed 27 franchise

agreements from April-May 2013.

It aims to sign 90 such agreements

until FY14.

Siyaram seeks to increase its

franchise outlets to 500 by FY17 and

sales from franchise outlets to 20 percent

(from 10 percent in 2012).

Source: Moneycontrol website, Siyaram website, The Economic Times, KPMG Analysis


Lakme Salon

Source: Images Retail (October 2012 edition), Hindu Business Line, Lakme Salon website, Reevolv Research Report (Financials), KPMG Analysis

Lakme’s performance How lakme ‘grooms’ franchisees for success

12 - Salons2000

175 - Salons

2013

• Lakme is expanding through the franchising route and 135 out of its 175 salons are operated by franchisees.

• Thirty percent of the total franchisees own multiple salons. This reflects their brand loyalty to Lakme.

• Hindustan Unilever proactively ties up with unbranded players (with a minimum scale of operations) instead of setting up operations from scratch (in addition to

the normal franchise route).


• Lakme realizes that the success of a salon largely depends on the staff’s skills. Therefore, to train its stylists, Lakme has launched a beauty academy. Lakme has also tied-up with the beauty training company Pivot Point.

• An initiation training is conducted before a franchisee starts operations. Refresher training are carried out throughout the year to keep the staff updated.

• Apart from training, Lakme also extends managerial support to franchisees. It also helps them select sites, negotiate rents, understand standard operating procedures and design salons.

Ensuring customer loyalty

Lakme’s loyalty programs ensure repeat walk-ins, which accounts for about 80 percent of customers.

Association with industry experts

Association with industry experts is important to stay abreast with latest trends. Lakme’s association with experts such as Paul Mitchell and Lucie Doughty has helped it train stylists and introduce global trends across franchisee centers.

Area of operations

Start of operations

Key brands

No of outlets



Beauty and wellness

2000 (franchise)

Lakme Salon, Lakme Ivana

135

40

307 (FY11)

Lakme Salon (Lakme)

• Lakme is an established brand and a leading player in the beauty industry. This drives demand for Lakme products and services among consumers and strengthens its premium positioning.

• A constantly evolving service portfolio to suit consumer needs is a key USP of Lakme salons. The portfolio includes advanced facial services, new bridal looks, hair spas and other luxury treatments.

•Lakme has also launched its unisex salon format - Lakme Ivana that provides greater investment options to franchisees.

International product portfolio and range of services


INR3 - 5 million

2.5 - 3 years


Lakme seeks partners who are

interested in the business, have

a proven business track record

and are committed to local

marketing.

5 years

Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity


Source:Moneycontrol.com

Source: Images retail, Lakme website

17 18



VLCC

Source: Images Retail (October 2012 edition), Hindu Business Line, ICRA (Financials), VLCC website, KPMG Analysis

VLCC’s performance How VLCC ‘shapes’ success amongst franchisees

500

400

300

200

100

0

FY11 FY12

(INR

10 m

illio

n)

Sales Turnover

• VLCC provides free startup training to franchisee staff in areas such as products, services, operations and client handling.

• VLCC also supports them in other areas such as selecting sites, developing projects, recruiting staff, launching centers, procuring equipment and marketing.

• VLCC maintains a stringent system of quality control through its team of dieticians, beauticians and operations experts, who visit franchisee centers regularly to conduct checks and audits.



1,700 - 1,800 square feet (VC)

900 - 1,000 square feet (VS)

INR4.1 - 4.4 million (VC)


16 - 18 months (VS)

14 percent of sales

(payable monthly)

40 percent in the initial 4 - 5

years, improves thereon

Area requirements

Investment

Break-even period

Royalty

Expected ROI

Streamlined franchisee approval process

Filling out application forms

Reviewing application forms

Reviewing financial capability

Interviewing franchisees

Understanding their conviction and businessThe selection procedure is quite streamlined and plays an important role in

the selection of franchisees. It involves gauging franchisees’ understanding of

the business and their conviction to ensure that VLCC’s brand value is maintained.

Approving franchisees

Signing agreements

Awarding licenses

As of August 2012, 25 percent of VLCC’s 160 slimming, beauty and fitness centers were franchisee run.

VLCC plans to setup 300 wellness centers by 2015.

As of August 2012, 12 out of 51 VLCC Beauty and Nutrition Institutes were operated by franchisees.

VLCC is present in countries such as UAE, Nepal, Sri Lanka and Bangladesh. It is exploring new franchise

opportunities in Pakistan, Sri Lanka and Bangladesh.

Quick expansion of network is a key reason for adoption of franchising route by VLCC.

Area of operations

Start of operations

Key brands

No of outlets




Beauty and wellness

2007 (franchise)

VLCC Salon (VS),

VLCC Centre (VC)

56 (as of August 2012)

-

4760 (FY12)

260 (FY12)

VLCC

Source: ICRA

Source: Company website


Aptech

Aptech’s performance Why Aptech ‘clicks’ with partners

Aptech

Area of operations

Start of operations

Key brands

No of outlets




Computer education

1990 (franchise)

Arena Animation, Aptech

Hardware and Network

Academy, Aptech Aviation

and Hospitality Academy

1186

-

909.5 (FY12)

182 (FY12)

It is one of the few franchisers that has over 20 years of experience of starting and operating more than 1,100

franchise centers globally, growing from 754 centers in April 2010.

Aptech’s fast expanding franchisee network has helped it establish the brand in five continents.

100

50

0

FY11 FY12

(INR

10 m

illio

n)

94.15 90.95

Sales Turnover Operating Profit Reported Net Profit

Franchisees are supported in many areas including formulating business plans, selecting sites, designing centers, selecting equipment and staff sand imparting technical training.

Concerted efforts to get the business running

For a competent and consistent service delivery, Aptech follows a strict recruitment process that requires franchisees to adhere to about 40 parameters, including investment potential, area, location and passion for education.

Strong selection process

Source: Moneycontrol website, Aptech website, Building social capital with Aptech’s Vidya (USAID publication), KPMG Analysis


Area requirements

Investment

ROI

Break-even period

Other requirements

1200 - 2000 square feet

INR1.5 - 2.2 million depending on city tier

18 - 23 percent

12 - 18 months

Management of day to day operations and marketing Aptech courses in city.

• Due to various legal and regulatory issues in different countries, Aptech has adapted its existing franchise model (where all centers are independently owned) to expand abroad through:

• Master franchise model where all centers are owned by Aptech

• Joint ventures and wholly owned subsidiaries

Different business models for global expansionCountry Model

Vietnam

Nepal

Indonesia

China

Sudan

Bangladesh

Master franchisee

Master franchisee and individual center

Master franchisee

Joint venture

Master franchisee

Subsidiary

• Aptech imparts professional training through a range of brands such as Aptech Computer Education and Arena Animation. It provides several options to prospective franchisees to choose from, depending on local demands, investment potential and partners’ interests.

• This has been a critical factor for Aptech’s growth within India as well as in 40 countries.

• Aptech updates courses and trains instructors regularly to meet the requirements of the dynamic IT industry.

Flexibility to choose from among a wide range of brands

• To ensure quality service delivery, Aptech put the processes and systems for service delivery were in place before adopting the franchising model.

• Aptech started operations in 1986 but its first franchisee center opened in 1990.

• Aptech centers serve as ‘models’ for franchise centers and help them adopt established processes.

• It has also established mechanisms to control and monitor franchisees. These include conducting financial audits, closely controlling course material and training instructors regularly.

Formalizing systems to support scalability

Source: Moneycontrol.com

20



VLCC

Source: Images Retail (October 2012 edition), Hindu Business Line, ICRA (Financials), VLCC website, KPMG Analysis

VLCC’s performance How VLCC ‘shapes’ success amongst franchisees

500

400

300

200

100

0

FY11 FY12

(INR

10 m

illio

n)

Sales Turnover

• VLCC provides free startup training to franchisee staff in areas such as products, services, operations and client handling.

• VLCC also supports them in other areas such as selecting sites, developing projects, recruiting staff, launching centers, procuring equipment and marketing.

• VLCC maintains a stringent system of quality control through its team of dieticians, beauticians and operations experts, who visit franchisee centers regularly to conduct checks and audits.



1,700 - 1,800 square feet (VC)


INR4.1 - 4.4 million (VC)


16 - 18 months (VS)

14 percent of sales

(payable monthly)

40 percent in the initial 4 - 5

years, improves thereon

Area requirements

Investment

Break-even period

Royalty

Expected ROI

Streamlined franchisee approval process

Filling out application forms

Reviewing application forms

Reviewing financial capability

Interviewing franchisees

Understanding their conviction and businessThe selection procedure is quite streamlined and plays an important role in

the selection of franchisees. It involves gauging franchisees’ understanding of

the business and their conviction to ensure that VLCC’s brand value is maintained.

Approving franchisees

Signing agreements

Awarding licenses

As of August 2012, 25 percent of VLCC’s 160 slimming, beauty and fitness centers were franchisee run.

VLCC plans to setup 300 wellness centers by 2015.

As of August 2012, 12 out of 51 VLCC Beauty and Nutrition Institutes were operated by franchisees.

VLCC is present in countries such as UAE, Nepal, Sri Lanka and Bangladesh. It is exploring new franchise

opportunities in Pakistan, Sri Lanka and Bangladesh.

Quick expansion of network is a key reason for adoption of franchising route by VLCC.

Area of operations

Start of operations

Key brands

No of outlets




Beauty and wellness

2007 (franchise)

VLCC Salon (VS),

VLCC Centre (VC)

56 (as of August 2012)

-

4760 (FY12)

260 (FY12)

VLCC

Source: ICRA



Aptech

Aptech’s performance Why Aptech ‘clicks’ with partners

Aptech

Area of operations

Start of operations

Key brands

No of outlets




Computer education

1990 (franchise)

Arena Animation, Aptech

Hardware and Network

Academy, Aptech Aviation

and Hospitality Academy

1186

-

909.5 (FY12)

182 (FY12)

It is one of the few franchisers that has over 20 years of experience of starting and operating more than 1,100

franchise centers globally, growing from 754 centers in April 2010.

Aptech’s fast expanding franchisee network has helped it establish the brand in five continents.

100

50

0

FY11 FY12

(INR

10 m

illio

n)

94.15 90.95


Franchisees are supported in many areas including formulating business plans, selecting sites, designing centers, selecting equipment and staff sand imparting technical training.

Concerted efforts to get the business running

For a competent and consistent service delivery, Aptech follows a strict recruitment process that requires franchisees to adhere to about 40 parameters, including investment potential, area, location and passion for education.

Strong selection process

Source: Moneycontrol website, Aptech website, Building social capital with Aptech’s Vidya (USAID publication), KPMG Analysis


Area requirements

Investment

ROI

Break-even period

Other requirements

1200 - 2000 square feet

INR1.5 - 2.2 million depending on city tier

18 - 23 percent

12 - 18 months

Management of day to day operations and marketing Aptech courses in city.

• Due to various legal and regulatory issues in different countries, Aptech has adapted its existing franchise model (where all centers are independently owned) to expand abroad through:

• Master franchise model where all centers are owned by Aptech

• Joint ventures and wholly owned subsidiaries

Different business models for global expansionCountry Model

Vietnam

Nepal

Indonesia

China

Sudan

Bangladesh

Master franchisee

Master franchisee and individual center

Master franchisee

Joint venture

Master franchisee

Subsidiary

• Aptech imparts professional training through a range of brands such as Aptech Computer Education and Arena Animation. It provides several options to prospective franchisees to choose from, depending on local demands, investment potential and partners’ interests.

• This has been a critical factor for Aptech’s growth within India as well as in 40 countries.

• Aptech updates courses and trains instructors regularly to meet the requirements of the dynamic IT industry.

Flexibility to choose from among a wide range of brands

• To ensure quality service delivery, Aptech put the processes and systems for service delivery were in place before adopting the franchising model.

• Aptech started operations in 1986 but its first franchisee center opened in 1990.

• Aptech centers serve as ‘models’ for franchise centers and help them adopt established processes.

• It has also established mechanisms to control and monitor franchisees. These include conducting financial audits, closely controlling course material and training instructors regularly.

Formalizing systems to support scalability


20



Segment

Start of operations

Key brands

No of outlets




Makemytrip’s performance

Makemytrip.com

Source: Huffington post, Cspnet website, News Articles, KPMG Analysis

FY 11 FY 12

500000

0

20000

0

Sales turnoverAdjusted operating profitAdjusted net profit

000 US $

The number of franchise outlets have grown from 0 in 2009 to 51 in 2012.

30-35 percent of MMT’s holiday packages are sold through offline outlets, majority of which are franchise outlets (72 percent of the outlets in 2012).

MMT is looking for overseas expansion in regions such as south east Asia through growing number of franchisees in India.

Understanding MMT’s flight to success

Makemytrip.com (MMT)

Online travel portal

2009 (franchise)

Makemytrip.com

51 (2012)

-

196.6 (FY12)

8.9 (FY12)

000

US

$

500–700 square feet

INR1–1.5 million

1–1.5 years

INR0.4–1 million depending on city tier.

Preferably located on main road or high street.

3 years

Area requirements

Investment

Break-even period

Royalty

Other requirements

Agreement validity


Successfully targeting the ‘click-averse’ consumer

• MMT’s franchise partners are a part of MMT’s hybrid expansion model to help serve those consumers who are more comfortable planning holidays offline. These are typically consumers looking for personal interaction and would not have ideally opted for the online option.

Strategy for geographic expansion

• Franchising has given MMT access to key Indian markets such as Ahmadabad, Kolkata and Bangalore. •As on May 2013, MMT is looking to expand further in cities such as Mangalore, Gandhidham, Kohlapur and Patiala through the franchising route.

• Service quality is one of the most important factors that differentiates MMT’s franchise partners with key competitors such as offline travel agents. • This is enabled through franchisee training which includes:• Standard training on products and destination guides.• Close involvement if MMT’s service delivery team with the franchisee.• Periodical trainings before peak holiday season.• Consistency in service quality is maintained through regular audits at the franchise outlets.

Focus on quality

Associating with the right partners

• Focus on recruiting the right set of partners is the key to success of a franchising model. This becomes even more important in a specialized service sector like travel. Few important criteria for MMT’s franchisee appointment include:• Passion for travel industry.• Proven business track record and management skills.• Ability to invest the necessary capital.

• To enhance demand, MMT supports its franchise partners through:• Designing stores optimally• Managing store launch and creating awareness in the area.• Carrying out local promotional activities such as road shows and mall events.

Other support


Area of operations

Start of operations

Key brands

Franchise units




DTDC’s performance

DTDC

Source: Moneycontrol website, DTDC website, The Economic Times, Business Today Magazine, KPMG Analysis

DTDC

Courier and cargo

1990 (franchise)

DTDC

More than 5800

-

4250 (Fy12)

200 (Fy12)


Category A: INR150,000Category B: INR100,000Category C: INR 50,000(A – Metros; B,C – Smaller cities)

4–9 months


Premises should be ground floor.

2–4 depending on category

Area

Investment

Break-even period

Expected ROI

Other requirements

Staff


FY 11 FY 10 FY 9FY 8 FY 12

193

220

239.5

307.5

424500

0

Sales turnover

(INR

10 m

illio

n

Close to 6,000 franchise partners growing in number at 5-10 percent per annum, form the backbone of DTDC’s success.

DTDC has presence across 12 countries with 300 offices in countries such as the UK, the US, Australia and Singapore driven by growth in franchisees. It is looking to expand network into countries such as Pakistan, Indonesia, Malaysia and Thailand.

How DTDC ‘delivers’ success

• DTDC’s USP is the low-cost franchise opportunity it offers prospective partners. Its franchise model is focused on enhancing geographical reach through partnerships with small businessmen across India.

• The investment requirement is INR75,000-100,000*• In addition, DTDC tries to ensure that its partners start getting cash inflows

from the first month itself. • Educational qualifications is not a barrier to partnership as in other sectors

like education.

• DTDC’s international expansion aims to create logistics channels with countries which are India’s top trade partners or are home to large Indian diaspora. The resultant two-way traffic is intended to benefit the domestic partners as well.

• DTDC has also realized the potential of upcoming growth opportunities such as e-commerce and is actively pursuing the same. It has created a specialist entity – DotZot to cater to e-tailers by actively promoting premium services such as 24 hour delivery to drive business growth.

DTDC’s franchising model sits well with its area of operation, since it utilizes the expertise and knowledge of local partners. This has resulted in:Timely delivery of parcelsCredible serviceReduced costs for DTDC

• DTDC has established a robust pan-India presence through a mix of different franchise types:• Super/master/single franchise: Deal with day to day logistics

operations.• Corporate franchise: Consist of experienced industry individuals who

promote DTDC product and services. This format requires office space for operations.


Robust structure to complement access

Low-cost entrepreneurship model

Tapping growth opportunities

Super franchise: Carries out additional responsibilities

such as business development and client servicing. Typically represent a

district within a region.

Master franchise: Handles the reporting of one or more of single units and typically

represent an area within the city.

Single units: Cover a small territory or a pin code. These constitute 95 percent of network

and 75 percent of revenues.




21 22



Segment

Start of operations

Key brands

No of outlets




Makemytrip’s performance

Makemytrip.com

Source: Huffington post, Cspnet website, News Articles, KPMG Analysis

FY 11 FY 12

500000

0

20000

0

Sales turnoverAdjusted operating profitAdjusted net profit

000 US $

The number of franchise outlets have grown from 0 in 2009 to 51 in 2012.

30-35 percent of MMT’s holiday packages are sold through offline outlets, majority of which are franchise outlets (72 percent of the outlets in 2012).

MMT is looking for overseas expansion in regions such as south east Asia through growing number of franchisees in India.

Understanding MMT’s flight to success

Makemytrip.com (MMT)

Online travel portal

2009 (franchise)

Makemytrip.com

51 (2012)

-

196.6 (FY12)

8.9 (FY12)

000

US

$


INR1–1.5 million

1–1.5 years

INR0.4–1 million depending on city tier.

Preferably located on main road or high street.

3 years

Area requirements

Investment

Break-even period

Royalty

Other requirements

Agreement validity


Successfully targeting the ‘click-averse’ consumer

• MMT’s franchise partners are a part of MMT’s hybrid expansion model to help serve those consumers who are more comfortable planning holidays offline. These are typically consumers looking for personal interaction and would not have ideally opted for the online option.

Strategy for geographic expansion

• Franchising has given MMT access to key Indian markets such as Ahmadabad, Kolkata and Bangalore. •As on May 2013, MMT is looking to expand further in cities such as Mangalore, Gandhidham, Kohlapur and Patiala through the franchising route.

• Service quality is one of the most important factors that differentiates MMT’s franchise partners with key competitors such as offline travel agents. • This is enabled through franchisee training which includes:• Standard training on products and destination guides.• Close involvement if MMT’s service delivery team with the franchisee.• Periodical trainings before peak holiday season.• Consistency in service quality is maintained through regular audits at the franchise outlets.

Focus on quality

Associating with the right partners

• Focus on recruiting the right set of partners is the key to success of a franchising model. This becomes even more important in a specialized service sector like travel. Few important criteria for MMT’s franchisee appointment include:• Passion for travel industry.• Proven business track record and management skills.• Ability to invest the necessary capital.

• To enhance demand, MMT supports its franchise partners through:• Designing stores optimally• Managing store launch and creating awareness in the area.• Carrying out local promotional activities such as road shows and mall events.

Other support


Area of operations

Start of operations

Key brands

Franchise units




DTDC’s performance

DTDC

Source: Moneycontrol website, DTDC website, The Economic Times, Business Today Magazine, KPMG Analysis

DTDC

Courier and cargo

1990 (franchise)

DTDC

More than 5800

-

4250 (Fy12)

200 (Fy12)


Category A: INR150,000Category B: INR100,000Category C: INR 50,000(A – Metros; B,C – Smaller cities)

4–9 months


Premises should be ground floor.

2–4 depending on category

Area

Investment

Break-even period

Expected ROI

Other requirements

Staff


FY 11 FY 10 FY 9FY 8 FY 12

193

220

239.5

307.5

424500

0

Sales turnover

(INR

10 m

illio

n

Close to 6,000 franchise partners growing in number at 5-10 percent per annum, form the backbone of DTDC’s success.

DTDC has presence across 12 countries with 300 offices in countries such as the UK, the US, Australia and Singapore driven by growth in franchisees. It is looking to expand network into countries such as Pakistan, Indonesia, Malaysia and Thailand.

How DTDC ‘delivers’ success

• DTDC’s USP is the low-cost franchise opportunity it offers prospective partners. Its franchise model is focused on enhancing geographical reach through partnerships with small businessmen across India.

• The investment requirement is INR75,000-100,000*• In addition, DTDC tries to ensure that its partners start getting cash inflows

from the first month itself. • Educational qualifications is not a barrier to partnership as in other sectors

like education.

• DTDC’s international expansion aims to create logistics channels with countries which are India’s top trade partners or are home to large Indian diaspora. The resultant two-way traffic is intended to benefit the domestic partners as well.

• DTDC has also realized the potential of upcoming growth opportunities such as e-commerce and is actively pursuing the same. It has created a specialist entity – DotZot to cater to e-tailers by actively promoting premium services such as 24 hour delivery to drive business growth.

DTDC’s franchising model sits well with its area of operation, since it utilizes the expertise and knowledge of local partners. This has resulted in:Timely delivery of parcelsCredible serviceReduced costs for DTDC

• DTDC has established a robust pan-India presence through a mix of different franchise types:• Super/master/single franchise: Deal with day to day logistics

operations.• Corporate franchise: Consist of experienced industry individuals who

promote DTDC product and services. This format requires office space for operations.


Robust structure to complement access

Low-cost entrepreneurship model

Tapping growth opportunities

Super franchise: Carries out additional responsibilities

such as business development and client servicing. Typically represent a

district within a region.

Master franchise: Handles the reporting of one or more of single units and typically

represent an area within the city.

Single units: Cover a small territory or a pin code. These constitute 95 percent of network

and 75 percent of revenues.




21 22



Area of operations

Start of operations

Key brands

No of outlets


Jumbo king’s performance

Jumbo King

Source: Hindu Business Line, ISI Company Profile (Financials), Jumbo Kong website, KPMG Analysis

Jumbo King (JK)

Food retailing

2004 (franchise)

Jumbo King

50

58.5 (FY11)

The number of franchise outlets has grown from 45 (in October 2012) to over 50 (as of May 2013).

The company plans to grow to 200 stores by 2015 and is focusing on the master franchising model to establish presence in cities such as Bangalore, Aurangabad, Nagpur, Bhopal and Surat.

Recipe for success

Core factor – Jumbo King’s master franchise model

300 square feet (Single franchise)

INR1.2 million (Single franchise)

About 7

Shop should be in prime location with high footfalls as the format is of on-the-go service.

Area requirements

Investment

Staff requirement

Other requirements

Key investment considerationsLocation

• JK targets prime locations

with high footfalls, such as railways stations for setting up

outlets. •JK’s franchisee relation team offers support in site election

and rent/price negotiation to ensure best locations at optimum costs. • JK also supports a joint ownership model where multiple individuals can open a franchise

outlet. This also helps in overcoming the cost constraint

typically associated with owning/renting

prime locations.

Standardizing quality

• The USP of Jumbo King is hygienic food, and with

pan-India presence it is important that consistency in food quality is

maintained across outlets. • To ensure consistency, Jumbo

King has outsourced all manufacturing so that there is no

difference in quality of food offered.

Jumbo King’s Master Franchisee (MF) model

MF required for a city with population over one million.

1

30 stores to be opened in five years, 5 store stores to be retained remaining can be sub-franchised.

2

MF should be able to support 10-30 stores in the city.

3

MF to act as company’s sole representative for the region.

4

Innovative royalty system

Jumbo King follows a more decentralized franchisee model, unlike most other players in the sector. A master franchisee can get the right to sub-license Jumbo King in his area and expand his presence. A master franchisee also contributes to Jumbo King’s regional marketing program and localization of the menu.

Increasing ownership of partners

FY 11 FY 10

4.835.85

8

6

4

2

0

RevenuesIN

R 10

mill

ion

• After expanding through single-unit franchises in areas such as Mumbai, Jumbo King, in 2008, decided to focus on master franchising rather than single-unit franchising. A master franchisee is required invest in a minimum of 5 single-unit outlets (directly under his control).

• A key reason for opting for MFs is the business stability that larger players can offer compared to smaller players.

• The small outlet size also permits franchisees to diversify investment (by investing in multiple outlets) and minimize risk unlike other QSR formats where franchisee invests in a single outlet.

23 24Franchising Industry in India

Archies performance

Archies

Source: Moneycontrol website, Archies website, KPMG Analysis

• Archies has more than 350 franchisee stores in more than 100 cities.

Area of operations

Start of operations

Key brands

No of outlets




Archies

Retailer (cards and

gifting)

1992 (franchise)

Archies, Hallmark,

Paper Rose

More than 350

(franchise)

More than 100 cities

2018.6 (FY12)

95 (Fy12)

• Archies plans to add about 25 franchisees to its network each year.

• Archies’ revenue has doubled from INR1.17 billion in FY08 to INR2 billion in FY12 driven by growth in the franchise business.

FY 11 FY 10 FY 9FY 8 FY 12

250

200

150

100

50

0

Sales turnover

(INR

10 m

illio

n

118

139

156

188

202

How archies unwrapped success with its franchise model

Minimum 500 square feet, with minimum 15 feet frontage (Archies)Minimum 300 square feet, with minimum 10 feet frontage (Paper Rose)

INR1.4 million (Archies)INR0.9-1 million (Paper Rose)

3 years

30–40 percent on MRP

3–4

Prime location in the city/mall

3 years

Area requirements

Investment

Break-even period

Expected ROI

Staff requirement

Other requirements

Agreement validity

Key investment considerations360 degree support

The franchisee is given support in all possible areas relevant to setting up of a store – location assessment, advertising, training, store launch, IT support , setting up supply chain, etc.

Targeting the right size and location

• Location is important for retailers belonging to a niche segment such as gifting. Archies’ franchisees have been critical to growth of the company because of their ability to overcome problems typically associated with acquiring the right property needed for a store.

• To provide greater options to franchisees, Archies operates through two formats with different store size and investment requirements – Archies Gallery (requiring a minimum of 500 square feet) and Paper Rose (requiring a minimum of 300 square feet).

Hand-holding franchisees during incubation phase

• Archies invests a lot of time and effort to support the franchisees during the incubation period, especially since the franchisee may not have huge experience in a niche segment such as retailing.

• About 45 days spent to develop shop layout and interiors.• Visits to best Archies stores to understand best practices• Experienced employees assist in operations during initial days.

Exclusive offerings to drive business growth

Archies has exclusive tie-ups with global players such as Cow Parade, Russ Barrie, Keel Toys, Carte Blanche and Paper Island which provides its franchisees with a unique product range to support business growth.





Area of operations

Start of operations

Key brands

No of outlets


Jumbo king’s performance

Jumbo King

Source: Hindu Business Line, ISI Company Profile (Financials), Jumbo Kong website, KPMG Analysis

Jumbo King (JK)

Food retailing

2004 (franchise)

Jumbo King

50

58.5 (FY11)

The number of franchise outlets has grown from 45 (in October 2012) to over 50 (as of May 2013).

The company plans to grow to 200 stores by 2015 and is focusing on the master franchising model to establish presence in cities such as Bangalore, Aurangabad, Nagpur, Bhopal and Surat.

Recipe for success

Core factor – Jumbo King’s master franchise model

300 square feet (Single franchise)

INR1.2 million (Single franchise)

About 7

Shop should be in prime location with high footfalls as the format is of on-the-go service.

Area requirements

Investment

Staff requirement

Other requirements

Key investment considerationsLocation

• JK targets prime locations

with high footfalls, such as railways stations for setting up

outlets. •JK’s franchisee relation team offers support in site election

and rent/price negotiation to ensure best locations at optimum costs. • JK also supports a joint ownership model where multiple individuals can open a franchise

outlet. This also helps in overcoming the cost constraint

typically associated with owning/renting

prime locations.

Standardizing quality

• The USP of Jumbo King is hygienic food, and with

pan-India presence it is important that consistency in food quality is

maintained across outlets. • To ensure consistency, Jumbo

King has outsourced all manufacturing so that there is no

difference in quality of food offered.

Jumbo King’s Master Franchisee (MF) model

MF required for a city with population over one million.

1

30 stores to be opened in five years, 5 store stores to be retained remaining can be sub-franchised.

2

MF should be able to support 10-30 stores in the city.

3

MF to act as company’s sole representative for the region.

4


Jumbo King follows a more decentralized franchisee model, unlike most other players in the sector. A master franchisee can get the right to sub-license Jumbo King in his area and expand his presence. A master franchisee also contributes to Jumbo King’s regional marketing program and localization of the menu.

Increasing ownership of partners

FY 11 FY 10

4.835.85

8

6

4

2

0

Revenues

INR

10 m

illio

n

• After expanding through single-unit franchises in areas such as Mumbai, Jumbo King, in 2008, decided to focus on master franchising rather than single-unit franchising. A master franchisee is required invest in a minimum of 5 single-unit outlets (directly under his control).

• A key reason for opting for MFs is the business stability that larger players can offer compared to smaller players.

• The small outlet size also permits franchisees to diversify investment (by investing in multiple outlets) and minimize risk unlike other QSR formats where franchisee invests in a single outlet.


Archies performance

Archies

Source: Moneycontrol website, Archies website, KPMG Analysis

• Archies has more than 350 franchisee stores in more than 100 cities.

Area of operations

Start of operations

Key brands

No of outlets




Archies

Retailer (cards and

gifting)

1992 (franchise)

Archies, Hallmark,

Paper Rose

More than 350

(franchise)

More than 100 cities

2018.6 (FY12)

95 (Fy12)

• Archies plans to add about 25 franchisees to its network each year.

• Archies’ revenue has doubled from INR1.17 billion in FY08 to INR2 billion in FY12 driven by growth in the franchise business.

FY 11 FY 10 FY 9FY 8 FY 12

250

200

150

100

50

0

Sales turnover(IN

R 10

mill

ion

118

139

156

188

202

How archies unwrapped success with its franchise model

Minimum 500 square feet, with minimum 15 feet frontage (Archies)Minimum 300 square feet, with minimum 10 feet frontage (Paper Rose)

INR1.4 million (Archies)INR0.9-1 million (Paper Rose)

3 years

30–40 percent on MRP

3–4

Prime location in the city/mall

3 years

Area requirements

Investment

Break-even period

Expected ROI

Staff requirement

Other requirements

Agreement validity

Key investment considerations360 degree support

The franchisee is given support in all possible areas relevant to setting up of a store – location assessment, advertising, training, store launch, IT support , setting up supply chain, etc.

Targeting the right size and location

• Location is important for retailers belonging to a niche segment such as gifting. Archies’ franchisees have been critical to growth of the company because of their ability to overcome problems typically associated with acquiring the right property needed for a store.

• To provide greater options to franchisees, Archies operates through two formats with different store size and investment requirements – Archies Gallery (requiring a minimum of 500 square feet) and Paper Rose (requiring a minimum of 300 square feet).

Hand-holding franchisees during incubation phase

• Archies invests a lot of time and effort to support the franchisees during the incubation period, especially since the franchisee may not have huge experience in a niche segment such as retailing.

• About 45 days spent to develop shop layout and interiors.• Visits to best Archies stores to understand best practices• Experienced employees assist in operations during initial days.

Exclusive offerings to drive business growth

Archies has exclusive tie-ups with global players such as Cow Parade, Russ Barrie, Keel Toys, Carte Blanche and Paper Island which provides its franchisees with a unique product range to support business growth.





NIIT’S performance

NIIT

Area of operations

Start of operations

Key brands

No of outlets



Net profit (INR million

NIIT

Computer education

1986 (franchise)

NIIT

More than 1000 (as

of April 2012)

-

7381.3 (FY12)

962.5 (FY12)

FY 11 FY 12

(INR

10 m

illio

n)


FY 10FY 9FY 8

800

600

400

200

0

Franchise presence of about 1000 education centers across 40 nations.

NIIT provides computer-based learning to over 15000 government schools through the franchise model.


INR1.5–2 million

1–2 years

-

Need to carefully consider which offerings to go for. These include NIIT Yuva, NIIT Imperia, etc.

3 years

Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity


Source: Moneycontrol website, NIIT website, KPMG Analysis

The driving force behind NIIT’s success is the wide range of need-driven offerings. Franchise partners have played an important role in helping NIIT adapt its curriculum, delivery, marketing and communication to suit local tastes.

• NIIT has laid down processes to ensure quality standards are adhered to, and all partners are required to be certified in these processes. Specific norms regarding space, furniture, lighting, etc. have been laid down in detail.

• Partners go through a number of trainings in areas such as technology, marketing and leadership.

• NIIT has established standardized teaching methods to deliver a consistent level of quality across centers globally.

• NIIT’s association with leading technology vendors such as IBM and Wipro also enables standardized service delivery.

Snowballing growth

Cautious recruitment

Service quality

Marketing support

Customizing offerings

• The franchisee selection ratio for NIIT is typically 1:10. Few important selection criteria include:

• 1-3 years of experience preferably in middle management

• Knowledge of regional market• First time entrepreneur who can devote 50-60

percent of their time to the business.• Capability to invest about 50-60 percent of the

project cost. • Following a cautious approach, NIIT slowed

down its recruitment process during the slowdown period of 2009-10 despite high franchisee interest.

Low break-even period of 1-2 years* coupled with service and marketing support from NIIT encourages partners to open multiple centers.

• NIIT supports franchisee growth through marketing at national level. Given its vast presence in smaller towns, NIIT also provides region-specific marketing/advertising support to partners at a charge.

• NIIT provides partners with brochures and promotional material.


Sankalp’s performance

Sankalp

Note: *refers to the figures quoted by Sankalp representative to KPMGSource: Sankalponline website, KPMG Analysis

Area of operations

Launch of operations

Key brands

No of outlets

Presence


Sankalp Recreation Pvt Ltd (Sankalp)

Restaurants

2003 (franchise)

Sankalp (south India),

Saffaron (barbeque),

Sam’s Pizza (others) (India

+ broad)

In fine dining; and

Sankalp Express & (25) in

QSR

135 restaurants, six of

which are abroad (as on

June 2013)

More than 30 cities

INR72.9 million (FY10)

About 250 square feet (QSR) and about 2,000 square feet (fine dine/casual dine)

About INR100,000–150,000 (QSR) and about INR600,000–700,000 (fine dine/casual dine). This excludes property costs.

INR150,000 per month (QSR) and INR1 million per month (fine dine/casual dine)

Within 2 years

About 20–30 percent EBITDA

10 percent of sales (after the impact of capital cost)

Rentals — 10 percent of sales (5–10 percent)*

About 2–3 for QSR and about 20 (4–5 skilled and 15 unskilled) for other formats

5 years

Area

Investment

Average revenue

Break even period

Expected ROI

Franchise fee

Royalty

Staff

Agreement period


Sankalp plans to expand to 500 restaurants by 2018 through its

franchise model (QSR – 200, remaining – 300).

It also plans to launch outlets in cities such as Bhuj and Ontario to

strengthen the brand outside India.

Though Gujarat remains Sankalp’s traditional stronghold, it has already expanded to other India states such

as UP and Haryana.

A ‘bite’ of success

360-degree support to franchisees

• Sankalp supports its franchisees in selecting sites and accessing their potential, designing outlets’ layouts and selecting equipment.

• Sankalp deploys its team at new outlets during the initial stages to minimize operational issues.

• Additionally, it provides training support for the staff in its head office in Ahmadabad.

• A dedicated support team at each franchisee provides ad-hoc support on several areas such as quality, operations and cost.

Strict control on quality

• To ensure high service quality, important in the food service industry, Sankalp’s audit team conducts monthly checks on standard recipe and portion sizes.

• To ensure food tastes the same across outlets, an export oriented unit is supplies raw materials to all franchisees.

• Sankalp ensures that franchisees are aware of these processes before starting operations.

Franchise model

• Sankalp follows a ‘franchisee owned, franchisee operated’ Master Franchisee model according to which territories are allocated to franchisees for development.

• Master franchisees are an important part of the organization and participate in the company’s strategy and policy meetings.




NIIT’S performance

NIIT

Area of operations

Start of operations

Key brands

No of outlets



Net profit (INR million

NIIT

Computer education

1986 (franchise)

NIIT

More than 1000 (as

of April 2012)

-

7381.3 (FY12)

962.5 (FY12)

FY 11 FY 12

(INR

10 m

illio

n)


FY 10FY 9FY 8

800

600

400

200

0

Franchise presence of about 1000 education centers across 40 nations.

NIIT provides computer-based learning to over 15000 government schools through the franchise model.


INR1.5–2 million

1–2 years

-

Need to carefully consider which offerings to go for. These include NIIT Yuva, NIIT Imperia, etc.

3 years

Area requirements

Investment

Break-even period

Expected ROI

Other requirements

Agreement validity


Source: Moneycontrol website, NIIT website, KPMG Analysis

The driving force behind NIIT’s success is the wide range of need-driven offerings. Franchise partners have played an important role in helping NIIT adapt its curriculum, delivery, marketing and communication to suit local tastes.

• NIIT has laid down processes to ensure quality standards are adhered to, and all partners are required to be certified in these processes. Specific norms regarding space, furniture, lighting, etc. have been laid down in detail.

• Partners go through a number of trainings in areas such as technology, marketing and leadership.

• NIIT has established standardized teaching methods to deliver a consistent level of quality across centers globally.

• NIIT’s association with leading technology vendors such as IBM and Wipro also enables standardized service delivery.

Snowballing growth

Cautious recruitment

Service quality

Marketing support

Customizing offerings

• The franchisee selection ratio for NIIT is typically 1:10. Few important selection criteria include:

• 1-3 years of experience preferably in middle management

• Knowledge of regional market• First time entrepreneur who can devote 50-60

percent of their time to the business.• Capability to invest about 50-60 percent of the

project cost. • Following a cautious approach, NIIT slowed

down its recruitment process during the slowdown period of 2009-10 despite high franchisee interest.

Low break-even period of 1-2 years* coupled with service and marketing support from NIIT encourages partners to open multiple centers.

• NIIT supports franchisee growth through marketing at national level. Given its vast presence in smaller towns, NIIT also provides region-specific marketing/advertising support to partners at a charge.

• NIIT provides partners with brochures and promotional material.


Sankalp’s performance

Sankalp

Note: *refers to the figures quoted by Sankalp representative to KPMGSource: Sankalponline website, KPMG Analysis

Area of operations


Key brands

No of outlets

Presence


Sankalp Recreation Pvt Ltd (Sankalp)

Restaurants

2003 (franchise)

Sankalp (south India),

Saffaron (barbeque),

Sam’s Pizza (others) (India

+ broad)

In fine dining; and

Sankalp Express & (25) in

QSR

135 restaurants, six of

which are abroad (as on

June 2013)

More than 30 cities

INR72.9 million (FY10)

About 250 square feet (QSR) and about 2,000 square feet (fine dine/casual dine)

About INR100,000–150,000 (QSR) and about INR600,000–700,000 (fine dine/casual dine). This excludes property costs.

INR150,000 per month (QSR) and INR1 million per month (fine dine/casual dine)

Within 2 years

About 20–30 percent EBITDA

10 percent of sales (after the impact of capital cost)

Rentals — 10 percent of sales (5–10 percent)*

About 2–3 for QSR and about 20 (4–5 skilled and 15 unskilled) for other formats

5 years

Area

Investment

Average revenue

Break even period

Expected ROI

Franchise fee

Royalty

Staff

Agreement period


Sankalp plans to expand to 500 restaurants by 2018 through its

franchise model (QSR – 200, remaining – 300).

It also plans to launch outlets in cities such as Bhuj and Ontario to

strengthen the brand outside India.

Though Gujarat remains Sankalp’s traditional stronghold, it has already expanded to other India states such

as UP and Haryana.


360-degree support to franchisees

• Sankalp supports its franchisees in selecting sites and accessing their potential, designing outlets’ layouts and selecting equipment.

• Sankalp deploys its team at new outlets during the initial stages to minimize operational issues.

• Additionally, it provides training support for the staff in its head office in Ahmadabad.

• A dedicated support team at each franchisee provides ad-hoc support on several areas such as quality, operations and cost.

Strict control on quality

• To ensure high service quality, important in the food service industry, Sankalp’s audit team conducts monthly checks on standard recipe and portion sizes.

• To ensure food tastes the same across outlets, an export oriented unit is supplies raw materials to all franchisees.

• Sankalp ensures that franchisees are aware of these processes before starting operations.

Franchise model

• Sankalp follows a ‘franchisee owned, franchisee operated’ Master Franchisee model according to which territories are allocated to franchisees for development.

• Master franchisees are an important part of the organization and participate in the company’s strategy and policy meetings.







Global Franchising BrandsThe following section lists a set of global franchising case studies.






Global Franchising BrandsThe following section lists a set of global franchising case studies.



Subway’s performance

• Subway plans to open 1,000 outlets in India by 2017 and 5,000 by 2022. Currently, there are 260 outlets in the country.

• Franchisees form the backbone of Subway’s network, as all Subway restaurants are individually owned and operated by independent franchisees.

Area of operations


Key brands

No of outlets

Presence

Turnover


1974 (franchise)

Subway

39,402 outlets (as on June 2013)

102 countries (as on June 2013)

US$18.1 billion (2012)

Subway

Note: *refers to the figures quoted in the Subway global website, **refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Subway global website, Wall Street Journal, Forbes, Nreionline.com, KPMG Analysis


Subway

Initial franchise fee of US$ 15,000 and minimum total investment of US$78,600*. This can go up to US$ 260,350**

8 percent of gross sales

4.5 percent of gross sales

US$2.7 per month per US$100

Franchisees should display entrepreneurial spirit and commitment toward the success of the business. Subway also expects active management from franchisees.

20 years

Investment

Royalty

Advertising

Equipment lease

Other requirements

Agreement period


Subway negotiates the lease with the owner and sublets the space. This allows it to introduce new franchisees if the existing one underperforms.

Training and assistance

• Subway has a comprehensive training and assessment program to impart skills among franchisees.

• All franchisees are required to successfully complete Subway’s Worldwide Training Program.

• Franchisees are not mandated to supervise outlets’ operations. However, there is a separate Person-in-Charge program for supervisors.

• Subway also provides equipment leasing support to restaurants in the US subject to certain conditions. It has also tied-up with several franchisee financing companies.

Innovative location strategy

• Besides traditional store formats, Subway franchisees can also opt for non-traditional locations such as satellite towns, school lunch programs, airport terminals, theme parks and national parks.

• The non-traditional formats have been driving Subway’s growth. These include automobile showrooms, appliance stores, ferry terminal and churches. In 2011, Subway had about 8,000 restaurants in such locations.

• Usually, franchisee decide store locations and operations. However, in some cases (such as new markets with low brand awareness) the decision is taken jointly.

Prospective franchiseeconducts research with existing franchisees

Finds the desired location with Subway’s field developers

Subway’s proprietary mapping system analyzes the site’s potential

Contacts Subway’s real estate department for site approval

2 3 4 51

A franchisee-driven setup process

• Subway does not discloses the return on investment; it expects prospective franchisees to invest after learning about cost control, sales volumes, food and labour costs from the existing franchisees. • Subway also encourages franchisees to interact with consumers to get feedback on outlets. • It also relies on the existing franchisees to motivate new partners.

Submitting application forms

Meeting the local development agent

Reviewing the disclosure document

Conducting local research

Securing financingSigning the agreementAttending a trainingSecuring a location

and building the store


Hertz

Area of operations


Key brands

No of outlets

Presence

Turnover

Car rental

1925 (franchise)

Hertz

Over 9,000 locations

145 countries

US$9 billion (FY12)

Hertz

Note: *refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Hertz’s global website, PRNewswire website, Yahoo finance website, KPMG Analysis

US$0.3–4 million*

US$25,000–55,000

10 percent of gross revenue subject to a minimum amount

Minimum net worth of US$500,000 and liquid capital of US$150,000

5 years

Investment

Franchise fee

Royalty

Other requirements

Agreement period

• In 2011, Hertz increased growth by focusing more on the franchising model in some key US market to rapidly expand its airport and off-airport network.

• To expand in key markets, Hertz has entered into franchise agreements with players such as Penske Automotive in Indiana and the Emil Frey Group in Switzerland.

Hertz’ performance

2008 2013

8,100 locations Over 9,000 locations

• Hertz is a global car rental company that is present in 81 airports in Europe. It is the largest airport car-rental company in the US which operates from over 1,900 locations.

• The revenue of Hertz Global Holdings (HGH) increased by 8.7 percent during FY11–12 to reach US$9 billion.

• HGH’s net income increased by 38 percent during FY11–12 to reach US$243 million.

‘Driving’ success through franchising


Transitioning from the corporate to franchisee markets for rapid growth

• A 75 year old company, Hertz is a well-known brand in the car rental industry which gives it good leverage to attract franchise partners.

• The large scale of Hertz’s operations helps it in fleet procurement through the Hertz Fleet Remarketing department, which is leveraged by franchisees to get vehicles in the form of discounts.

• Hertz also provides franchisees access to various booking channels such as GDS, Amadeus, Galileo, Sabre and the Hertz Reservation System.

Scale and brand name foster franchisee growth

Other support

• Comprehensive training, which include an initial (setup oriented) 3–6-week-long training, online training, webinars and refresher training.

• Support for roadside assistance.• A dedicated global sales force operates in various formats such

as radio, TV, print, hotel partners, airports and the internet.




Subway’s performance

• Subway plans to open 1,000 outlets in India by 2017 and 5,000 by 2022. Currently, there are 260 outlets in the country.

• Franchisees form the backbone of Subway’s network, as all Subway restaurants are individually owned and operated by independent franchisees.

Area of operations


Key brands

No of outlets

Presence

Turnover


1974 (franchise)

Subway

39,402 outlets (as on June 2013)

102 countries (as on June 2013)

US$18.1 billion (2012)

Subway

Note: *refers to the figures quoted in the Subway global website, **refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Subway global website, Wall Street Journal, Forbes, Nreionline.com, KPMG Analysis


Subway

Initial franchise fee of US$ 15,000 and minimum total investment of US$78,600*. This can go up to US$ 260,350**

8 percent of gross sales

4.5 percent of gross sales

US$2.7 per month per US$100

Franchisees should display entrepreneurial spirit and commitment toward the success of the business. Subway also expects active management from franchisees.

20 years

Investment

Royalty

Advertising

Equipment lease

Other requirements

Agreement period


Subway negotiates the lease with the owner and sublets the space. This allows it to introduce new franchisees if the existing one underperforms.

Training and assistance

• Subway has a comprehensive training and assessment program to impart skills among franchisees.

• All franchisees are required to successfully complete Subway’s Worldwide Training Program.

• Franchisees are not mandated to supervise outlets’ operations. However, there is a separate Person-in-Charge program for supervisors.

• Subway also provides equipment leasing support to restaurants in the US subject to certain conditions. It has also tied-up with several franchisee financing companies.

Innovative location strategy

• Besides traditional store formats, Subway franchisees can also opt for non-traditional locations such as satellite towns, school lunch programs, airport terminals, theme parks and national parks.

• The non-traditional formats have been driving Subway’s growth. These include automobile showrooms, appliance stores, ferry terminal and churches. In 2011, Subway had about 8,000 restaurants in such locations.

• Usually, franchisee decide store locations and operations. However, in some cases (such as new markets with low brand awareness) the decision is taken jointly.

Prospective franchiseeconducts research with existing franchisees

Finds the desired location with Subway’s field developers

Subway’s proprietary mapping system analyzes the site’s potential

Contacts Subway’s real estate department for site approval

2 3 4 51

A franchisee-driven setup process

• Subway does not discloses the return on investment; it expects prospective franchisees to invest after learning about cost control, sales volumes, food and labour costs from the existing franchisees. • Subway also encourages franchisees to interact with consumers to get feedback on outlets. • It also relies on the existing franchisees to motivate new partners.

Submitting application forms

Meeting the local development agent

Reviewing the disclosure document

Conducting local research

Securing financingSigning the agreementAttending a trainingSecuring a location

and building the store


Hertz

Area of operations


Key brands

No of outlets

Presence

Turnover

Car rental

1925 (franchise)

Hertz


145 countries

US$9 billion (FY12)

Hertz

Note: *refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Hertz’s global website, PRNewswire website, Yahoo finance website, KPMG Analysis

US$0.3–4 million*

US$25,000–55,000


Minimum net worth of US$500,000 and liquid capital of US$150,000

5 years

Investment

Franchise fee

Royalty

Other requirements

Agreement period

• In 2011, Hertz increased growth by focusing more on the franchising model in some key US market to rapidly expand its airport and off-airport network.

• To expand in key markets, Hertz has entered into franchise agreements with players such as Penske Automotive in Indiana and the Emil Frey Group in Switzerland.

Hertz’ performance

2008 2013

8,100 locations Over 9,000 locations

• Hertz is a global car rental company that is present in 81 airports in Europe. It is the largest airport car-rental company in the US which operates from over 1,900 locations.

• The revenue of Hertz Global Holdings (HGH) increased by 8.7 percent during FY11–12 to reach US$9 billion.

• HGH’s net income increased by 38 percent during FY11–12 to reach US$243 million.



Transitioning from the corporate to franchisee markets for rapid growth

• A 75 year old company, Hertz is a well-known brand in the car rental industry which gives it good leverage to attract franchise partners.

• The large scale of Hertz’s operations helps it in fleet procurement through the Hertz Fleet Remarketing department, which is leveraged by franchisees to get vehicles in the form of discounts.

• Hertz also provides franchisees access to various booking channels such as GDS, Amadeus, Galileo, Sabre and the Hertz Reservation System.

Scale and brand name foster franchisee growth

Other support

• Comprehensive training, which include an initial (setup oriented) 3–6-week-long training, online training, webinars and refresher training.

• Support for roadside assistance.• A dedicated global sales force operates in various formats such

as radio, TV, print, hotel partners, airports and the internet.




Odditorium

10,000–20,000 square feet

US$0.3–6 million

US$75,000

15 percent of gross sales subject to a minimum limit

The site should be located in high visibility areas with high tourist footfalls

Area

Investment

Site development fee

Royalty

Other requirements


Guinness World Record

2,000 square meters

US$8–15 million

US$100,000

Ripley’s

Source: Ripley’s website, News Articles, KPMG Analysis

Ripley’s

Area of operations

Key brands

No of outlets

Presence

Entertainment

Odditorium. Other brands include the Guinness World Records Museum, Louis Tussaud’s Wax Museum, Ripley’s Moving Theaters, Ripley’s Mirror Mazes, Ripley’s Haunted Adventures

Over 90 attractions

10 countries

• With a 90-year-old brand heritage, Ripley operates the world’s largest chain of walk-through attractions.

• Over the past 25 years, the number of attractions has grown from 12 in four countries to over 90 in 10 countries.

• Franchisees have the luxury to choose from a wide range of brands. For example, they have the freedom to either invest in an Odditorium, which typically requires 929– 1858 square meters space, or in a Guinness World Record Challenge, which requires about 2,000 square meters space. The former follows the format of a museum and the latter is an innovative format which offers all guests the opportunity to break an existing Guinness World Record.• Additionally, brand Ripley’s is about 90 years old and commands strong brand equity, which makes it popular among consumers. Other media, such as books and TV series, have expanded Ripley’s presence to70 countries. • The company has been designing and building museums since 1950s. This gives it an unmatched expert ise in th is n iche entertainment segment.

• Ripley’s supports franchisees in procuring exclusive artifacts and exhibits by providing loans. A typical Ripley’s museum has over 300 exhibits/artifacts, which cost about US$750,000.• It also supports franchisees in selecting sites, designing the layout of attraction, recruiting staff, advertising and administrating the attraction.

• Ripley’s innovative concepts have helped it re-invent entertainment offerings and maintain novelty, which drive footfalls. For example:• In February 2013, Ripley’s celebrated the ‘World Swallower’s Day’ in Ripley’s Odditor iums by organiz ing sword-swallowing events.• The world’s tallest man, Sultan Kosen, attended the launch of Guinness World Records in Hong Kong in year.• The 20th anniversary celebrations of Ripley’s Orlando Odditorium (Oddtoberfest) included a show by ‘Lizardman’ and several unique carnival games - all free of cost.• Ripley's organized the ‘Gimme Five’ food drive to combat hunger and encourages the donation of five food items for the discounted entry.

Unique and wide variety of product offering

Procurement and other support

Innovative concepts to drive footfalls

Ripley’s performance

Breaking new records


• 7-Eleven opened 4,600 and 5,000 new stores in 2011 and 2012 respectively.

• The company is focused on growth through the franchising route. Out of 6790 stores in in the US, 5,800 are franchisee operated.

Achievement of key milestones

2000 2006 2013

Over 20,000 stores

Over 30,000 stores

Over 50,000 stores

7-Eleven

Area of operations

Start of operations

Key brands

No of outlets

Presence

Turnover

Convenience stores

1964 (franchise)

7-Eleven

50,254 (as of March 2013)

16 countries

JPY9 trillion (end of May 2012)

7-eleven’s performance

7 - Eleven

Note: *refers to the figure quoted in the Franchisedirect websiteSource: Franchise.7Eleven website, Franchisedirect website, Huffington post, Cspnet website, News Articles, KPMG Analysis

US$34,750–1,121,000*

US$10,000–1,000,000 (depending on store type)

Royalty is based on gross profit

10 years

Investment

Franchise fee

Royalty

Agreement period


Two-fold franchising model

Traditional model Conversion model

• The franchisor acquires the land, building and equipment and provides a fully equipped store to franchisees.

• The company offers the single-unit route for new entrepreneurs and multi-store opportunity for entrepreneurs with established business backgrounds.

• The company also ‘adopts’ or ‘converts’ independent convenience stores to its franchise network partners.

• This program is meant for

independent entrepreneurs interested in leveraging the 7-Eleven brand name and systems.

Assisting franchisee markets for rapid growth

• 7-Eleven provides significant support to get franchisee operations up and running. 7-Eleven takes care of several operational issues, which include:

• Scoping and buying the real estate• Handling the zoning approval process• Bearing the ongoing costs of - rent, real estate taxes, utilities,

certain building maintenance and equipment replacement

7-Eleven has an innovative royalty system, which is based on gross profit rather than sales. This system intrinsically links franchiser’s growth to the profit making ability of its franchisees.


Process automation using technology

7-Eleven promotes the use of technology to enable profitable operations of the store. Examples of technologies include payroll processing, invoice payments, taxes, store audits, monthly financial statements and inventory management. .

US

Hong Kong andSouthern China

Singapore

Malaysia

Japan

Operates under the ownership of 7-Eleven Inc. and 3 licensees (controlling 429 locations). The company has boosted the franchisee network by converting several company-operated and independent stores to franchisee run stores.

Operates under the ownership of Dairy Farm Management Services, which has acquired the license to open 7-Eleven stores. Hong Kong and Macau have amongst the highest 7-Eleven store densities globally.

Operates under the ownership of Dairy Farm Management Services, franchised under a licensing agreement with 7-Eleven Inc. Another agreement with Shell was signed by 7-Eleven in 2006 for petrol station outlets.

Owned and operated by 7-Eleven Malaysia Sdn. Bhd., a part of Berjaya Group Berhad.

Japan is a key market and has over 15,000 7-Eleven outlets, operating under the ownership of 7-Eleven itself.

Country Model and strategy

Source: Corporate website (accomplishments section)



Odditorium

10,000–20,000 square feet

US$0.3–6 million

US$75,000

15 percent of gross sales subject to a minimum limit

The site should be located in high visibility areas with high tourist footfalls

Area

Investment

Site development fee

Royalty

Other requirements


Guinness World Record

2,000 square meters

US$8–15 million

US$100,000

Ripley’s

Source: Ripley’s website, News Articles, KPMG Analysis

Ripley’s

Area of operations

Key brands

No of outlets

Presence

Entertainment

Odditorium. Other brands include the Guinness World Records Museum, Louis Tussaud’s Wax Museum, Ripley’s Moving Theaters, Ripley’s Mirror Mazes, Ripley’s Haunted Adventures

Over 90 attractions

10 countries

• With a 90-year-old brand heritage, Ripley operates the world’s largest chain of walk-through attractions.

• Over the past 25 years, the number of attractions has grown from 12 in four countries to over 90 in 10 countries.

• Franchisees have the luxury to choose from a wide range of brands. For example, they have the freedom to either invest in an Odditorium, which typically requires 929– 1858 square meters space, or in a Guinness World Record Challenge, which requires about 2,000 square meters space. The former follows the format of a museum and the latter is an innovative format which offers all guests the opportunity to break an existing Guinness World Record.• Additionally, brand Ripley’s is about 90 years old and commands strong brand equity, which makes it popular among consumers. Other media, such as books and TV series, have expanded Ripley’s presence to70 countries. • The company has been designing and building museums since 1950s. This gives it an unmatched expert ise in th is n iche entertainment segment.

• Ripley’s supports franchisees in procuring exclusive artifacts and exhibits by providing loans. A typical Ripley’s museum has over 300 exhibits/artifacts, which cost about US$750,000.• It also supports franchisees in selecting sites, designing the layout of attraction, recruiting staff, advertising and administrating the attraction.

• Ripley’s innovative concepts have helped it re-invent entertainment offerings and maintain novelty, which drive footfalls. For example:• In February 2013, Ripley’s celebrated the ‘World Swallower’s Day’ in Ripley’s Odditor iums by organiz ing sword-swallowing events.• The world’s tallest man, Sultan Kosen, attended the launch of Guinness World Records in Hong Kong in year.• The 20th anniversary celebrations of Ripley’s Orlando Odditorium (Oddtoberfest) included a show by ‘Lizardman’ and several unique carnival games - all free of cost.• Ripley's organized the ‘Gimme Five’ food drive to combat hunger and encourages the donation of five food items for the discounted entry.

Unique and wide variety of product offering

Procurement and other support

Innovative concepts to drive footfalls

Ripley’s performance

Breaking new records


• 7-Eleven opened 4,600 and 5,000 new stores in 2011 and 2012 respectively.

• The company is focused on growth through the franchising route. Out of 6790 stores in in the US, 5,800 are franchisee operated.

Achievement of key milestones

2000 2006 2013

Over 20,000 stores

Over 30,000 stores

Over 50,000 stores

7-Eleven

Area of operations

Start of operations

Key brands

No of outlets

Presence

Turnover

Convenience stores

1964 (franchise)

7-Eleven

50,254 (as of March 2013)

16 countries

JPY9 trillion (end of May 2012)

7-eleven’s performance

7 - Eleven

Note: *refers to the figure quoted in the Franchisedirect websiteSource: Franchise.7Eleven website, Franchisedirect website, Huffington post, Cspnet website, News Articles, KPMG Analysis

US$34,750–1,121,000*

US$10,000–1,000,000 (depending on store type)

Royalty is based on gross profit

10 years

Investment

Franchise fee

Royalty

Agreement period


Two-fold franchising model

Traditional model Conversion model

• The franchisor acquires the land, building and equipment and provides a fully equipped store to franchisees.

• The company offers the single-unit route for new entrepreneurs and multi-store opportunity for entrepreneurs with established business backgrounds.

• The company also ‘adopts’ or ‘converts’ independent convenience stores to its franchise network partners.

• This program is meant for

independent entrepreneurs interested in leveraging the 7-Eleven brand name and systems.


• 7-Eleven provides significant support to get franchisee operations up and running. 7-Eleven takes care of several operational issues, which include:

• Scoping and buying the real estate• Handling the zoning approval process• Bearing the ongoing costs of - rent, real estate taxes, utilities,

certain building maintenance and equipment replacement

7-Eleven has an innovative royalty system, which is based on gross profit rather than sales. This system intrinsically links franchiser’s growth to the profit making ability of its franchisees.


Process automation using technology

7-Eleven promotes the use of technology to enable profitable operations of the store. Examples of technologies include payroll processing, invoice payments, taxes, store audits, monthly financial statements and inventory management. .

US

Hong Kong andSouthern China

Singapore

Malaysia

Japan

Operates under the ownership of 7-Eleven Inc. and 3 licensees (controlling 429 locations). The company has boosted the franchisee network by converting several company-operated and independent stores to franchisee run stores.

Operates under the ownership of Dairy Farm Management Services, which has acquired the license to open 7-Eleven stores. Hong Kong and Macau have amongst the highest 7-Eleven store densities globally.

Operates under the ownership of Dairy Farm Management Services, franchised under a licensing agreement with 7-Eleven Inc. Another agreement with Shell was signed by 7-Eleven in 2006 for petrol station outlets.

Owned and operated by 7-Eleven Malaysia Sdn. Bhd., a part of Berjaya Group Berhad.

Japan is a key market and has over 15,000 7-Eleven outlets, operating under the ownership of 7-Eleven itself.

Country Model and strategy

Source: Corporate website (accomplishments section)



Curves

• Since 2011, Curves increased growth by focusing more on the franchising model in some key US market to rapidly expand its network and close down loss making units.

• Curves also assist in financing operations of its franchisees. Such assistance limits up to 50 percent of the initial franchise fee for a period not exceeding 24 months.

• Initially, Curves organize 2-5 days training to all the franchisees under the guidance of a designated manager.

• Comprehensive training camps, which include special training filled with information from experts at locations around the US & Canada.

• Area Directors and Corporate Help Staff: These area directors act as the franchisee’s direct link with the corporate office. Franchisee’s get help in managing any issues that arise while operating your club.

• A 30 year old company, Curves is a well-known brand in the women fitness industry which gives it good leverage to attract franchise partners.

•The large scale of Curves’ operations helps it in getting various franchise requests from various countries.

• The franchisee offer thirty minute f itness and weight reduction instruction to the general public as an independently owned and operated entity using Curves’ system of operations, logos and trademarks.


Note: *refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Curves global website, The Economic Times website, KPMG Analysis

Curves, the largest fitness franchise in the world with 10,000 locations. Curves Clubs are present in over 50 countries, including the US, Canada, Europe, The Caribbean, Mexico, Australia, New Zealand, South Africa and Japan.

Curves*

Area of operations


Key brands

No of outlets

Presence

Turnover

Women fitness centre

1995 (franchise)

Curves


Over 50 countries

US$20 billion (from the US alone)

US$0.037–0.45 million

US$29,900


3 percent of gross revenues as advertising fee; US$5,000 transfer fees and US$200 per month as monitoring fees

5 years, renewable

Net worth – US$75,000 and cash – US$50,000


Investment

Franchise fee

Royalty

Other requirements

Agreement period

Financial requirements


Other supportScale and brand name

foster franchisee growth

50 locations


1995 2012

Source: Published Reports, Franchising Association of India

Curves’ performance


Major International players already in India

Name Industry Partner/franchisee in India Business model

Baskin Robbins

Domino's

KFC

Jockey International

Maple Bear

C&J Clarks International

FRETTE

TGIF

Starbucks

California Pizza Kitchen

Howard’s Storage

The following international brands have either recently entered or have announced plans of entering India in the near future.

Food & Beverages Consumer Services Lifestyle/ Healthcare/ Beauty Retail

P

P Starbucks

P Dunkin Donuts

P Winkworth

P Yoforia

P Yogen Fruz

P Pollo Tropical

P Di Bella Coffee

P Mad over Donuts

P Pink Berry

P Sbarro

Muffin Break

P BG Cleaning

P C & J Clarks

P Willy Winkies

P Spring air

P Armani Junior

P Panaria

P Triangle

P Luxeyard

P Lipsy

P Marc Cain

P Roberto cavalli

Inbound Franchising - International Franchisors in IndiaIndia's has rapidly emerged as an attractive target market for international brands, as is evident from the number of

launches in the last few years.

Food service



Apparel

Education

Footwear

Home furnishing

Food service

Food service

Food service

Retail

Graviss foods

Jubilant foodwrks

Yum Restaurant India

Page Industries

Modi Group

Future Group

Regency Retail Private Limited

Bistro Hospitality

Tata Group

JSM Corporation

Skanda Retail

Master Franchise model






Multi-unit franchise model

Joint venture Franchising

Joint venture Franchising mode




Sources: Muffin Break: Spring Air Mattress: http://www.business-standard.com/article/press-releases/spring-air-announces- http://muffinbreak.com.au/images/press/MB%20Media%20Release_MB%20Continues%20Internatioits-rs-500-cr-investment-into-the-indian-market-112042500073_1.html nal%20Expansion.pdfC & J Clarkes: http://articles.economictimes.indiatimes.com/2012-12-18/news/35890963_1_ceo- Starbucks : http://timesofindia.indiatimes.com/business/india-business/Starbucks-to-open-outlets-in-melissa-potter-clarks-future-footwear-joint-venture more-Indian-cities/articleshow/19431213.cmsBG Cleaning: http://www.bg-cleaning.co.in/ Dunkin Donuts: http://www.business-standard.com/article/companies/dunkin-donuts-enters-india-Willy Winkies: http://www.willywinkies.com/franchise.html 112050900069_1.htmlArmani Junior: Winkworth: http://www.estateagenttoday.co.uk/news_features/Winkworth-launches-into-India-http://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P property-marketublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056 Yoforia: http://yoforia.in/franchise04BBF8C610DE6E852BDDE Yogen Fruz: http://articles.economictimes.indiatimes.com/2012-08-20/news/33287822_1_yogen-fruz-Panaria: http://www.thehindubusinessline.com/companies/panaria-group-asian-granito-enter-into-jt- first-store-first-outletventure/article3734222.ece Pollo Tropical:http://pollotropical.com/press-releases/pollo-tropical-expands-india-opening-restaurant-Triangle: http://articles.economictimes.indiatimes.com/2012-07-25/news/32848685_1_indian-luxury- western-hemisphere/market-french-market-production-lines Di Bella Coffee:http://www.dnaindia.com/money/1620084/report-after-starbucks-australias-di-bella-Luxeyard : plans-coffee-chainhttp://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P Mad over donuts:http://www.thehindubusinessline.com/companies/mad-over-donuts-bakes-plans-to-ublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056 scale-up-biz/article4784907.ece04BBF8C610DE6E852BDDE Pink Berry:http://www.business-standard.com/article/companies/pinkberry-to-vie-with-india-s-Lipsy : http://www.financialexpress.com/news/uks-fashion-brand-lipsy-partners-with-bmi-to-enter- cocoberry-112050900067_1.htmlindia/1001648 Sbarro:http://www.newsday.com/business/inside-long-island-business-1.811933/sbarro-plans-35-Marc Cain : http://www.business-standard.com/article/companies/german-luxury-brand-marc-cain-to- franchise-locations-in-india-1.5582769open-5-more-stores-in-fy13-112050100101_1.htmlRoberto Cavalli: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071299_1_italian-fashion-brand-roberto-cavalli-luxury-retail-space



Curves

• Since 2011, Curves increased growth by focusing more on the franchising model in some key US market to rapidly expand its network and close down loss making units.

• Curves also assist in financing operations of its franchisees. Such assistance limits up to 50 percent of the initial franchise fee for a period not exceeding 24 months.

• Initially, Curves organize 2-5 days training to all the franchisees under the guidance of a designated manager.

• Comprehensive training camps, which include special training filled with information from experts at locations around the US & Canada.

• Area Directors and Corporate Help Staff: These area directors act as the franchisee’s direct link with the corporate office. Franchisee’s get help in managing any issues that arise while operating your club.

• A 30 year old company, Curves is a well-known brand in the women fitness industry which gives it good leverage to attract franchise partners.

•The large scale of Curves’ operations helps it in getting various franchise requests from various countries.

• The franchisee offer thirty minute f itness and weight reduction instruction to the general public as an independently owned and operated entity using Curves’ system of operations, logos and trademarks.


Note: *refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Curves global website, The Economic Times website, KPMG Analysis

Curves, the largest fitness franchise in the world with 10,000 locations. Curves Clubs are present in over 50 countries, including the US, Canada, Europe, The Caribbean, Mexico, Australia, New Zealand, South Africa and Japan.

Curves*

Area of operations


Key brands

No of outlets

Presence

Turnover

Women fitness centre

1995 (franchise)

Curves


Over 50 countries

US$20 billion (from the US alone)

US$0.037–0.45 million

US$29,900


3 percent of gross revenues as advertising fee; US$5,000 transfer fees and US$200 per month as monitoring fees

5 years, renewable

Net worth – US$75,000 and cash – US$50,000


Investment

Franchise fee

Royalty

Other requirements

Agreement period

Financial requirements


Other supportScale and brand name

foster franchisee growth

50 locations


1995 2012

Source: Published Reports, Franchising Association of India

Curves’ performance


Major International players already in India

Name Industry Partner/franchisee in India Business model

Baskin Robbins

Domino's

KFC

Jockey International

Maple Bear

C&J Clarks International

FRETTE

TGIF

Starbucks

California Pizza Kitchen

Howard’s Storage

The following international brands have either recently entered or have announced plans of entering India in the near future.

Food & Beverages Consumer Services Lifestyle/ Healthcare/ Beauty Retail

P

P Starbucks

P Dunkin Donuts

P Winkworth

P Yoforia

P Yogen Fruz

P Pollo Tropical

P Di Bella Coffee

P Mad over Donuts

P Pink Berry

P Sbarro

Muffin Break

P BG Cleaning

P C & J Clarks

P Willy Winkies

P Spring air

P Armani Junior

P Panaria

P Triangle

P Luxeyard

P Lipsy

P Marc Cain

P Roberto cavalli

Inbound Franchising - International Franchisors in IndiaIndia's has rapidly emerged as an attractive target market for international brands, as is evident from the number of

launches in the last few years.

Food service



Apparel

Education

Footwear

Home furnishing

Food service

Food service

Food service

Retail

Graviss foods

Jubilant foodwrks

Yum Restaurant India

Page Industries

Modi Group

Future Group

Regency Retail Private Limited

Bistro Hospitality

Tata Group

JSM Corporation

Skanda Retail







Multi-unit franchise model

Joint venture Franchising

Joint venture Franchising mode




Sources: Muffin Break: Spring Air Mattress: http://www.business-standard.com/article/press-releases/spring-air-announces- http://muffinbreak.com.au/images/press/MB%20Media%20Release_MB%20Continues%20Internatioits-rs-500-cr-investment-into-the-indian-market-112042500073_1.html nal%20Expansion.pdfC & J Clarkes: http://articles.economictimes.indiatimes.com/2012-12-18/news/35890963_1_ceo- Starbucks : http://timesofindia.indiatimes.com/business/india-business/Starbucks-to-open-outlets-in-melissa-potter-clarks-future-footwear-joint-venture more-Indian-cities/articleshow/19431213.cmsBG Cleaning: http://www.bg-cleaning.co.in/ Dunkin Donuts: http://www.business-standard.com/article/companies/dunkin-donuts-enters-india-Willy Winkies: http://www.willywinkies.com/franchise.html 112050900069_1.htmlArmani Junior: Winkworth: http://www.estateagenttoday.co.uk/news_features/Winkworth-launches-into-India-http://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P property-marketublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056 Yoforia: http://yoforia.in/franchise04BBF8C610DE6E852BDDE Yogen Fruz: http://articles.economictimes.indiatimes.com/2012-08-20/news/33287822_1_yogen-fruz-Panaria: http://www.thehindubusinessline.com/companies/panaria-group-asian-granito-enter-into-jt- first-store-first-outletventure/article3734222.ece Pollo Tropical:http://pollotropical.com/press-releases/pollo-tropical-expands-india-opening-restaurant-Triangle: http://articles.economictimes.indiatimes.com/2012-07-25/news/32848685_1_indian-luxury- western-hemisphere/market-french-market-production-lines Di Bella Coffee:http://www.dnaindia.com/money/1620084/report-after-starbucks-australias-di-bella-Luxeyard : plans-coffee-chainhttp://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P Mad over donuts:http://www.thehindubusinessline.com/companies/mad-over-donuts-bakes-plans-to-ublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056 scale-up-biz/article4784907.ece04BBF8C610DE6E852BDDE Pink Berry:http://www.business-standard.com/article/companies/pinkberry-to-vie-with-india-s-Lipsy : http://www.financialexpress.com/news/uks-fashion-brand-lipsy-partners-with-bmi-to-enter- cocoberry-112050900067_1.htmlindia/1001648 Sbarro:http://www.newsday.com/business/inside-long-island-business-1.811933/sbarro-plans-35-Marc Cain : http://www.business-standard.com/article/companies/german-luxury-brand-marc-cain-to- franchise-locations-in-india-1.5582769open-5-more-stores-in-fy13-112050100101_1.htmlRoberto Cavalli: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071299_1_italian-fashion-brand-roberto-cavalli-luxury-retail-space


Saravana Bhavan

Khana Khazana

Sankalp

Café Coffee day

Malabar Gold

Gitanjali

Shahnaz Husain

VLCC

Karvy

Eurokids

Shemrock

Food Services

Food Services

Food Services

Food Services

Retail

Retail

Health & Wellness

Health & Wellness

Consumer Services

Education

Education

United States, Canada, Singapore, West Asia, United Kingdom, China

Dubai

Australia, Canada, UK, USA, UAE

Pakistan, Austria (Vienna)

Gulf region, Singapore, Malaysia, UK

USA, Japan, Dubai

Australia, UK, Middle East

UK, Middle East, Singapore, Malaysia

Dubai, New York

Gulf region

Nepal

Global presence through franchising routeIndian Brands Sector


Outbound Franchising - Indian brands going Global

While there is surely an active interest in India by international brands, there is immense potential for Indian brands

to go global. Not only can Indian brands look at leveraging the Indian Diaspora present across the world but also use

this as an opportunity to spread Brand India.

India’s growing but fragmented laws should be transparent and to establish and expand business in

market can seem chaotic and easy to comply with. India.

difficult to deal with. The

international franchisors consider Entering a International

the following factors as challenges new market becomes more franchisors remain threatened with

while entering into India: complicated in case if India, where the bribe and corruption cases in

consumers hailing from diverse India. Due to no legislation around

cultural backgrounds. Several ‘anti-bribe’ in India, as in the US; it

culture, language and socio- not only discourages the expansion Due to no rules or laws

economic diversities make it a set strategies of many brands but also promulgated in India to address the

of multiple markets. It becomes a impacts the India’s credibility in functioning of franchisors and

challenge for an International international market. franchisees, international players

franchisor to understand all perceive a higher risk to business

diversified tastes and preferences, continuity. They expect prevailing

India is not ‘one’ market: Bribe and corruption:

Transparent Legislative

framework:

Indian cuisine gaining world-wide While Indian Diaspora is widespread countries where franchising industry

acceptance is prompting Food in the USA and Middle east is well regulated.

Service brands to expand globally countries, there is scope for Indian

through the franchising route. companies to go beyond these

countries and can particularly target


USA

Malaysia

Saudi Arabia

UAE

Srilanka

UK

South Africa

Canada

Mauritius

Oman

Singapore

Nepal

Kuwait

Qatar

Australia

Bahrain

Total

23

20.5

18

17.5

16

15

12.2

10

8.8

7.2

6.7

6

5.8

5

4.5

3.5

180

10

9

8

8

7

7

6

5

4

3

3

3

3

2

2

2

82

Country Number of Indians (in lakhs) As a % of total overseas population

Total Indian Overseas population = 2.2 crores

Source: Ministry of Human Resource Development release: Population of NRI - Country wise, June 2012 report

However it is critical for Indian brands going global to note the differences in local competition, demographics, price points, pay structures, labor laws etc before taking a strategic decision. Industry associations such as Franchising Association of India and other such bodies could leverage their relationships with global franchising councils in assisting such companies for a soft landing into other countries.

Source: http://articles.economictimes.indiatimes.com/2012-11-03/news/34892146_1_restaurant-chain-saravana-bhavan-hospitality-sectorhttp://www.way2franchise.com/resource/article/__cafe_coffee_day_takes_over_cafe_emporiohttp://www.franchise-plus.com/Fullstory.asp?news_id=6824&cat_id=3http://investors.gitanjaligroup.com/phoenix.zhtml?c=196729&p=irol-faq_pfhttp://www.shahnaz.in/company.aspvlccjobs.com/futureplans.htm?www.karvyfinance.com/aboutus/aboutus.aspx?http://www.thehindubusinessline.com/industry-and-economy/info-tech/educomp-solutions-sheds-entire-stake-in-eurokids/article4551004.ecehttp://www.shemrock.com/branches.php


Saravana Bhavan

Khana Khazana

Sankalp

Café Coffee day

Malabar Gold

Gitanjali

Shahnaz Husain

VLCC

Karvy

Eurokids

Shemrock

Food Services

Food Services

Food Services

Food Services

Retail

Retail

Health & Wellness

Health & Wellness

Consumer Services

Education

Education

United States, Canada, Singapore, West Asia, United Kingdom, China

Dubai

Australia, Canada, UK, USA, UAE

Pakistan, Austria (Vienna)

Gulf region, Singapore, Malaysia, UK

USA, Japan, Dubai

Australia, UK, Middle East

UK, Middle East, Singapore, Malaysia

Dubai, New York

Gulf region

Nepal

Global presence through franchising routeIndian Brands Sector


Outbound Franchising - Indian brands going Global

While there is surely an active interest in India by international brands, there is immense potential for Indian brands

to go global. Not only can Indian brands look at leveraging the Indian Diaspora present across the world but also use

this as an opportunity to spread Brand India.

India’s growing but fragmented laws should be transparent and to establish and expand business in

market can seem chaotic and easy to comply with. India.

difficult to deal with. The

international franchisors consider Entering a International

the following factors as challenges new market becomes more franchisors remain threatened with

while entering into India: complicated in case if India, where the bribe and corruption cases in

consumers hailing from diverse India. Due to no legislation around

cultural backgrounds. Several ‘anti-bribe’ in India, as in the US; it

culture, language and socio- not only discourages the expansion Due to no rules or laws

economic diversities make it a set strategies of many brands but also promulgated in India to address the

of multiple markets. It becomes a impacts the India’s credibility in functioning of franchisors and

challenge for an International international market. franchisees, international players

franchisor to understand all perceive a higher risk to business

diversified tastes and preferences, continuity. They expect prevailing

India is not ‘one’ market: Bribe and corruption:

Transparent Legislative

framework:

Indian cuisine gaining world-wide While Indian Diaspora is widespread countries where franchising industry

acceptance is prompting Food in the USA and Middle east is well regulated.

Service brands to expand globally countries, there is scope for Indian

through the franchising route. companies to go beyond these

countries and can particularly target


USA

Malaysia

Saudi Arabia

UAE

Srilanka

UK

South Africa

Canada

Mauritius

Oman

Singapore

Nepal

Kuwait

Qatar

Australia

Bahrain

Total

23

20.5

18

17.5

16

15

12.2

10

8.8

7.2

6.7

6

5.8

5

4.5

3.5

180

10

9

8

8

7

7

6

5

4

3

3

3

3

2

2

2

82

Country Number of Indians (in lakhs) As a % of total overseas population

Total Indian Overseas population = 2.2 crores

Source: Ministry of Human Resource Development release: Population of NRI - Country wise, June 2012 report

However it is critical for Indian brands going global to note the differences in local competition, demographics, price points, pay structures, labor laws etc before taking a strategic decision. Industry associations such as Franchising Association of India and other such bodies could leverage their relationships with global franchising councils in assisting such companies for a soft landing into other countries.

Source: http://articles.economictimes.indiatimes.com/2012-11-03/news/34892146_1_restaurant-chain-saravana-bhavan-hospitality-sectorhttp://www.way2franchise.com/resource/article/__cafe_coffee_day_takes_over_cafe_emporiohttp://www.franchise-plus.com/Fullstory.asp?news_id=6824&cat_id=3http://investors.gitanjaligroup.com/phoenix.zhtml?c=196729&p=irol-faq_pfhttp://www.shahnaz.in/company.aspvlccjobs.com/futureplans.htm?www.karvyfinance.com/aboutus/aboutus.aspx?http://www.thehindubusinessline.com/industry-and-economy/info-tech/educomp-solutions-sheds-entire-stake-in-eurokids/article4551004.ecehttp://www.shemrock.com/branches.php



Franchise industry survey


1

1

Huge consumer class

Entrepreneurial Spirit

Investment Availability

Availability of robust concepts

High ROI

High disposable Incomes

3

2

10

8

0 5 10

KPMG in India carried out a survey • Growth drivers for Franchising in

of Franchisors and Franchisees to India

solicit their perspectives on outlook • Franchise Operating Modelsfor growth and how overall

• Franchisee Satisfactiondynamics between Franchisor and

• Franchisee Support & Franchisee community is shaping Relationship Management up. The results of the survey have

been broadly categorized under the • Challenges in Franchisingfollowing heads

• Conflict Management


Growth drivers of franchising in India

India, with its large population has these, availability of investments franchisees are not very

always been a consumption story and increased investment capability comfortable with.

and will continue to remain so for has also been a key factor driving It is often the uniqueness of the

the years to come. Burgeoning the growth of the industry, concept and value of the brand of

consumer class with an increasing especially when investment support the franchisor business that attracts

appetite for consumption is from franchisors is minimal.franchisees to invest in them. While

considered as the biggest growth Businessmen predominantly choose promises on investment returns

driver, both by franchisors and franchising route as it helps made by franchisors are another key

franchisees. Increase in increase the scale of operations parameter that attracts the

entrepreneurial drive coupled with while reducing the time to market. franchisee, their ability to

risk taking abilities has steered a This also aids in brand building understand and operate the

number of people, especially those process through value creation. business dominates the decision

with no-specific business Franchising imparts uniformity of making process. Franchisors also

background, take a plunge into product / service offering thereby believe that providing a well-defined

franchising based business models. leading to increased standards and operating structure enables

Franchising as a business model has quality. This is mainly the reason for franchisees to learn quickly and

achieved stability over the course of franchisors not willing to customize implement the same.

time, giving new entrepreneurs their offerings for various

increased confidence on the franchisees, an aspect which most

success of their ventures. Besides

Both franchisors and

franchisees opine that the

consumption story coupled

with the increasing

entrepreneurial spirit of

Indians is the prime factors

leading to the growth of

Franchising in India.

Franchisees in addition feel

that availability of robust

concepts and investment

availability is also driving

franchising growth in India

Franchisor View - Growth Drivers of Franchising in India

Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013





1

1

Huge consumer class



Availability of robust concepts

High ROI

High disposable Incomes

3

2

10

8

0 5 10

KPMG in India carried out a survey • Growth drivers for Franchising in

of Franchisors and Franchisees to India

solicit their perspectives on outlook • Franchise Operating Modelsfor growth and how overall

• Franchisee Satisfactiondynamics between Franchisor and

• Franchisee Support & Franchisee community is shaping Relationship Management up. The results of the survey have

been broadly categorized under the • Challenges in Franchisingfollowing heads

• Conflict Management


Growth drivers of franchising in India

India, with its large population has these, availability of investments franchisees are not very

always been a consumption story and increased investment capability comfortable with.

and will continue to remain so for has also been a key factor driving It is often the uniqueness of the

the years to come. Burgeoning the growth of the industry, concept and value of the brand of

consumer class with an increasing especially when investment support the franchisor business that attracts

appetite for consumption is from franchisors is minimal.franchisees to invest in them. While

considered as the biggest growth Businessmen predominantly choose promises on investment returns

driver, both by franchisors and franchising route as it helps made by franchisors are another key

franchisees. Increase in increase the scale of operations parameter that attracts the

entrepreneurial drive coupled with while reducing the time to market. franchisee, their ability to

risk taking abilities has steered a This also aids in brand building understand and operate the

number of people, especially those process through value creation. business dominates the decision

with no-specific business Franchising imparts uniformity of making process. Franchisors also

background, take a plunge into product / service offering thereby believe that providing a well-defined

franchising based business models. leading to increased standards and operating structure enables

Franchising as a business model has quality. This is mainly the reason for franchisees to learn quickly and

achieved stability over the course of franchisors not willing to customize implement the same.

time, giving new entrepreneurs their offerings for various

increased confidence on the franchisees, an aspect which most

success of their ventures. Besides

Both franchisors and

franchisees opine that the

consumption story coupled

with the increasing

entrepreneurial spirit of

Indians is the prime factors

leading to the growth of

Franchising in India.

Franchisees in addition feel

that availability of robust

concepts and investment

availability is also driving

franchising growth in India

Franchisor View - Growth Drivers of Franchising in India




Franchising Operating Model

While many brands and companies would view franchising as a key operating model

for expansion from a scale and time perspective, they also believe franchising model

allows them keep the brand relevant to their target consumers and result in better

profitability for the system (franchisor and franchisee community) as a whole.


Franchisee View - Growth Drivers

Franchisee View - Reasons for Franchising Option

Business Differentiators


Huge consumer class

Growing Preference for branded and quality products amongst consumers

Exposure to global media, fashion trends



Availability of Robust Concepts

Franchising is a safe, best and easiest way to start a business

Lesser risk than a new start up

Investor friendly

Higher growth and expansion opportunity

Good learning experience

Higher profitability – Better ROI

0 2 4 6 8 10 12

Yes – major changes

Yes – minor changes

No

2

3

8

0 2 4 6 8

Customization of Franchise Proposals

Business concept

ROI

Standardised processes

Brand/Support

Ease of operations

7

5

5

1

1

0 2 4 6 8

Franchise Owned – Franchise Operated (FoFo)

Company Owned – Franchise Operated (CoFo)

Franchise Owned – Company Operated (FoCo)

Joint Venture

10

5

2

1

0 5 10

Franchisors Reasons for Franchising

Brand Building

Scale building

Uniformity in Quality

Higher profitability

Value creation

Quicker time to market

Higher RoCE for the franchisor

Capital Constraints

Talent acquisition

7

13

4

6

3

9

1

3

3

0 5 10 15

There are many reasons for business persons to

consider franchising as a business model. Predominant

of the reasons are related to capacity expansion, scale

building and brand building, in a shorter span of time.

While there are other choices, scale building and brand

building and Faster Time to Market emerge as dominant

choices with 26 percent, 16 percent and 17 percent

responses.

While Franchisors believe franchising as a good option

to grow, many entrepreneurs are opting for the

franchising route primarily due to it offering a safe and

easy way of establishing business and offering higher

than market levels of profitability. Franchising is also

seen as a less-riskier option given that the business

concept has already been pre-tested in the market and

the entrepreneurs get to see the results of the

franchisors as well as other franchisees.

0 1 2 3 4 5 6 7 8 9 10 11 12

However while Franchisors believe in the concept of

franchising, most franchisors are not willing to alter the

terms and conditions of their proposal, in order to

protect the brand value.

Increasing growth in franchising is also reflected in the

increasing competition within the industry, with a

constant stream of new franchisees starting their

businesses. Increasing competition intensifies the need

to develop unique selling proposition that can

differentiate one brand from the other

Business concept turns out to be the biggest

differentiator in business for 37 % of the respondents; it

was closely followed by return on investment and

standardized processes at 26 % each.

While majority of franchisors adopt the Franchisee

Owned and Franchisee Operated model for expansion,

few franchisors have also mentioned the need for co-

existence of Company Owned Franchisee Operated

models. This was particularly necessary in high streets

of metro cities where the rentals negatively impact the

business viability for the franchisee. Also there are

cases where franchisors want to have a few large

format flagship stores. In both these cases, franchisors

preferred investing initially.







5

10

8

3

5

5

6

1

2

2

8

11



Franchising Operating Model

While many brands and companies would view franchising as a key operating model

for expansion from a scale and time perspective, they also believe franchising model

allows them keep the brand relevant to their target consumers and result in better

profitability for the system (franchisor and franchisee community) as a whole.


Franchisee View - Growth Drivers

Franchisee View - Reasons for Franchising Option

Business Differentiators


Huge consumer class

Growing Preference for branded and quality products amongst consumers

Exposure to global media, fashion trends



Availability of Robust Concepts

Franchising is a safe, best and easiest way to start a business

Lesser risk than a new start up

Investor friendly

Higher growth and expansion opportunity

Good learning experience

Higher profitability – Better ROI

0 2 4 6 8 10 12

Yes – major changes

Yes – minor changes

No

2

3

8

0 2 4 6 8

Customization of Franchise Proposals

Business concept

ROI

Standardised processes

Brand/Support

Ease of operations

7

5

5

1

1

0 2 4 6 8

Franchise Owned – Franchise Operated (FoFo)

Company Owned – Franchise Operated (CoFo)

Franchise Owned – Company Operated (FoCo)

Joint Venture

10

5

2

1

0 5 10

Franchisors Reasons for Franchising

Brand Building

Scale building

Uniformity in Quality

Higher profitability

Value creation

Quicker time to market

Higher RoCE for the franchisor

Capital Constraints

Talent acquisition

7

13

4

6

3

9

1

3

3

0 5 10 15

There are many reasons for business persons to

consider franchising as a business model. Predominant

of the reasons are related to capacity expansion, scale

building and brand building, in a shorter span of time.

While there are other choices, scale building and brand

building and Faster Time to Market emerge as dominant

choices with 26 percent, 16 percent and 17 percent

responses.

While Franchisors believe franchising as a good option

to grow, many entrepreneurs are opting for the

franchising route primarily due to it offering a safe and

easy way of establishing business and offering higher

than market levels of profitability. Franchising is also

seen as a less-riskier option given that the business

concept has already been pre-tested in the market and

the entrepreneurs get to see the results of the

franchisors as well as other franchisees.

0 1 2 3 4 5 6 7 8 9 10 11 12

However while Franchisors believe in the concept of

franchising, most franchisors are not willing to alter the

terms and conditions of their proposal, in order to

protect the brand value.

Increasing growth in franchising is also reflected in the

increasing competition within the industry, with a

constant stream of new franchisees starting their

businesses. Increasing competition intensifies the need

to develop unique selling proposition that can

differentiate one brand from the other

Business concept turns out to be the biggest

differentiator in business for 37 % of the respondents; it

was closely followed by return on investment and

standardized processes at 26 % each.

While majority of franchisors adopt the Franchisee

Owned and Franchisee Operated model for expansion,

few franchisors have also mentioned the need for co-

existence of Company Owned Franchisee Operated

models. This was particularly necessary in high streets

of metro cities where the rentals negatively impact the

business viability for the franchisee. Also there are

cases where franchisors want to have a few large

format flagship stores. In both these cases, franchisors

preferred investing initially.







5

10

8

3

5

5

6

1

2

2

8

11


41 Franchising Industry in India 42Franchising Industry in India

Franchisee Satisfaction

Out of the 20 franchisees surveyed, were either

satisfied or satisfied to a certain extent with franchisor

business, both in terms of operations and financial

returns. Amongst the 50% franchisees who were

satisfied to a certain extent, the biggest cause of

concern was the inadequate operational support. But

they still continue with the franchisor, mainly, due to

the financial returns obtained. There were also around

14% of the franchisees who were entirely unhappy

with the financial returns and operational support

provided.

Collaboration between franchisor and franchisees is critical to success of franchising

businesses. There are several avenues for collaboration between franchisors and

franchisees such as project set up, marketing, employee training, operational

management, revenue management, cost management and risk management.

Franchisee View Is Franchisor Business upto your expectations

Franchisee ViewInitial Expectations from Franchisor

Franchisee ViewAreas of Franchisor Support

0 2 4 6 8 10 12 14

Project Support

Human Resource Support

Operational Support

Marketing Support

Bulk Buying Support

Project Start-Up Support

Operational Support

Marketing Support Functions

Employee Training and Development

find it difficult to hire good candidates and retain them. is the first area of

While the expectations from franchisees on this front collaboration between franchisor and franchisee. Most

are not as high as others, franchisors could surely franchisors are involved in demographic analysis of the

improve their support in this critical area given the location, site evaluation, survey and approval, facility

current shortage of skilled manpower in India.planning and architectural design of the store and store

opening (retail clients). Franchisees also acknowledge is an apparent area of the importance of franchisor contribution in getting the

collaboration whereby the franchisor provides defined basics of the project right.guidelines for operations, employee management,

product/service pricing guidelines, trouble-shooting such as advertising and

support, supply chain and procurement support. promotions, regional and local publicity and event

Immediately after signing of the franchising agreement, based promotion schemes have been the most

operating guidelines are shared with the franchisees. important support provided to franchisors. Such

Large brands deploy dedicated teams to respond to activities build the brand, increase credibility of the

operational requirements of franchisees but the case is offering and ensure increased product awareness

not the same with smaller and regional brands. Few amongst the target clientele. Majority of the franchisors

franchisees, while appreciating the good intentions of have indicated marketing function as the key support

support from franchisors, are disappointed with the provided for the franchisees, which is also recognized

pace of response for operational challenges.by most franchisees. This is specifically true in the case

of national level brands and large regional brands. Few

of the regional brands expect the franchisees to

separately share cost of regional/local marketing.

However, amongst smaller brands, marketing support

has been usually restricted to advertisements with

nothing specific being done for local publicity.

Franchisees of local brands have also indicated the

diminishing of marketing support once the

store/product has been launched.

is taken as a

focus area amongst national brands, especially those in

services franchising. Well planned employee

73 percent of the franchisees interviewed opined that development program encompassing well-defined

the support provided by franchisors diminishes once processes for recruitment and selection, continuous

the initial project set up activity is completed. training and up gradation of skills to the technical,

Franchisees are often left to take care of the operational, sales teams adds to the success of

businesses entirely by themselves, with minimal franchisee operations. Of the key challenges that new

support from franchisors. But by then, most franchisees face, hiring and training of employees is the

franchisees learn the ropes of the trade and are, hence, key. The challenge is particularly severe at retail

able to manage their business. Despite this, concepts, where front-line employees are the face of

franchisees still seek greater involvement of the the brand, dealing directly with each customer every

franchisors in return for the revenues shared.day. While most franchisors have well-defined training

programs, a large number of franchisees particularly

Franchisee ViewPre & Post Launch Support

Post Launch Supportis as good as Pre Launch Support 18%

Post Launch Support is

better than Pre Launch

Support 9%

Post Launch Support is not as good as Pre Launch Support 73%

In terms of franchisee interest for undertaking additional

franchisees, almost half of those interviewed were not

willing to take up additional franchisees with the existing

franchisors. This is primarily due to friction in the

relationship between franchisors and franchisees on

various aspects, especially in financial revenue sharing

aspects in comparison to the nature of operational

support provided. Such a situation is more relevant in

the services franchising business where franchisor

support is seen as critical. Most of the franchisees who

were willing to undertake further franchisees were in

product franchising business.

No 14%

Yes 36%

To an extent 50%

Franchisee Support & Relationship Management

Initial set up support

Training support

Employee Recruitment Support

Support in equipment procurement

Marketing and PR support

0 2 4 6 8 10 12 14

Franchisee View Preference for additional franchisees

Yes 23%

May be 23%

No 54%


Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013


12

8

5

9

13

10

7

6

3

12



Franchisee Satisfaction

Out of the 20 franchisees surveyed, were either

satisfied or satisfied to a certain extent with franchisor

business, both in terms of operations and financial

returns. Amongst the 50% franchisees who were

satisfied to a certain extent, the biggest cause of

concern was the inadequate operational support. But

they still continue with the franchisor, mainly, due to

the financial returns obtained. There were also around

14% of the franchisees who were entirely unhappy

with the financial returns and operational support

provided.

Collaboration between franchisor and franchisees is critical to success of franchising

businesses. There are several avenues for collaboration between franchisors and

franchisees such as project set up, marketing, employee training, operational

management, revenue management, cost management and risk management.

Franchisee View Is Franchisor Business upto your expectations

Franchisee ViewInitial Expectations from Franchisor

Franchisee ViewAreas of Franchisor Support

0 2 4 6 8 10 12 14

Project Support

Human Resource Support

Operational Support

Marketing Support

Bulk Buying Support

Project Start-Up Support

Operational Support

Marketing Support Functions

Employee Training and Development

find it difficult to hire good candidates and retain them. is the first area of

While the expectations from franchisees on this front collaboration between franchisor and franchisee. Most

are not as high as others, franchisors could surely franchisors are involved in demographic analysis of the

improve their support in this critical area given the location, site evaluation, survey and approval, facility

current shortage of skilled manpower in India.planning and architectural design of the store and store

opening (retail clients). Franchisees also acknowledge is an apparent area of the importance of franchisor contribution in getting the

collaboration whereby the franchisor provides defined basics of the project right.guidelines for operations, employee management,

product/service pricing guidelines, trouble-shooting such as advertising and

support, supply chain and procurement support. promotions, regional and local publicity and event

Immediately after signing of the franchising agreement, based promotion schemes have been the most

operating guidelines are shared with the franchisees. important support provided to franchisors. Such

Large brands deploy dedicated teams to respond to activities build the brand, increase credibility of the

operational requirements of franchisees but the case is offering and ensure increased product awareness

not the same with smaller and regional brands. Few amongst the target clientele. Majority of the franchisors

franchisees, while appreciating the good intentions of have indicated marketing function as the key support

support from franchisors, are disappointed with the provided for the franchisees, which is also recognized

pace of response for operational challenges.by most franchisees. This is specifically true in the case

of national level brands and large regional brands. Few

of the regional brands expect the franchisees to

separately share cost of regional/local marketing.

However, amongst smaller brands, marketing support

has been usually restricted to advertisements with

nothing specific being done for local publicity.

Franchisees of local brands have also indicated the

diminishing of marketing support once the

store/product has been launched.

is taken as a

focus area amongst national brands, especially those in

services franchising. Well planned employee

73 percent of the franchisees interviewed opined that development program encompassing well-defined

the support provided by franchisors diminishes once processes for recruitment and selection, continuous

the initial project set up activity is completed. training and up gradation of skills to the technical,

Franchisees are often left to take care of the operational, sales teams adds to the success of

businesses entirely by themselves, with minimal franchisee operations. Of the key challenges that new

support from franchisors. But by then, most franchisees face, hiring and training of employees is the

franchisees learn the ropes of the trade and are, hence, key. The challenge is particularly severe at retail

able to manage their business. Despite this, concepts, where front-line employees are the face of

franchisees still seek greater involvement of the the brand, dealing directly with each customer every

franchisors in return for the revenues shared.day. While most franchisors have well-defined training

programs, a large number of franchisees particularly

Franchisee ViewPre & Post Launch Support

Post Launch Supportis as good as Pre Launch Support 18%

Post Launch Support is

better than Pre Launch

Support 9%

Post Launch Support is not as good as Pre Launch Support 73%

In terms of franchisee interest for undertaking additional

franchisees, almost half of those interviewed were not

willing to take up additional franchisees with the existing

franchisors. This is primarily due to friction in the

relationship between franchisors and franchisees on

various aspects, especially in financial revenue sharing

aspects in comparison to the nature of operational

support provided. Such a situation is more relevant in

the services franchising business where franchisor

support is seen as critical. Most of the franchisees who

were willing to undertake further franchisees were in

product franchising business.

No 14%

Yes 36%

To an extent 50%

Franchisee Support & Relationship Management

Initial set up support

Training support

Employee Recruitment Support

Support in equipment procurement

Marketing and PR support

0 2 4 6 8 10 12 14

Franchisee View Preference for additional franchisees

Yes 23%

May be 23%

No 54%


Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013


12

8

5

9

13

10

7

6

3

12







Financial Returns Management Key challenges in Franchising

Areas of Collaboration

Franchisee motivation

Marketing & Promotions

Employee Training

Revenue Management

Cost management

Risk management

13

10

8

9

5

0 5 10 15

Give option to franchisee tobecome master franchisee

Invite franchisees to strategy & policy making meetings

Involve franchisees in new product development

Offer shareholding in company to star performers

Share sales data and success of other franchisees

6

5

5

1

6

0 2 4 6

Location

Rentals

Recruitment of right talent

Retaining employees

Capital Constraints

7

8

4

2

5

0 2 4 6 8 10

Location

Rentals – High real estate prices


Retaining employees

Capital Constraints

Appraisal system followed by the franchisor

Ongoing Market Support

0 1 2 3 4 5 6 7 8 9 10

Getting the Franchisee to maintain brand & quality

standards at agreed levels

Maintaining stock at agreed levels

Payment related concerns

Recruitment of skilled employees by

Franchisees

2

2

6

4

0 1 2 3 4 5 6

Financial returns management comprises of managing Franchisors, concerned about the under reporting o

revenues and costs at the franchisees to ensure high sales and other theft activities at the franchisee stores,

profitability. undertake periodic audits to obtain evidence of under

reporting, unauthorized transfer, unauthorized

is a mutually critical area of distribution and supply channels. Having a mutually

collaboration, which is often ignored by most trust oriented business model subjected to disciplined

franchisors, both big and small. Franchisee growth is audit process, would lead to better revenue

not only important for the franchisee but also for the management for the franchisors.

franchisor. However, besides high level marketing

support, most franchisors fail to recognize the need to is another emerging area which

monitor and train the franchisees to manage business franchisors are focusing on keeping a tab on the overall

growth, or at least so is what the franchisees believe. costs incurred by the franchisees, thus assuring them

Most franchisees opine that franchisors are only the returns. However, very few brands, especially those

interested in the revenue share, irrespective of the at national level, are interested in undertaking cost

overall financial performance of the franchisees. This is management of franchisees to improve their

predominantly the reason why several franchisees, profitability. This is primarily because franchisors usually

despite achieving promised financial returns, are not get a share of the revenues and not of the profits and

willing to consider expanding with the same franchisor. hence, the low interest level. High store rentals at

However, some of the leading national brands are franchisor approved locations coupled with increasing

making conscious efforts in augmenting the franchisee cost of hiring and retaining employees eat into the

revenues and are handholding the businesses till margins of franchisees.

stability is achieved.

Revenue Management

Cost Management

The relationship between a Franchisor and Franchise is

dynamic and composite. Most of the franchisors opined

that they support their Franchisees in more than one

ways. While most common form of support is in

marketing and brand promotion, help is also extended in

areas of employee training and management of risk,

cost and revenues.

In terms of the common practices followed by

franchisors, most franchisors are practicing a host of

collaborative efforts with franchisees except offering

shareholding in the company to high performers.

Both franchisors and franchisees face certain payments by franchisees in such a scenario where

challenges before and during operations. From the business viability is being threatened. The survey also

survey it is clearly evident that rentals are impacting indicated that one of the key reasons for attrition in the

profitability of franchisees and overall business viability. franchising space is due to falling profits.

Franchisors too are concerned about consistent royalty

Franchisor View - Franchisee Challenges in Operations

The biggest of the franchisee challenges in operations

are related to real estate. Setting up businesses in the

desired locations and paying high rentals is on the top of

the challenges. Besides these, deploying the right talent

and funding the business operations are also other

challenges faced by the franchisees

Franchisee View - Operational Challenges of Franchisees

While location and rentals are biggest problems faced

by franchisees, recruitment of right employee &

retaining them is also suggested as a key concern by

franchisees.

Operational Challenges in Franchising

There are various challenges in franchising operations

such as aspects related to day to day operations

(inventory keeping, employee recruitment etc).

However, the biggest concern amongst the franchisors

is related to payment of revenue shares as agreed in the

initial phase of the business. Sometimes, few

franchisees tend to under-report the revenues which

might lead to loss for the franchisors.



4

2

8

5

9

7







Financial Returns Management Key challenges in Franchising

Areas of Collaboration

Franchisee motivation

Marketing & Promotions

Employee Training

Revenue Management

Cost management

Risk management

13

10

8

9

5

0 5 10 15

Give option to franchisee tobecome master franchisee

Invite franchisees to strategy & policy making meetings

Involve franchisees in new product development

Offer shareholding in company to star performers

Share sales data and success of other franchisees

6

5

5

1

6

0 2 4 6

Location

Rentals


Retaining employees

Capital Constraints

7

8

4

2

5

0 2 4 6 8 10

Location

Rentals – High real estate prices


Retaining employees

Capital Constraints

Appraisal system followed by the franchisor

Ongoing Market Support

0 1 2 3 4 5 6 7 8 9 10

Getting the Franchisee to maintain brand & quality

standards at agreed levels

Maintaining stock at agreed levels

Payment related concerns

Recruitment of skilled employees by

Franchisees

2

2

6

4

0 1 2 3 4 5 6

Financial returns management comprises of managing Franchisors, concerned about the under reporting o

revenues and costs at the franchisees to ensure high sales and other theft activities at the franchisee stores,

profitability. undertake periodic audits to obtain evidence of under

reporting, unauthorized transfer, unauthorized

is a mutually critical area of distribution and supply channels. Having a mutually

collaboration, which is often ignored by most trust oriented business model subjected to disciplined

franchisors, both big and small. Franchisee growth is audit process, would lead to better revenue

not only important for the franchisee but also for the management for the franchisors.

franchisor. However, besides high level marketing

support, most franchisors fail to recognize the need to is another emerging area which

monitor and train the franchisees to manage business franchisors are focusing on keeping a tab on the overall

growth, or at least so is what the franchisees believe. costs incurred by the franchisees, thus assuring them

Most franchisees opine that franchisors are only the returns. However, very few brands, especially those

interested in the revenue share, irrespective of the at national level, are interested in undertaking cost

overall financial performance of the franchisees. This is management of franchisees to improve their

predominantly the reason why several franchisees, profitability. This is primarily because franchisors usually

despite achieving promised financial returns, are not get a share of the revenues and not of the profits and

willing to consider expanding with the same franchisor. hence, the low interest level. High store rentals at

However, some of the leading national brands are franchisor approved locations coupled with increasing

making conscious efforts in augmenting the franchisee cost of hiring and retaining employees eat into the

revenues and are handholding the businesses till margins of franchisees.

stability is achieved.

Revenue Management

Cost Management

The relationship between a Franchisor and Franchise is

dynamic and composite. Most of the franchisors opined

that they support their Franchisees in more than one

ways. While most common form of support is in

marketing and brand promotion, help is also extended in

areas of employee training and management of risk,

cost and revenues.

In terms of the common practices followed by

franchisors, most franchisors are practicing a host of

collaborative efforts with franchisees except offering

shareholding in the company to high performers.

Both franchisors and franchisees face certain payments by franchisees in such a scenario where

challenges before and during operations. From the business viability is being threatened. The survey also

survey it is clearly evident that rentals are impacting indicated that one of the key reasons for attrition in the

profitability of franchisees and overall business viability. franchising space is due to falling profits.

Franchisors too are concerned about consistent royalty

Franchisor View - Franchisee Challenges in Operations

The biggest of the franchisee challenges in operations

are related to real estate. Setting up businesses in the

desired locations and paying high rentals is on the top of

the challenges. Besides these, deploying the right talent

and funding the business operations are also other

challenges faced by the franchisees

Franchisee View - Operational Challenges of Franchisees

While location and rentals are biggest problems faced

by franchisees, recruitment of right employee &

retaining them is also suggested as a key concern by

franchisees.

Operational Challenges in Franchising

There are various challenges in franchising operations

such as aspects related to day to day operations

(inventory keeping, employee recruitment etc).

However, the biggest concern amongst the franchisors

is related to payment of revenue shares as agreed in the

initial phase of the business. Sometimes, few

franchisees tend to under-report the revenues which

might lead to loss for the franchisors.



4

2

8

5

9

7





Conflict Management

Reasons for Franchisee Attrition

Attrition was found to be fairly common in the franchise

business with the major reason being falling profits for

the business.

Falling profits

Dissatisfaction in relationship

Personal problems

6

2

2

0 1 2 3 4 5 6 7

There are several causes of friction between the Franchisors need to evolve amicable strategies to

franchisors and franchisees, which if not addressed in address various risks that could emerge during the

the beginning, could cause a rift between them which course of business relationship. Such strategies are

might eventually lead to severance of relationship. essential in the long run for the sustenance of the

While most franchisors are aware of the problems with franchisor-franchisee network. Several of the national

franchisees, matters become worse, when then turn brands have developed a proactive, positive and a

blind eye to the problems. disciplined culture that rewards franchisees in a fair

manner. Greater communicative collaboration between

franchisors and regulators will improve the perception

of equity in franchising relationships and promote

superior perception of trust in franchising as a business ? Low expenditure on regional marketing and

model.advertising

? Additional marketing fee for regional publicity,

despite a high revenue share allocation

? Transcending geographical exclusivity or reducing

radius of coverage

? Lack of empathy by franchisor employees handling

franchisees

? Poor training of franchisees and inadequate

handholding during initial stages of operation

? Financial pressures leading to short term decision

making by franchisors

? Not considering franchisees as the critical part of the

franchisee ecosystem

? Lack of effective communication system with one

sided communication to franchisees

? Lack of “on-par” treatment with franchisees leading

to decisions being thrust on them

? Lack of professional approach to franchisee

relationship management

? Rumor mongering amongst franchisees

? Non-sharing of financial stakes in the franchisor

organization, especially when going public

Some of the key areas of conflict between

franchisors and franchisees include:





Conflict Management

Reasons for Franchisee Attrition

Attrition was found to be fairly common in the franchise

business with the major reason being falling profits for

the business.

Falling profits

Dissatisfaction in relationship

Personal problems

6

2

2

0 1 2 3 4 5 6 7

There are several causes of friction between the Franchisors need to evolve amicable strategies to

franchisors and franchisees, which if not addressed in address various risks that could emerge during the

the beginning, could cause a rift between them which course of business relationship. Such strategies are

might eventually lead to severance of relationship. essential in the long run for the sustenance of the

While most franchisors are aware of the problems with franchisor-franchisee network. Several of the national

franchisees, matters become worse, when then turn brands have developed a proactive, positive and a

blind eye to the problems. disciplined culture that rewards franchisees in a fair

manner. Greater communicative collaboration between

franchisors and regulators will improve the perception

of equity in franchising relationships and promote

superior perception of trust in franchising as a business ? Low expenditure on regional marketing and

model.advertising

? Additional marketing fee for regional publicity,

despite a high revenue share allocation

? Transcending geographical exclusivity or reducing

radius of coverage

? Lack of empathy by franchisor employees handling

franchisees

? Poor training of franchisees and inadequate

handholding during initial stages of operation

? Financial pressures leading to short term decision

making by franchisors

? Not considering franchisees as the critical part of the

franchisee ecosystem

? Lack of effective communication system with one

sided communication to franchisees

? Lack of “on-par” treatment with franchisees leading

to decisions being thrust on them

? Lack of professional approach to franchisee

relationship management

? Rumor mongering amongst franchisees

? Non-sharing of financial stakes in the franchisor

organization, especially when going public

Some of the key areas of conflict between

franchisors and franchisees include:





International scenario for franchising regulations

Every country follows different disclosure laws, relationship laws

regulatory models for the and competition, infringement and

franchising industry, which are registration laws, as depicted in the

guided by varying domestic factors. following figure.

Therefore, there are various sets of

Source: International Franchising Association, KPMG India analysis

• Brazil

• Federal

• Mexico

United States

• Canada

• State laws

Venezuela(Competition law)

• Albania

• Georgia• Moldova

• Belarus

• Russia• Ukraine

• Australia• Indonesia• Malaysia

• China• Japan• Macau• South Korea

• Vietnam• Taiwan

• Mongolia• Kazakhstan• Kyrgyzstan

EU (competition law)

• Belgium• Estonia• France• Lithuania

• Spain• Sweden

Within EU:

• Italy• Romania

Saudi Arabia (Commercial agency law)

South Africa

Very high degree of control through laws and government interventions

Disclosure Law Relationship Law Disclosure and relationship law Other

Undoubtedly, this lends more The franchising laws in other hybrid franchise model, which

credibility to the franchise business markets such as Australia, Brazil and includes a dedicated law for

in every country. The US is Malaysia, are also similar to those in franchising and a protectionist trade

considered to be a highly regulated the US. The few differences among policy that gives the government

market, as it regulates franchise them are a result of situational complete control over foreign trade.The UK, on the other hand, does not operations at federal and state modifications in the various aspects have any dedicated legislation for levels. The focus is to curb potential based on domestic factors, which the franchising industry. However, it infringement in franchising. These are unique to each country.regulates franchise operations include pre-contractual disclosure,

A combination of disclosure and under existing general laws in-term relationship between relationship laws make Malaysia and governing business operations.franchisors and franchisees and Australia highly regulated markets.

consumer protection laws. Malaysia has a comprehensive






International scenario for franchising regulations

Every country follows different disclosure laws, relationship laws

regulatory models for the and competition, infringement and

franchising industry, which are registration laws, as depicted in the

guided by varying domestic factors. following figure.

Therefore, there are various sets of

Source: International Franchising Association, KPMG India analysis

• Brazil

• Federal

• Mexico

United States

• Canada

• State laws

Venezuela(Competition law)

• Albania

• Georgia• Moldova

• Belarus

• Russia• Ukraine

• Australia• Indonesia• Malaysia

• China• Japan• Macau• South Korea

• Vietnam• Taiwan

• Mongolia• Kazakhstan• Kyrgyzstan

EU (competition law)

• Belgium• Estonia• France• Lithuania

• Spain• Sweden

Within EU:

• Italy• Romania

Saudi Arabia (Commercial agency law)

South Africa

Very high degree of control through laws and government interventions

Disclosure Law Relationship Law Disclosure and relationship law Other

Undoubtedly, this lends more The franchising laws in other hybrid franchise model, which

credibility to the franchise business markets such as Australia, Brazil and includes a dedicated law for

in every country. The US is Malaysia, are also similar to those in franchising and a protectionist trade

considered to be a highly regulated the US. The few differences among policy that gives the government

market, as it regulates franchise them are a result of situational complete control over foreign trade.The UK, on the other hand, does not operations at federal and state modifications in the various aspects have any dedicated legislation for levels. The focus is to curb potential based on domestic factors, which the franchising industry. However, it infringement in franchising. These are unique to each country.regulates franchise operations include pre-contractual disclosure,

A combination of disclosure and under existing general laws in-term relationship between relationship laws make Malaysia and governing business operations.franchisors and franchisees and Australia highly regulated markets.

consumer protection laws. Malaysia has a comprehensive




A comparison of franchising regulations in selected countries with high degree of control through laws and

legislations:

Australia Brazil

Law governing Franchising

Disclosure norms

Relationship laws

Registration laws

Dispute resolution

Intellectual property andinfringement issues

Governance Mechanism

‘Franchising Code of Conduct’, under the Trade Practices Act 1975 Additionally. Other laws relating to fair trading and business operations are also applicable

• Mandatory - Franchisors must provide a copy of the Franchising Code of Conduct (the Code) and a disclosure document to prospective franchisees prior to a franchise sale, renewal, or extension.

• A 7-day cooling off period is given to the franchisee once the franchise agreement has been signed.

• The Code has specific provisions regarding breach, termination, mediation, and transfers of the franchise.

None

• The Code establishes a dispute resolution scheme for parties to a franchise agreement.

• However, in case a satisfactory outcome is not reached, the Office of the Franchising Mediation Adviser (OFMA) provides a mediation service, to ensure timely address to all disputes. A breach of the Franchising Code is a breach of the Competition and Consumer Act 2010 (CCA).

Trademarks, know-how and trade secrets are all protected by following laws:• Patents Act 1990• Patents Regulations 1991• Trade Marks Act 1995 except Part 13, administered by

Australian Customs Service (ACS)• Trade Marks Regulations 1995• Designs Act 2003 - this came into force on 17 June 2004• Plant Breeder's Rights Act 1994sfsfbsfbsfbsefbsfb

The Brazilian Franchise Law (Law No. 8955 of December 15, 1994)

Pre-contractual disclosure is mandatory to submit.

None

Registration of the agreement (translated into Portuguese) with the Brazilian Patent and Trademark office (INPI) and Central Bank is required.

Not specified separately

Brazil adopts the “first to file” system, a trademark is protected only after registration at the INPI. Any trademark has to be registered in order to be valid and enforceable. Further, the National Institute of Industrial Property (INPI) requires that the franchised trademarks have been at least filed with the INPI, in order to enable the parties to record a franchise agreement in Brazil.

Failure by the franchisor to supply Franchising Disclosure Document (FDD) in time renders the agreement voidable. It penalizes the franchisor with the refund of all amounts paid by franchisee in connection with the franchise, plus recovery of damages.

MALAYSIA US

Franchise (Amendment) Act 2012

Mandatory to submit by the Franchisor

A 7 working days of “cooling off” period after the agreement has been signed, has been given to franchisees.

• Minimum term for franchise agreement is five years. Compensation to franchisee if franchisor refuses to renew, while no termination of the agreement except for good cause.

In pursuant to the Act, registration is also compulsory for companies / businesses registered with the Prime Minister's Department or the former KPuN (Ministry) prior to the introduction of the Franchise (Amendment) Act 2012.


• Conducting the same business ('cloning' the business): Act requires the franchisee and its employees to comply with their non-competition covenants during the term of the franchise agreement and for a period of two years after the expiration or termination of the franchise agreement. A non-competition would otherwise be considered void under the Malaysian Contracts Act 1950 is regarded as enforceable under the Franchise Act.

• Section 20 of the Act prohibits the franchisor to discriminate its franchisees in matters i.e. the franchise fees, royalties, supply of goods and services, rentals, and advertising services Violation of the Act does not give rise to a private right of action.

• In addition to these powers afforded by the Franchise Act, all or any of the powers relating to police investigation in sizeable cases pursuant to the Malaysian Criminal Procedure Code shall also apply

The Federal Trade Commission (FTC) Franchise Rule and state specific laws.

At the federal level, pre-sale disclosure is required.

At the state level, there are 15 states that have laws requiring pre-sale disclosure.

At the federal level, no “relationship” law is applicable to franchise relations. However more than 15 states regulate some aspects of the franchise relations (e.g., termination, renewal).

No disclosure document is required to be filed or registered under federal act. However, different states need the documents to be thoroughly reviewed and registered at the state levels.


Franchisor must disclose in the FDD whether the franchisor owns rights in, or licenses to, patents or copyrights that are material to the franchise.

Most common types of violations of franchise laws• Offering or selling an unregistered franchise• Failing to provide a The Uniform Franchise Offering Circular (UFOC) on

time• Making misrepresentations to franchisee prospects• Improperly terminating or not renewing a franchise

The violation of state laws typically treated under the statutes as either a fraudulent and deceptive trade practice. It causes money damages (including punitive damages and attorney's fees), or cancellation of the franchise agreement and reimbursement of all fees paid to the franchisor.

Types of Registration Definition

Section 6

- Franchisor (Local)

- Master Franchisees (Local)

Section 54

- Foreign Franchisor (Local)

Section 55 -

Foreign Franchisor (Local)

Franchisees to

Registration for a Franchisor before offering

to sell its franchise to any party

Registration for a Foreigners Intending to sell

its franchise in Malaysia or to any Malaysian

Citizen

Registration for Franchisees of a foreign

Franchisors



A comparison of franchising regulations in selected countries with high degree of control through laws and

legislations:

Australia Brazil

Law governing Franchising

Disclosure norms

Relationship laws

Registration laws

Dispute resolution

Intellectual property andinfringement issues

Governance Mechanism

‘Franchising Code of Conduct’, under the Trade Practices Act 1975 Additionally. Other laws relating to fair trading and business operations are also applicable

• Mandatory - Franchisors must provide a copy of the Franchising Code of Conduct (the Code) and a disclosure document to prospective franchisees prior to a franchise sale, renewal, or extension.

• A 7-day cooling off period is given to the franchisee once the franchise agreement has been signed.

• The Code has specific provisions regarding breach, termination, mediation, and transfers of the franchise.

None

• The Code establishes a dispute resolution scheme for parties to a franchise agreement.

• However, in case a satisfactory outcome is not reached, the Office of the Franchising Mediation Adviser (OFMA) provides a mediation service, to ensure timely address to all disputes. A breach of the Franchising Code is a breach of the Competition and Consumer Act 2010 (CCA).

Trademarks, know-how and trade secrets are all protected by following laws:• Patents Act 1990• Patents Regulations 1991• Trade Marks Act 1995 except Part 13, administered by

Australian Customs Service (ACS)• Trade Marks Regulations 1995• Designs Act 2003 - this came into force on 17 June 2004• Plant Breeder's Rights Act 1994sfsfbsfbsfbsefbsfb

The Brazilian Franchise Law (Law No. 8955 of December 15, 1994)

Pre-contractual disclosure is mandatory to submit.

None

Registration of the agreement (translated into Portuguese) with the Brazilian Patent and Trademark office (INPI) and Central Bank is required.


Brazil adopts the “first to file” system, a trademark is protected only after registration at the INPI. Any trademark has to be registered in order to be valid and enforceable. Further, the National Institute of Industrial Property (INPI) requires that the franchised trademarks have been at least filed with the INPI, in order to enable the parties to record a franchise agreement in Brazil.

Failure by the franchisor to supply Franchising Disclosure Document (FDD) in time renders the agreement voidable. It penalizes the franchisor with the refund of all amounts paid by franchisee in connection with the franchise, plus recovery of damages.

MALAYSIA US

Franchise (Amendment) Act 2012

Mandatory to submit by the Franchisor

A 7 working days of “cooling off” period after the agreement has been signed, has been given to franchisees.

• Minimum term for franchise agreement is five years. Compensation to franchisee if franchisor refuses to renew, while no termination of the agreement except for good cause.

In pursuant to the Act, registration is also compulsory for companies / businesses registered with the Prime Minister's Department or the former KPuN (Ministry) prior to the introduction of the Franchise (Amendment) Act 2012.


• Conducting the same business ('cloning' the business): Act requires the franchisee and its employees to comply with their non-competition covenants during the term of the franchise agreement and for a period of two years after the expiration or termination of the franchise agreement. A non-competition would otherwise be considered void under the Malaysian Contracts Act 1950 is regarded as enforceable under the Franchise Act.

• Section 20 of the Act prohibits the franchisor to discriminate its franchisees in matters i.e. the franchise fees, royalties, supply of goods and services, rentals, and advertising services Violation of the Act does not give rise to a private right of action.

• In addition to these powers afforded by the Franchise Act, all or any of the powers relating to police investigation in sizeable cases pursuant to the Malaysian Criminal Procedure Code shall also apply

The Federal Trade Commission (FTC) Franchise Rule and state specific laws.

At the federal level, pre-sale disclosure is required.

At the state level, there are 15 states that have laws requiring pre-sale disclosure.

At the federal level, no “relationship” law is applicable to franchise relations. However more than 15 states regulate some aspects of the franchise relations (e.g., termination, renewal).

No disclosure document is required to be filed or registered under federal act. However, different states need the documents to be thoroughly reviewed and registered at the state levels.


Franchisor must disclose in the FDD whether the franchisor owns rights in, or licenses to, patents or copyrights that are material to the franchise.

Most common types of violations of franchise laws• Offering or selling an unregistered franchise• Failing to provide a The Uniform Franchise Offering Circular (UFOC) on

time• Making misrepresentations to franchisee prospects• Improperly terminating or not renewing a franchise

The violation of state laws typically treated under the statutes as either a fraudulent and deceptive trade practice. It causes money damages (including punitive damages and attorney's fees), or cancellation of the franchise agreement and reimbursement of all fees paid to the franchisor.

Types of Registration Definition

Section 6

- Franchisor (Local)

- Master Franchisees (Local)

Section 54

- Foreign Franchisor (Local)

Section 55 -

Foreign Franchisor (Local)

Franchisees to

Registration for a Franchisor before offering

to sell its franchise to any party

Registration for a Foreigners Intending to sell

its franchise in Malaysia or to any Malaysian

Citizen

Registration for Franchisees of a foreign

Franchisors



Franchising legal framework in India

Following are the key laws governing the franchising

operations in India:

• The Indian Contract Act, 1872:

franchise contracts – such as offer, acceptance, validity, breach

and termination – and act as an ultimate point of reference to

determine the rights and obligations of the various parties of a

franchise agreement.

• Competition laws: All restrictive terms and regulations in

pursuant to the franchising operations in India fall under the

purview of the Monopolies and Restrictive Trade Practices Act,

1969 (MRTP Act). It restricts unfair and restrictive trade

practices in the franchising industry. Further, the Competition

Act, 2002, promotes healthy competition among all the players

in the industry. The act governs practices such as resale price

maintenance, tie-in products arrangement and the

consequences of mismatching registration requirements.

• Intellectual property laws: The Trademarks Act, 1999, the

Designs Act, 2000, the Patents Act, 1970, and the Copyright

Act 1957, govern the Intellectual Property Rights (IPRs) in India.

These include trademarks, patents, registered designs and

technical assistance required for franchising agreements.

• Consumer protection laws: These laws protect consumers

against the inconvenience caused due to defective goods and

unsatisfactory service. The Consumer Protection Act, 1986,

encourages Indian consumers to file complaints with the

consumer forums for any defects/deficiencies in the goods or

services supplied by the trader/franchisor. However, in such

cases, whether consumers have recourse to franchisors,

franchisees or both depends on the degree of control they have

on the business.

Additionally, the following statutes and laws also apply to

franchise operations in India:

• Foreign Exchange Management Act 1999 (FEMA)

• Labour laws

• Income Tax Act 1961

• Provincial Insolvency Act 1920

• All rules issued by the RBI

To govern all aspects of

FDI in Multi-brand Retail

India has recently made stores and will have to own and

amendments to its FDI policy operate the stores (CoCo Model) in

allowing up to 100 percent FDI in India. This change is expected to

single brand retail and up to 51 have a major impact on foreign

percent FDI in multi-brand retail. multi-brand retailers such as

However a recent clarification Carrefour, 7-Eleven etc which

issued by Department of Industrial predominantly operate on a

Policy and Promotion (DIPP) franchise model for global

suggests that foreign retailers may expansion.

not be allowed to franchise their

Foreign Retail Chain

Format Predominant Global Expansion model

Circle K

7-Eleven

Ikea

Howard’s

Convenience Store

Convenience Store

Furniture & Furnishing Store

Storage Solutions

FoFo

FoFo

FoFo

FoFo

Conclusion:

The entry of international brands in

India is guided by foreign exchange

laws — which include the Foreign

Exchange Management Act (FEMA),

1999, which was replaced by the

Foreign Exchange Regulation Act

(FERA), 1973, in June 2000 — and

several other important laws and

regulations. At times, adhering to

multiple laws creates challenges for

global franchisors.

The lack of effective disclosure norms

— which is otherwise present in

countries such as the US, Malaysia,

Australia, Indonesia and Japan —

proves to be disadvantageous for

prospective franchisees and

franchisors, as they are not obligated

to make all the required disclosures.

Moreover, both parties are never

certain of their rights and duties due

to the absence of legal documents.

All this underlines the need to

formulate comprehensive rules and

laws to check infringement.

India has become an attractive instances of deceit and

destination for business infringement.

A detailed study of countries such investments due to the rapid growth

as Australia, Brazil, Malaysia and the of consumerism, globalization and

US demonstrates the importance of liberalization. However, unlike

rules and regulations to regulate several countries, India lacks a

franchising operations. Every comprehensive policy to govern

country has formulated these rules franchising operations. This

keeping in mind domestic factors weakens foreign players' confidence

and requirements.in the country and often leads to

Source: Reserve Bank of India (RBI) website

Source: Published reports, discussions with legal experts

Source: http://thefirm.moneycontrol.com/story_page.php?autono=905844 - 2nd paragraph

Source:

1. Discussion with Howard's

2. 7-Eleven ->http://www.nec.com/en/case/7-eleven/

3. Ikea - http://inter.ikea.com/en/divisions/franchise/

4. Circle K - http://www.franchise-circlek.com/site/faqs



Franchising legal framework in India

Following are the key laws governing the franchising

operations in India:

• The Indian Contract Act, 1872:

franchise contracts – such as offer, acceptance, validity, breach

and termination – and act as an ultimate point of reference to

determine the rights and obligations of the various parties of a

franchise agreement.

• Competition laws: All restrictive terms and regulations in

pursuant to the franchising operations in India fall under the

purview of the Monopolies and Restrictive Trade Practices Act,

1969 (MRTP Act). It restricts unfair and restrictive trade

practices in the franchising industry. Further, the Competition

Act, 2002, promotes healthy competition among all the players

in the industry. The act governs practices such as resale price

maintenance, tie-in products arrangement and the

consequences of mismatching registration requirements.

• Intellectual property laws: The Trademarks Act, 1999, the

Designs Act, 2000, the Patents Act, 1970, and the Copyright

Act 1957, govern the Intellectual Property Rights (IPRs) in India.

These include trademarks, patents, registered designs and

technical assistance required for franchising agreements.

• Consumer protection laws: These laws protect consumers

against the inconvenience caused due to defective goods and

unsatisfactory service. The Consumer Protection Act, 1986,

encourages Indian consumers to file complaints with the

consumer forums for any defects/deficiencies in the goods or

services supplied by the trader/franchisor. However, in such

cases, whether consumers have recourse to franchisors,

franchisees or both depends on the degree of control they have

on the business.

Additionally, the following statutes and laws also apply to

franchise operations in India:

• Foreign Exchange Management Act 1999 (FEMA)

• Labour laws

• Income Tax Act 1961

• Provincial Insolvency Act 1920

• All rules issued by the RBI

To govern all aspects of

FDI in Multi-brand Retail

India has recently made stores and will have to own and

amendments to its FDI policy operate the stores (CoCo Model) in

allowing up to 100 percent FDI in India. This change is expected to

single brand retail and up to 51 have a major impact on foreign

percent FDI in multi-brand retail. multi-brand retailers such as

However a recent clarification Carrefour, 7-Eleven etc which

issued by Department of Industrial predominantly operate on a

Policy and Promotion (DIPP) franchise model for global

suggests that foreign retailers may expansion.

not be allowed to franchise their

Foreign Retail Chain

Format Predominant Global Expansion model

Circle K

7-Eleven

Ikea

Howard’s

Convenience Store

Convenience Store

Furniture & Furnishing Store

Storage Solutions

FoFo

FoFo

FoFo

FoFo

Conclusion:

The entry of international brands in

India is guided by foreign exchange

laws — which include the Foreign

Exchange Management Act (FEMA),

1999, which was replaced by the

Foreign Exchange Regulation Act

(FERA), 1973, in June 2000 — and

several other important laws and

regulations. At times, adhering to

multiple laws creates challenges for

global franchisors.

The lack of effective disclosure norms

— which is otherwise present in

countries such as the US, Malaysia,

Australia, Indonesia and Japan —

proves to be disadvantageous for

prospective franchisees and

franchisors, as they are not obligated

to make all the required disclosures.

Moreover, both parties are never

certain of their rights and duties due

to the absence of legal documents.

All this underlines the need to

formulate comprehensive rules and

laws to check infringement.

India has become an attractive instances of deceit and

destination for business infringement.

A detailed study of countries such investments due to the rapid growth

as Australia, Brazil, Malaysia and the of consumerism, globalization and

US demonstrates the importance of liberalization. However, unlike

rules and regulations to regulate several countries, India lacks a

franchising operations. Every comprehensive policy to govern

country has formulated these rules franchising operations. This

keeping in mind domestic factors weakens foreign players' confidence

and requirements.in the country and often leads to

Source: Reserve Bank of India (RBI) website

Source: Published reports, discussions with legal experts

Source: http://thefirm.moneycontrol.com/story_page.php?autono=905844 - 2nd paragraph

Source:

1. Discussion with Howard's

2. 7-Eleven ->http://www.nec.com/en/case/7-eleven/

3. Ikea - http://inter.ikea.com/en/divisions/franchise/

4. Circle K - http://www.franchise-circlek.com/site/faqs





Firms that have created an easily Some of the original pioneers of supporting franchisees within the

replicable business model, often Franchising such as Mcdonald's had area. The Master franchisee is

choose franchising as their begun their Franchising operations typically expected to own and

preferred route to expand their with this model. Today many brands operate some of their own outlets

operations and scale their brand. offer this model including Talwalkars and is usually set certain sales and 1However within the realm of HiFi, Lakme and VLCC in India. growth targets. The franchisees

Franchising, there are several within this area, often referred to as

franchising models that differ “sub-franchisees”, enter into a tri-

In the Area development model, significantly in terms of operation, partite agreement with the Master

Area developers are granted control and legal scope. This section franchisee and the main franchisor.

exclusive rights for a broad details these models and compares Typically, the Master franchisee will

geographical location to own and their relative attractiveness. Further, command royalties from the sub-

operate their own franchise outlets by accounting for certain unique franchisees and will pay a

and develop further franchisees for success factors within a sector, this percentage of these royalties to the

the franchisor. Typically, area section attempts to recommend franchisor. Further, the Master

developers are set certain targets in certain models for each sector. franchisee is expected to provide

terms of number of outlets within ongoing support to the sub-

the region. Most are often obligated franchisees. The Master franchisee

Direct or unit franchising is the to own and operate an outlet of route is typically used by foreign

classic form of franchising. In the their own. In most Area brands to enter international

Direct franchising model, the development models, the franchisor markets as they seldom have the

franchisor enters into an agreement still enters into a two-party regional knowledge and cultural

with the franchisee allowing for one agreement with the franchisee and acumen to successfully carry out

franchised-outlet to be open by the is still expected to provide ongoing business and franchising operations.

franchisee that is typically protected support to the franchisee thus Typically the Master Franchisee is

by guarantee of exclusivity for a offering a good degree of control to granted at a National Level. But

certain geographical area. In most the franchisor. However the given India’s size, cultural diversity

cases the franchisee will not be franchisor will likely share a and economic stratification a hybrid

obligated to achieve certain sales or percentage of the royalties with the model between an Area Developer

growth targets. The franchisor is Area developer. Many companies and a National Master Franchisee

usually expected to provide ongoing offer this type of franchise model such as a Regional Master

product and marketing support to within their home country including Franchisee, covering smaller areas

the franchisee. In return the brands such as Maui Tacos and like West India or Karnataka and

franchisor typically commands a Salad Creations. Andhra Pradesh, merits serious

percentage of profits as royalties in consideration in a country like India. addition to the initial franchising fee. In India, International brands such

Under the Master franchising The direct franchising model offers as Gold’s Gym and Hard Rock Café model, the franchisor appoints a a significant amount of control for and domestic brands such as Master franchisee for a broad the franchisor and entails a two- Jumbo King and Chocolate Room geographical area with the party contractual agreement have pursued this route.responsibility of opening and between franchisor and franchisee.

Area Development:

Direct Franchising:

Master Franchising:





Firms that have created an easily Some of the original pioneers of supporting franchisees within the

replicable business model, often Franchising such as Mcdonald's had area. The Master franchisee is

choose franchising as their begun their Franchising operations typically expected to own and

preferred route to expand their with this model. Today many brands operate some of their own outlets

operations and scale their brand. offer this model including Talwalkars and is usually set certain sales and 1However within the realm of HiFi, Lakme and VLCC in India. growth targets. The franchisees

Franchising, there are several within this area, often referred to as

franchising models that differ “sub-franchisees”, enter into a tri-

In the Area development model, significantly in terms of operation, partite agreement with the Master

Area developers are granted control and legal scope. This section franchisee and the main franchisor.

exclusive rights for a broad details these models and compares Typically, the Master franchisee will

geographical location to own and their relative attractiveness. Further, command royalties from the sub-

operate their own franchise outlets by accounting for certain unique franchisees and will pay a

and develop further franchisees for success factors within a sector, this percentage of these royalties to the

the franchisor. Typically, area section attempts to recommend franchisor. Further, the Master

developers are set certain targets in certain models for each sector. franchisee is expected to provide

terms of number of outlets within ongoing support to the sub-

the region. Most are often obligated franchisees. The Master franchisee

Direct or unit franchising is the to own and operate an outlet of route is typically used by foreign

classic form of franchising. In the their own. In most Area brands to enter international

Direct franchising model, the development models, the franchisor markets as they seldom have the

franchisor enters into an agreement still enters into a two-party regional knowledge and cultural

with the franchisee allowing for one agreement with the franchisee and acumen to successfully carry out

franchised-outlet to be open by the is still expected to provide ongoing business and franchising operations.

franchisee that is typically protected support to the franchisee thus Typically the Master Franchisee is

by guarantee of exclusivity for a offering a good degree of control to granted at a National Level. But

certain geographical area. In most the franchisor. However the given India’s size, cultural diversity

cases the franchisee will not be franchisor will likely share a and economic stratification a hybrid

obligated to achieve certain sales or percentage of the royalties with the model between an Area Developer

growth targets. The franchisor is Area developer. Many companies and a National Master Franchisee

usually expected to provide ongoing offer this type of franchise model such as a Regional Master

product and marketing support to within their home country including Franchisee, covering smaller areas

the franchisee. In return the brands such as Maui Tacos and like West India or Karnataka and

franchisor typically commands a Salad Creations. Andhra Pradesh, merits serious

percentage of profits as royalties in consideration in a country like India. addition to the initial franchising fee. In India, International brands such

Under the Master franchising The direct franchising model offers as Gold’s Gym and Hard Rock Café model, the franchisor appoints a a significant amount of control for and domestic brands such as Master franchisee for a broad the franchisor and entails a two- Jumbo King and Chocolate Room geographical area with the party contractual agreement have pursued this route.responsibility of opening and between franchisor and franchisee.

Area Development:

Direct Franchising:

Master Franchising:



Below is a table that compares the relative degrees of attractiveness of each model.

In addition to the franchise models which they build the trust to acquire cases where Franchisors acquire

listed above, there exist various rights for an area. Similarly, National back the direct franchising rights of

hybrids and conversions between Master Franchisees are given an area upon certain criteria, such

the models. For example, Area country-wide rights only upon as cultural acumen or numbers of

developers often start with the showcasing success as a Regional outlets, being met.

Direct franchising model upon Master Franchisee. There have been

Sector amenity to franchise models

This section explores the optimum balance between quality presence. With the franchisor

amenability of certain sectors to control and sensitivity to local preferring control over logistics,

certain franchise models. From the tastes. In such a scenario a well- bargaining power with the

franchisor's perspective, appointed Regional Master franchisee and a quick Time to

prioritization among factors such as franchisee with detailed local market, an Area developer is ideal in

Quality control, Process knowledge and business acumen these circumstances.

Standardization, Inventory costs and would be ideal. It bridges the - Franchising Time to Market are likely to change cultural gap that exists between the

within the education sector is depending on the chosen sector franchisor and the market while characterized by the need to and this is then likely to have an ensuring standardized process and maintain excellent relationships with impact on the choice of the customized distribution avenues the franchisee. Constant feedback franchise model. without the resources usually from the franchisee will help expended in overseeing several

– The improve the product while constant individual outlets.critical success factor of a brand support from the franchisor is

within the F&B sector is the brand's – Within the retail paramount. Localization is limited to

ability to standardize a unique sector, distribution/supply chain is of National sphere and thus in these

experience across several outlets utmost importance given the level circumstances, a National Master

while localizing its tastes and of competition. In addition, securing Franchisee is preferred, especially

products. Simultaneously, food franchisee loyalty is crucial and thus for an International brand, as this

safety and quality standards are relationship management and layered approach ensures minimum

critical as well as an efficient supply- franchisee profitability is critical. resource expenditure for oversight

chain that usually carries the brand's Further, Time to market and scale

unique produce. There is an are important as they build on brand

Education sector

Food & Beverage sector

Retail sector

while ensuring a effective delivery quality service experience is franchisees.

Below is a table that summarizes mechanism for any product essential in the Beauty, health and

the choice of franchising model for upgrades. wellness segment. Many of the

an industry. As mentioned before business within this segment

– Customer several hybrids exist within these employ machinery, often patented,

experience is paramount within the models and firms often switch or to service their customers. In these

service industry. This coupled with convert between models as their scenarios, the franchisor is keen to

tight quality controls are critical own expertise within a market avoid the upfront Inventory and

success factors. Control over increases over time. Further the size holding costs to efficiently support

franchisees is an important factor of an Area developer/ Regional and service a large network of

and in this scenario, direct Master Franchisee's geographical potential franchisees and thus a

franchising is expected to yield the area is determined by the specific Regional Master Franchisee is often

most favorable results. business and the goals of the employed as they are able to

franchisor.effectively deploy quality control – mechanisms within the area while Similar to the general service sector, catering to the inventory needs of

Service sector

Beauty, Health and Wellness

Key operating business models for franchising

8 Analyzing the Business Model Concept — A Comprehensive Classification of Literature, T. Burkhart, J. Krumeich, D. Werth, and P. Loos



Time To Market

Profitability

Ease Of Contracting


Control




Food and Beverage

Retail

Education

Service

Wellness and Health

Standardized Experience, Localized Tastes, Quality

control and Supply chain efficiency

Supply chain efficiency, Relationship Management,

Franchisee Loyalty, Time to Market

Relationship management and Product upgradation

Quality control and Standardized Experience

Standardized Experience, inventory Management and

Quality control

Direct Area Regional Master National Master Success Factors

ü

ü

ü

ü

ü

A business model describes the This This

rationale of how an organization business model involves business model involves company's

creates, delivers, and captures value franchisee’s own investment for own investment for setting up the

(economic, social, cultural, or other setting up the store. It shifts the risk store. The outlets involve higher 8 of investment of the company to capital, and relatively slower forms of value) . There are different

the franchise holder. Franchise business growth for the business. kinds of business operating models

operator, is generally aware about However, with no middle-men globally across various industries of

the local market dynamics, hence involvements, company tends to which franchising is a key business

strategically plans operations such generate higher RoI and avoid model, for those who aim to

as purchase, recruitment, instances of theft and shop-lifting facilitate rapid expansion in short

marketing, distribution and end- etc. time by using limited resources and

consumer services. It tends to minimizing risks.

Any company can operate through operate better than the company

the following business models: and delivers faster growth to the

business.

Franchise owned outlets: Company owned stores:





Below is a table that compares the relative degrees of attractiveness of each model.

In addition to the franchise models which they build the trust to acquire cases where Franchisors acquire

listed above, there exist various rights for an area. Similarly, National back the direct franchising rights of

hybrids and conversions between Master Franchisees are given an area upon certain criteria, such

the models. For example, Area country-wide rights only upon as cultural acumen or numbers of

developers often start with the showcasing success as a Regional outlets, being met.

Direct franchising model upon Master Franchisee. There have been

Sector amenity to franchise models

This section explores the optimum balance between quality presence. With the franchisor

amenability of certain sectors to control and sensitivity to local preferring control over logistics,

certain franchise models. From the tastes. In such a scenario a well- bargaining power with the

franchisor's perspective, appointed Regional Master franchisee and a quick Time to

prioritization among factors such as franchisee with detailed local market, an Area developer is ideal in

Quality control, Process knowledge and business acumen these circumstances.

Standardization, Inventory costs and would be ideal. It bridges the - Franchising Time to Market are likely to change cultural gap that exists between the

within the education sector is depending on the chosen sector franchisor and the market while characterized by the need to and this is then likely to have an ensuring standardized process and maintain excellent relationships with impact on the choice of the customized distribution avenues the franchisee. Constant feedback franchise model. without the resources usually from the franchisee will help expended in overseeing several

– The improve the product while constant individual outlets.critical success factor of a brand support from the franchisor is

within the F&B sector is the brand's – Within the retail paramount. Localization is limited to

ability to standardize a unique sector, distribution/supply chain is of National sphere and thus in these

experience across several outlets utmost importance given the level circumstances, a National Master

while localizing its tastes and of competition. In addition, securing Franchisee is preferred, especially

products. Simultaneously, food franchisee loyalty is crucial and thus for an International brand, as this

safety and quality standards are relationship management and layered approach ensures minimum

critical as well as an efficient supply- franchisee profitability is critical. resource expenditure for oversight

chain that usually carries the brand's Further, Time to market and scale

unique produce. There is an are important as they build on brand

Education sector

Food & Beverage sector

Retail sector

while ensuring a effective delivery quality service experience is franchisees.

Below is a table that summarizes mechanism for any product essential in the Beauty, health and

the choice of franchising model for upgrades. wellness segment. Many of the

an industry. As mentioned before business within this segment

– Customer several hybrids exist within these employ machinery, often patented,

experience is paramount within the models and firms often switch or to service their customers. In these

service industry. This coupled with convert between models as their scenarios, the franchisor is keen to

tight quality controls are critical own expertise within a market avoid the upfront Inventory and

success factors. Control over increases over time. Further the size holding costs to efficiently support

franchisees is an important factor of an Area developer/ Regional and service a large network of

and in this scenario, direct Master Franchisee's geographical potential franchisees and thus a

franchising is expected to yield the area is determined by the specific Regional Master Franchisee is often

most favorable results. business and the goals of the employed as they are able to

franchisor.effectively deploy quality control – mechanisms within the area while Similar to the general service sector, catering to the inventory needs of

Service sector

Beauty, Health and Wellness

Key operating business models for franchising

8 Analyzing the Business Model Concept — A Comprehensive Classification of Literature, T. Burkhart, J. Krumeich, D. Werth, and P. Loos



Time To Market

Profitability

Ease Of Contracting


Control




Food and Beverage

Retail

Education

Service

Wellness and Health

Standardized Experience, Localized Tastes, Quality

control and Supply chain efficiency

Supply chain efficiency, Relationship Management,

Franchisee Loyalty, Time to Market

Relationship management and Product upgradation

Quality control and Standardized Experience

Standardized Experience, inventory Management and

Quality control

Direct Area Regional Master National Master Success Factors

ü

ü

ü

ü

ü

A business model describes the This This

rationale of how an organization business model involves business model involves company's

creates, delivers, and captures value franchisee’s own investment for own investment for setting up the

(economic, social, cultural, or other setting up the store. It shifts the risk store. The outlets involve higher 8 of investment of the company to capital, and relatively slower forms of value) . There are different

the franchise holder. Franchise business growth for the business. kinds of business operating models

operator, is generally aware about However, with no middle-men globally across various industries of

the local market dynamics, hence involvements, company tends to which franchising is a key business

strategically plans operations such generate higher RoI and avoid model, for those who aim to

as purchase, recruitment, instances of theft and shop-lifting facilitate rapid expansion in short

marketing, distribution and end- etc. time by using limited resources and

consumer services. It tends to minimizing risks.

Any company can operate through operate better than the company

the following business models: and delivers faster growth to the

business.

Franchise owned outlets: Company owned stores:





A detail study of existing business models related to franchising in India:

Company owned company operated (CoCo)

Company owned franchise operated (CoFo) and Franchise owned company operated (FoCo)

Pros

Cons

Key sectors

Franchise owned franchise operated (FoFo)

•control over business operations.

• Complete onus of supply chain management due to no middle-men involvement, leads to less wastages and shrinkages.

• The company gains better understanding on the regional growth dynamics which could help in long term sustainability and scalability of business.

• Maximum time is spent on the thorough compliance with operations manual on a day-to-day basis.

• Understanding the regional culture and diversities may delay break-even for the business.

• Business gains scale at a relatively slower pace.

• Training and managing manpower in such stores remains a big challenge.

• Applicable to all the industries.

Company has complete • In both these operating models, a company invests in a franchisee but not necessarily monetarily.

• Minimal investment from a franchisor and significant interest from a franchisee ensures impressive growth.

• A franchisor might invest along with a franchisee or support him in the financial profitability of the business.

• Faster business growth in terms of increased market share, while maintaining control over stores.

• The franchisor-franchisee relationship could be critical.

• The onus of supply chain gets split among franchisor and franchisee, leading to higher chances of wastages and shrinkage.

• F&B, Health and wellness

• All operational rights and responsibilities lies with the franchisee, hence the franchisor (company) can invest more time on the strategy development of the business.

• Here, a franchisee makes the investment. As a result, he/she is self-motivated and does everything possible to ensure the success of his/her business.

• It is possible to grow exponentially, as multiple outlets provide economies of scale and increase margins


• The onus of supply chain gets split among franchisor and franchisee, leads to higher chances of wastages and shrinkage.

• Retail industry- apparels specially, consumer services such as courier business.

Franchising - Route to Growth in Tier 2 & Tier 3 locations

Over the last couple of decades the Given current GDP growth the challenges of accessing these

Indian growth story has been forecasts, Indian disposable markets are being served by the

phenomenal, uplifting millions out of incomes will triple by 2025 with the informal/unorganized economy and

poverty, significantly increasing the middle class accounting for 41% of this presents a huge opportunity for

size of the middle class and bringing the population (~ 583 Mn. the franchising industry.

opportunity and aspiration to India's people).This middle class will begin Tiers 2 and 3 cities together account smaller towns and cities, frequently to move beyond Tier 1 cities and for 24 percent of India's households labeled as Tier 2 and Tier 3. spread into Tier 2, 3, and 4 cities and 23 percent of India's disposable with 45 to 58 percent of middle

With strong economic growth, income, a whopping 1.7 Lakh Crore class consumers residing in Tier 3 Incomes have risen rapidly across Rupees. Interestingly, Tier 3 towns and 4 cities and towns by 2025Indian households leading to the have almost as many middle-and

creation of a larger middle class and Through this continued growth upper-class citizens as Tier 2 cities

an increasing spending per-capita. India's smaller cities and rural areas but are smaller in size and thus

Not only have incomes increased have emerged as increasingly slightly richer. These figures are only

but the proportion of spending on attractive markets. Rural households set to grow and present an

discretionary items as against basic are collectively the larger share of immense opportunity for franchising

necessities has also increased. the consumer base and currently in Tier 2 and Tier 3 India.

Tier 2 and 3 growth and potential

Mumbai, Delhi, Kolkata

Nagpur, Surat, Agra, Patna,Rajkot, Jaipur, Lucknow, Bhopal,

Kanpur, Ludhiana, Nasik, Dhanbad

Classification of Towns and Cities in India

Number of Households in Millions

Mill

ions

30

20

10

0Tier 1 Tier 2 Tier 3 Tier 4

16.3

8.34.9

26.5

Income per Household in ‘000 of INR

186

129 135114

INR

('000

)

Tier 1 Tier 2 Tier 3 Tier 4

200

150

100

50

0

Share of Disposable Income


50%

40%

30%

20%

10%

0%

INR 00 Cr. 3034

INR 00 Cr. 1064 INR 00 Cr.

670

INR 00 Cr. 3009

39%

14%9%

39%

Tier 1Major Cities (8)

Tier 3 Climbers (33)

Tier 2 Mainstream Cities (26)

Tier 4 Small Towns (5094)

Bhubaneswar, Raipur, Jamshedpur, Vizag, Mangalore, Goa, Jodhpur, Gwalior, Amritsar,

Faridabad, Gorakhpur, Bhavnagar, etc.

Cuttack, Rourkela, Balasore, Bukharo, Shillonn, etc.

Population > 0.5 Million

Population > 4 Million

Popu

lation

> 1 M

illion

Source: KPMG in India analysis

Source: Census Data, NCAER Economic Survey, KPMG INDIA Analysis



A detail study of existing business models related to franchising in India:

Company owned company operated (CoCo)

Company owned franchise operated (CoFo) and Franchise owned company operated (FoCo)

Pros

Cons

Key sectors

Franchise owned franchise operated (FoFo)

•control over business operations.

• Complete onus of supply chain management due to no middle-men involvement, leads to less wastages and shrinkages.

• The company gains better understanding on the regional growth dynamics which could help in long term sustainability and scalability of business.

• Maximum time is spent on the thorough compliance with operations manual on a day-to-day basis.

• Understanding the regional culture and diversities may delay break-even for the business.

• Business gains scale at a relatively slower pace.

• Training and managing manpower in such stores remains a big challenge.

• Applicable to all the industries.

Company has complete • In both these operating models, a company invests in a franchisee but not necessarily monetarily.

• Minimal investment from a franchisor and significant interest from a franchisee ensures impressive growth.

• A franchisor might invest along with a franchisee or support him in the financial profitability of the business.

• Faster business growth in terms of increased market share, while maintaining control over stores.


• The onus of supply chain gets split among franchisor and franchisee, leading to higher chances of wastages and shrinkage.

• F&B, Health and wellness

• All operational rights and responsibilities lies with the franchisee, hence the franchisor (company) can invest more time on the strategy development of the business.

• Here, a franchisee makes the investment. As a result, he/she is self-motivated and does everything possible to ensure the success of his/her business.

• It is possible to grow exponentially, as multiple outlets provide economies of scale and increase margins


• The onus of supply chain gets split among franchisor and franchisee, leads to higher chances of wastages and shrinkage.

• Retail industry- apparels specially, consumer services such as courier business.

Franchising - Route to Growth in Tier 2 & Tier 3 locations

Over the last couple of decades the Given current GDP growth the challenges of accessing these

Indian growth story has been forecasts, Indian disposable markets are being served by the

phenomenal, uplifting millions out of incomes will triple by 2025 with the informal/unorganized economy and

poverty, significantly increasing the middle class accounting for 41% of this presents a huge opportunity for

size of the middle class and bringing the population (~ 583 Mn. the franchising industry.

opportunity and aspiration to India's people).This middle class will begin Tiers 2 and 3 cities together account smaller towns and cities, frequently to move beyond Tier 1 cities and for 24 percent of India's households labeled as Tier 2 and Tier 3. spread into Tier 2, 3, and 4 cities and 23 percent of India's disposable with 45 to 58 percent of middle

With strong economic growth, income, a whopping 1.7 Lakh Crore class consumers residing in Tier 3 Incomes have risen rapidly across Rupees. Interestingly, Tier 3 towns and 4 cities and towns by 2025Indian households leading to the have almost as many middle-and

creation of a larger middle class and Through this continued growth upper-class citizens as Tier 2 cities

an increasing spending per-capita. India's smaller cities and rural areas but are smaller in size and thus

Not only have incomes increased have emerged as increasingly slightly richer. These figures are only

but the proportion of spending on attractive markets. Rural households set to grow and present an

discretionary items as against basic are collectively the larger share of immense opportunity for franchising

necessities has also increased. the consumer base and currently in Tier 2 and Tier 3 India.

Tier 2 and 3 growth and potential

Mumbai, Delhi, Kolkata

Nagpur, Surat, Agra, Patna,Rajkot, Jaipur, Lucknow, Bhopal,

Kanpur, Ludhiana, Nasik, Dhanbad

Classification of Towns and Cities in India

Number of Households in Millions

Mill

ions

30

20

10

0Tier 1 Tier 2 Tier 3 Tier 4

16.3

8.34.9

26.5

Income per Household in ‘000 of INR

186

129 135114

INR

('000

)


200

150

100

50

0

Share of Disposable Income


50%

40%

30%

20%

10%

0%

INR 00 Cr. 3034

INR 00 Cr. 1064 INR 00 Cr.

670

INR 00 Cr. 3009

39%

14%9%

39%

Tier 1Major Cities (8)

Tier 3 Climbers (33)

Tier 2 Mainstream Cities (26)

Tier 4 Small Towns (5094)

Bhubaneswar, Raipur, Jamshedpur, Vizag, Mangalore, Goa, Jodhpur, Gwalior, Amritsar,

Faridabad, Gorakhpur, Bhavnagar, etc.

Cuttack, Rourkela, Balasore, Bukharo, Shillonn, etc.

Population > 0.5 Million

Population > 4 Million

Popu

lation

> 1 M

illion


Source: Census Data, NCAER Economic Survey, KPMG INDIA Analysis



Below are some of the many reasons that make franchising attractive in Tier 2 and Tier 3 cities:

Disposable incomes discretionary spending is set to lucrative market with many more

As mentioned in the preceding grow, with current proportion of planning to leverage this growth

paragraph, disposable incomes spending on basic necessities set to opportunity

areset to triple by 2025 and the fall by almost half. Some brands

proportion of incomes spent on have already made a foray into this

Sector Brand Activity

Food and Beverage

Retail

Service

Education

Beauty and Wellness

Domino's

Van Heusen

The MobileStore

Aptech

Shahnaz Husain

50% of the current operating stores are in Tier 2 and Tier 3 cities

Van Hesun plans to open 40-50 stores in FY14 with 70% in Tier 2 cities

To adopt a Franchising model to penetrate Tier 2 & 3 cities with 500-600 stores in 3 years

Aptech's English Express plans to set up 80-100 centres inthe next 12 months with 80% of the

centres in Tier 2 and Tier 3 cities.

About 20% of group sales are from small markets such as Kohlapur, Panchkula and Saharanpur

Brand and lifestyle awareness Lower costs

Prestige and attractiveness

Franchisor's often provide them

A rising number of consumers in Another huge incentive for brands with a set of processes and brands

India's smaller cities and towns are to pursue franchising in Tier 2 and 3 that have a high chance of success cities is the lower costs involved. acutely aware about international in these cities. Many franchisees

These cities have much lower brands and lifestyle choices and are serial entrepreneurs and

property prices and lower set up many wish to adopt similar ones. franchising provides them a chance

costs when compared to the With rising advertising and internet to convert their business to the

metros. Further, service-based penetration, consumers increasingly organized segment. From a non-

brands can avail of skilled man-wish to associate themselves with financial perspective it is often a

power at much lower costs. Many successful International and Indian source of pride and prestige in small

brands often face little or no brands and this association is often towns to be associated with well-

competition from the organized a source of prestige. Unlike the acclaimed successful brands. It is

sector and thus regular marketing West where boutique retail stores seen as a mark of respect that an

and advertising expenditures are are often looked upon as the source International brand has opted to

also lower compared to Tier 1 cities.of trends in consumers, in India partner with a franchisee. Many

established brands face no such franchisees in Tier 2 and 3 cities are

threat. A further source of success also young, affluent persons who In addition to the inherent

for brands in Tier 2 and 3 cities is have a point to prove to their opportunity available to Franchisors

that consumers here are more likely parents and society. This and brands, entrepreneurs in Tier 2

to stay loyal in comparison to Tier 1 commitment to succeed from a and Tier 3 cities are also

consumer franchisee is often very helpful to increasingly attracted to franchising

the parent brand and franchisoras compared to their peers in Tier 1

cities. From a financial perspective

Homogeneity and local connect Key Challengesprocesses and procedures entailed

Entrepreneurs and franchisees in Venturing into franchising in Tier 2 in franchising . Thus it is essential

Tier 2 and Tier 3 cities often have a and 3 cities are not without its that the franchisor thoroughly

better connect to their markets and pitfalls. Franchisors must customize understands how to adapt and

customers as compared to Tier 1 their products/services to suit local sustain franchising and franchising

franchisees. Their local knowledge needs and markets. The tolerance relationships in the Tier 2 and 3

and consumer understanding can for initial failure is also much smaller contexts.

result in successful franchising in these scenarios. Franchisees in

operations. Further, markets in Tier their turn often require education in

2 and 3 cities are often more terms of business communication.

homogenous than Tier 1 cities. This This can be a source of disconnect

can make operations and product between franchisor and franchisee.

planning easier for the franchisee Many franchisees also lack the

and franchisor. discipline in following standard

Source:

Dominoes - Published reports

Van Heusen - Published reports

The Mobile Store - http://www.way2franchise.com/resource/article/the_mobile_store_to_penetrate_india_tier_2_and_3_cities_with_600_franchise_stores_this_year

Aptech - http://www.moneycontrol.com/news/cnbc-tv18-comments/upgrade-your-english-skillsaptech_417573.html

Shahnaz Husain - Published reports



Below are some of the many reasons that make franchising attractive in Tier 2 and Tier 3 cities:

Disposable incomes discretionary spending is set to lucrative market with many more

As mentioned in the preceding grow, with current proportion of planning to leverage this growth

paragraph, disposable incomes spending on basic necessities set to opportunity

areset to triple by 2025 and the fall by almost half. Some brands

proportion of incomes spent on have already made a foray into this

Sector Brand Activity

Food and Beverage

Retail

Service

Education

Beauty and Wellness

Domino's

Van Heusen

The MobileStore

Aptech

Shahnaz Husain

50% of the current operating stores are in Tier 2 and Tier 3 cities

Van Hesun plans to open 40-50 stores in FY14 with 70% in Tier 2 cities

To adopt a Franchising model to penetrate Tier 2 & 3 cities with 500-600 stores in 3 years

Aptech's English Express plans to set up 80-100 centres inthe next 12 months with 80% of the

centres in Tier 2 and Tier 3 cities.

About 20% of group sales are from small markets such as Kohlapur, Panchkula and Saharanpur

Brand and lifestyle awareness Lower costs

Prestige and attractiveness

Franchisor's often provide them

A rising number of consumers in Another huge incentive for brands with a set of processes and brands

India's smaller cities and towns are to pursue franchising in Tier 2 and 3 that have a high chance of success cities is the lower costs involved. acutely aware about international in these cities. Many franchisees

These cities have much lower brands and lifestyle choices and are serial entrepreneurs and

property prices and lower set up many wish to adopt similar ones. franchising provides them a chance

costs when compared to the With rising advertising and internet to convert their business to the

metros. Further, service-based penetration, consumers increasingly organized segment. From a non-

brands can avail of skilled man-wish to associate themselves with financial perspective it is often a

power at much lower costs. Many successful International and Indian source of pride and prestige in small

brands often face little or no brands and this association is often towns to be associated with well-

competition from the organized a source of prestige. Unlike the acclaimed successful brands. It is

sector and thus regular marketing West where boutique retail stores seen as a mark of respect that an

and advertising expenditures are are often looked upon as the source International brand has opted to

also lower compared to Tier 1 cities.of trends in consumers, in India partner with a franchisee. Many

established brands face no such franchisees in Tier 2 and 3 cities are

threat. A further source of success also young, affluent persons who In addition to the inherent

for brands in Tier 2 and 3 cities is have a point to prove to their opportunity available to Franchisors

that consumers here are more likely parents and society. This and brands, entrepreneurs in Tier 2

to stay loyal in comparison to Tier 1 commitment to succeed from a and Tier 3 cities are also

consumer franchisee is often very helpful to increasingly attracted to franchising

the parent brand and franchisoras compared to their peers in Tier 1

cities. From a financial perspective

Homogeneity and local connect Key Challengesprocesses and procedures entailed

Entrepreneurs and franchisees in Venturing into franchising in Tier 2 in franchising . Thus it is essential

Tier 2 and Tier 3 cities often have a and 3 cities are not without its that the franchisor thoroughly

better connect to their markets and pitfalls. Franchisors must customize understands how to adapt and

customers as compared to Tier 1 their products/services to suit local sustain franchising and franchising

franchisees. Their local knowledge needs and markets. The tolerance relationships in the Tier 2 and 3

and consumer understanding can for initial failure is also much smaller contexts.

result in successful franchising in these scenarios. Franchisees in

operations. Further, markets in Tier their turn often require education in

2 and 3 cities are often more terms of business communication.

homogenous than Tier 1 cities. This This can be a source of disconnect

can make operations and product between franchisor and franchisee.

planning easier for the franchisee Many franchisees also lack the

and franchisor. discipline in following standard

Source:

Dominoes - Published reports

Van Heusen - Published reports

The Mobile Store - http://www.way2franchise.com/resource/article/the_mobile_store_to_penetrate_india_tier_2_and_3_cities_with_600_franchise_stores_this_year

Aptech - http://www.moneycontrol.com/news/cnbc-tv18-comments/upgrade-your-english-skillsaptech_417573.html

Shahnaz Husain - Published reports


Food & Beverage

(F&B)


Employment potential in the franchising industry

Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013, Athena Infonomics, National Skills Development Corporation (NSDC)


Source: KPMG Analysis based on Report by FRANdata titled “Small Business Lending Matrix and Analysis (May 2009)”



The franchising industry is

expected to employ 1.4 crore

people by 2017, which is almost 10

percent of the total estimated

workforce in that year. Given such a

large need for skilled resources, it

is absolutely imperative to identify

the skill gaps and work towards 1bridging the same.

Sector Estimated employment potential

Skills requirement

Retail

Consumer Services

Education

77 lakhs (5% of total workforce)


31 lakhs (2.2% of total workforce)


• Good communication skills due to high customer involvement• Understanding customer behavior and having product knowledge. • For stores is in smaller towns, store personnel with knowledge of vernacular

language is essential.

• Good communication skills, ability to handle guests and supervisory skills• Ability to manage F&B inventory and managing the day to day operations• Maintaining high level of hospitality and cleanliness• Ability to take orders from customers in a professional and courteous manner

• Basic understanding of the industry• Knowledge of the respective products they offer• Soft skills such as communication and selling skills• Sector specific skills where required (example: financial services)

• Ability to deliver content in a simple and effective manner• Good communication and observation skills to address the problems of students• Ability to use Information and Communication Technology (ICT) and constantly

update oneself with the knowledge of technology

Projected number of employees required in Franchising by 2017

Num

ber o

f em

ploy

ees

Retail Food & Beverage

Consumer Services

Education

90

80

70

60

50

40

30

20

10

0

77 lakhs

5%

10 lakhs

1% 31 lakhs

2.2%

20 lakhs

1.5%

Percentage of total workforce

In addition to the direct employment,

franchising is expected to create push for

indirect employment as well. It is

estimated that indirect employment is

expected to create an additional 1.8 million

jobs by 2017 across the key franchising

sectors. Services oriented franchisees

including Food service sectors are

expected to generate maximum indirect

employment.

Number of additional indirect jobs expected to be created by 2017

Num

ber o

f add

ition

al in

dire

ct

jobs

cre

ated

(in

lakh

s)

RetailFood &

BeverageConsumer Services

10

9

8

7

6

5

4

3

2

1

0

5.7 lakhs

9.1 lakhs

3.6 lakhs


Food & Beverage

(F&B)





Source: KPMG Analysis based on Report by FRANdata titled “Small Business Lending Matrix and Analysis (May 2009)”



The franchising industry is

expected to employ 1.4 crore

people by 2017, which is almost 10

percent of the total estimated

workforce in that year. Given such a

large need for skilled resources, it

is absolutely imperative to identify

the skill gaps and work towards 1bridging the same.

Sector Estimated employment potential

Skills requirement

Retail

Consumer Services

Education





• Good communication skills due to high customer involvement• Understanding customer behavior and having product knowledge. • For stores is in smaller towns, store personnel with knowledge of vernacular

language is essential.

• Good communication skills, ability to handle guests and supervisory skills• Ability to manage F&B inventory and managing the day to day operations• Maintaining high level of hospitality and cleanliness• Ability to take orders from customers in a professional and courteous manner

• Basic understanding of the industry• Knowledge of the respective products they offer• Soft skills such as communication and selling skills• Sector specific skills where required (example: financial services)

• Ability to deliver content in a simple and effective manner• Good communication and observation skills to address the problems of students• Ability to use Information and Communication Technology (ICT) and constantly

update oneself with the knowledge of technology

Projected number of employees required in Franchising by 2017

Num

ber o

f em

ploy

ees

Retail Food & Beverage

Consumer Services

Education

90

80

70

60

50

40

30

20

10

0

77 lakhs

5%

10 lakhs

1% 31 lakhs

2.2%

20 lakhs

1.5%

Percentage of total workforce

In addition to the direct employment,

franchising is expected to create push for

indirect employment as well. It is

estimated that indirect employment is

expected to create an additional 1.8 million

jobs by 2017 across the key franchising

sectors. Services oriented franchisees

including Food service sectors are

expected to generate maximum indirect

employment.

Number of additional indirect jobs expected to be created by 2017

Num

ber o

f add

ition

al in

dire

ct

jobs

cre

ated

(in

lakh

s)

RetailFood &

BeverageConsumer Services

10

9

8

7

6

5

4

3

2

1

0

5.7 lakhs

9.1 lakhs

3.6 lakhs


03 Franchising Industry in India 64Franchising Industry in India63 Franchising Industry in India

Financing franchising business


Most franchisors look for the financial capability of the Almost all franchisees surveyed for this report have self

prospective franchisees before awarding them the funded the initial investment required for the business

business contract. However, several of the with most of them also tapping into their family/friends

network for help. In cases where franchisees were able aspiring franchisees are hindered from undertaking the

to source funds through 3rd party lenders, they were business due to financial constraints. The ease of

able to do so on their personal merit and not on obtaining loans for franchising business is very low in

business merit as recognised by the lender. In cases comparison to other industries. This is contrary to the

where franchisees sourced funds from banks and other reality where in franchising business, business concept

financial institutions, it was predominantly for capital is pre-tested and proven and chances for failure is

asset/equipment purchase, which was mortgaged with lower than a start-up SME.

the bank during the loan period. This clearly indicates

the lack of financing options for the franchisees, who

entirely depend on their personal capability in sourcing

funds.

Under the existing RBI norms, the limits for investment

in plant and machinery/equipment for manufacturing/

service enterprise, as notified by the Ministry of Micro

Small and Medium Enterprises is as given below. Most

franchisees who obtain franchising loans are covered

under the same classification as that of SMEs.

9 http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0

Franchisee View - Funding Options

Self Finance

Family and Friends Help

3rd Party Lenders

Bank Loans

Franchisor Funding

Angel Funding

0 2 4 6 8 10 12 14

Franchisee View - Financial Support from Franchisor

Yes, 7%

No, 93%

Manufacturing sector

Enterprises

Micro Enterprises

Small Enterprises

Investment in plant and machinery

Do not exceed INR 25 lakh

More than INR 25 lakh but does not exceed

INR 5 crore

Micro Enterprises

Small Enterprises

Service SectorEnterprises

Investment in equipment



INR 5 crore

Number of respondents


Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Reserve Bank of India

2

3

9

13


03 Franchising Industry in India 64Franchising Industry in India63 Franchising Industry in India



Most franchisors look for the financial capability of the Almost all franchisees surveyed for this report have self

prospective franchisees before awarding them the funded the initial investment required for the business

business contract. However, several of the with most of them also tapping into their family/friends

network for help. In cases where franchisees were able aspiring franchisees are hindered from undertaking the

to source funds through 3rd party lenders, they were business due to financial constraints. The ease of

able to do so on their personal merit and not on obtaining loans for franchising business is very low in

business merit as recognised by the lender. In cases comparison to other industries. This is contrary to the

where franchisees sourced funds from banks and other reality where in franchising business, business concept

financial institutions, it was predominantly for capital is pre-tested and proven and chances for failure is

asset/equipment purchase, which was mortgaged with lower than a start-up SME.

the bank during the loan period. This clearly indicates

the lack of financing options for the franchisees, who

entirely depend on their personal capability in sourcing

funds.

Under the existing RBI norms, the limits for investment

in plant and machinery/equipment for manufacturing/

service enterprise, as notified by the Ministry of Micro

Small and Medium Enterprises is as given below. Most

franchisees who obtain franchising loans are covered

under the same classification as that of SMEs.

9 http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0

Franchisee View - Funding Options

Self Finance

Family and Friends Help

3rd Party Lenders

Bank Loans

Franchisor Funding

Angel Funding

0 2 4 6 8 10 12 14

Franchisee View - Financial Support from Franchisor

Yes, 7%

No, 93%

Manufacturing sector

Enterprises

Micro Enterprises

Small Enterprises

Investment in plant and machinery



INR 5 crore

Micro Enterprises

Small Enterprises

Service SectorEnterprises

Investment in equipment



INR 5 crore

Number of respondents


Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Reserve Bank of India

2

3

9

13



Startup Phase Growth Phase

Franchisee is ready with the business

plan and is in the contract signing

phase with the franchisor (or has

signed the contract by making part

payment of initial franchise fee)

Very difficult

Expansion Phase

Franchisee is already running the

business with steady financial base

and wants to expand operations

(employee hiring, technology

deployment, increased market

coverage involving increasing asset

base etc)

Easy

Franchisee, having established the base

domestically, is looking to expand into

international markets

Moderately Easy

Description

Funding Aspects

Level of Difficulty in

sourcing external funds

10 http://www.indianexpress.com/news/rbi-pulls-up-banks-for-laxity-in-sme-finance/907975/

Most lenders do not treat Industries Development Bank of relatives/friends to

fund the ventures. This situation franchisees as a separate customer India (SIDBI) and an Memorandum

needs to undergo a sea change to segment and usually cover them of Understanding (MoU) has been

augment the funding requirements under the ambit of the broader SME signed with Franchising Association

in the booming franchising industry.sector classification. Banks such as of India, in this regard. The above

State Bank of India and HDFC Bank situation is amply reflected in the There are several differences have started treating Franchisees as low penetration (less than 10 between a typical franchisee fund a separate segment only during percent) of bank loan funding request and an SME fund request recent times. A separate amongst franchisee investors, with which makes the former a better mechanism for franchising eco- most of them using personal candidate for support.system has been planned by Small finances or borrowings from

Parameter SME entrepreneur

Business Concept

Business Viability

Probability of success

Financial Security

Franchisee entrepreneur

Traditional Business Concepts

While the business concepts are pre-existing, an SME

entrepreneur starts his business from scratch, with no formal

support from other industrial players (they are mostly his

competitors)

Equal chances for success and failure

Usually the collaterals provided by SME Entrepreneur

Both Innovative and Traditional Business Concepts

Be it innovative or traditional concepts, the franchisee

entrepreneur gets support from the franchisor

throughout business operations

Higher chances of success given that the franchisor has

already tested the market and then launched expansion

through franchising

Collaterals/Guarantee provided both by franchisor and

franchisees

Lending institutions focus on the locations are less attractive, in part in building a robust business plan

credit worthiness of the franchisor, because they lack proof that they which can be shared with the

before assessing that of the can do well in all types of areas or lending institutions.

franchisees. Lending institutions’ economic climates. Hence,

focus is on the parent brand value, franchisees need to put in extra

financial performance of the diligence in identifying the right

franchisor, robustness of the franchise system to be a part of.

business concept, level of comfort Financial institutions also tend to the franchisor is willing to offer to reject funding requests from the lending institution besides franchisees due to non-clarity of the evaluating the franchisee for his business concept and non-own merits. Financial institutions practicality of the business evaluate franchisees on the assumptions, such as inflated business viability and expected revenues or shrunken costs. returns from business, brand and Financial institutions show greater financial strength of franchisor and keenness in funding for business lastly the financial strength of the expansion of franchisees rather than franchisee owner. Bankers prefer during the initial investment phase. businesses with brand names and This stage requires significant long track records of consistent involvement from the franchisors cash flow. Ventures with few who should support the franchisees

Key aspects lending institutions look for in franchisee funding

Prior banking relationship with franchisors

For start-up franchisees, provision of

unsecured loans is available only up

to a certain extent loan against

security/collateral

As per the nature of requirement,

finance is provided. The provision of

loans is usually available for

purchase of fixed assets, against

security

Project financing Facility - Provision of

term loans structured to finance the

project over a tenure Structured loans

provided by the financial institutions

participating in the expansion process,

while sharing risk

A key factor which makes Franchising ecosystem

different is in the services franchising sector where

there is an absence of asset base on which a collateral

can be taken to provide a loan. However, financiers do

believe that there is potential in the Franchising sector

lending. Franchisees need funding during different

stages of operations such as the start-up, growth and

global expansion phase. Financial institutions are more

welcoming in offering support during the growth and

expansion phase of operations over the start-up phase.

Transport Operators 6%

Computer Software1%

Statement 2%

Shipping 1%

Professional Services 4%

Trade19%

Wholesale Trade (other than food procurement)10%

Retail Trade 9%

Commercial Real Estate 9%

Non-Banking Financial Companies (NBFCs)

18%

Other Services 21%

While addressing a banking conclave, RBI Deputy enterprises with investment in plant and machinery

Governor KC Chakrabarty, said that as much as 92.7 above INR 5 lakh and up to INR 25 lakh, and micro

percent of small and medium enterprises (SMEs) are (service) enterprises with investment in equipment

self financed. He censured the financial institutions for above INR 2 lakh and up to INR 10 lakh.

showing laxity in financing SMEs in the country. Most

of the SMEs require working capital funding which they

find very difficult to source from formal financial

institutions. Significant share (~40 percent) of the

credit earmarked under priority sector, is focussed

towards units having investments in plant and

machinery up to INR 5 lakh and micro (service)

enterprises having investment in equipment up to INR

2 lakh, which is well below the requirements of an

average franchisee. Only ~ 20 percent of the total

advances to micro and small enterprises sector have

been targeted towards Micro (manufacturing)

Deployment of Gross Bank Credit to Services(As of 22nd Mar 2013)

Besides the above, INR 2842 billion has been disbursed to manufacturing under priority sector lending during the same period

Deployment of Gross Bank Credit to Industry(As of 22nd Mar 2013)

Micro & Small Industries 13%

Medium Scale Industries 5%

Large Scale Industries 82%

Besides the above, INR 2779 billion has been disbursed to services under priority sector lending during the same period

Credit worthiness of the franchisors

Robustness / clarity of the business concept

Viability of the proposed business plan

Level of comfort franchisor is willing to provide

Credit worthiness of the franchisees

Source: Reserve Bank of India






Startup Phase Growth Phase

Franchisee is ready with the business

plan and is in the contract signing

phase with the franchisor (or has

signed the contract by making part

payment of initial franchise fee)

Very difficult

Expansion Phase

Franchisee is already running the

business with steady financial base

and wants to expand operations

(employee hiring, technology

deployment, increased market

coverage involving increasing asset

base etc)

Easy

Franchisee, having established the base

domestically, is looking to expand into

international markets

Moderately Easy

Description

Funding Aspects

Level of Difficulty in

sourcing external funds

10 http://www.indianexpress.com/news/rbi-pulls-up-banks-for-laxity-in-sme-finance/907975/

Most lenders do not treat Industries Development Bank of relatives/friends to

fund the ventures. This situation franchisees as a separate customer India (SIDBI) and an Memorandum

needs to undergo a sea change to segment and usually cover them of Understanding (MoU) has been

augment the funding requirements under the ambit of the broader SME signed with Franchising Association

in the booming franchising industry.sector classification. Banks such as of India, in this regard. The above

State Bank of India and HDFC Bank situation is amply reflected in the There are several differences have started treating Franchisees as low penetration (less than 10 between a typical franchisee fund a separate segment only during percent) of bank loan funding request and an SME fund request recent times. A separate amongst franchisee investors, with which makes the former a better mechanism for franchising eco- most of them using personal candidate for support.system has been planned by Small finances or borrowings from

Parameter SME entrepreneur

Business Concept

Business Viability

Probability of success

Financial Security

Franchisee entrepreneur

Traditional Business Concepts

While the business concepts are pre-existing, an SME

entrepreneur starts his business from scratch, with no formal

support from other industrial players (they are mostly his

competitors)

Equal chances for success and failure

Usually the collaterals provided by SME Entrepreneur

Both Innovative and Traditional Business Concepts

Be it innovative or traditional concepts, the franchisee

entrepreneur gets support from the franchisor

throughout business operations

Higher chances of success given that the franchisor has

already tested the market and then launched expansion

through franchising

Collaterals/Guarantee provided both by franchisor and

franchisees

Lending institutions focus on the locations are less attractive, in part in building a robust business plan

credit worthiness of the franchisor, because they lack proof that they which can be shared with the

before assessing that of the can do well in all types of areas or lending institutions.

franchisees. Lending institutions’ economic climates. Hence,

focus is on the parent brand value, franchisees need to put in extra

financial performance of the diligence in identifying the right

franchisor, robustness of the franchise system to be a part of.

business concept, level of comfort Financial institutions also tend to the franchisor is willing to offer to reject funding requests from the lending institution besides franchisees due to non-clarity of the evaluating the franchisee for his business concept and non-own merits. Financial institutions practicality of the business evaluate franchisees on the assumptions, such as inflated business viability and expected revenues or shrunken costs. returns from business, brand and Financial institutions show greater financial strength of franchisor and keenness in funding for business lastly the financial strength of the expansion of franchisees rather than franchisee owner. Bankers prefer during the initial investment phase. businesses with brand names and This stage requires significant long track records of consistent involvement from the franchisors cash flow. Ventures with few who should support the franchisees

Key aspects lending institutions look for in franchisee funding

Prior banking relationship with franchisors

For start-up franchisees, provision of

unsecured loans is available only up

to a certain extent loan against

security/collateral

As per the nature of requirement,

finance is provided. The provision of

loans is usually available for

purchase of fixed assets, against

security

Project financing Facility - Provision of

term loans structured to finance the

project over a tenure Structured loans

provided by the financial institutions

participating in the expansion process,

while sharing risk

A key factor which makes Franchising ecosystem

different is in the services franchising sector where

there is an absence of asset base on which a collateral

can be taken to provide a loan. However, financiers do

believe that there is potential in the Franchising sector

lending. Franchisees need funding during different

stages of operations such as the start-up, growth and

global expansion phase. Financial institutions are more

welcoming in offering support during the growth and

expansion phase of operations over the start-up phase.

Transport Operators 6%

Computer Software1%

Statement 2%

Shipping 1%

Professional Services 4%

Trade19%

Wholesale Trade (other than food procurement)10%

Retail Trade 9%

Commercial Real Estate 9%

Non-Banking Financial Companies (NBFCs)

18%

Other Services 21%

While addressing a banking conclave, RBI Deputy enterprises with investment in plant and machinery

Governor KC Chakrabarty, said that as much as 92.7 above INR 5 lakh and up to INR 25 lakh, and micro

percent of small and medium enterprises (SMEs) are (service) enterprises with investment in equipment

self financed. He censured the financial institutions for above INR 2 lakh and up to INR 10 lakh.

showing laxity in financing SMEs in the country. Most

of the SMEs require working capital funding which they

find very difficult to source from formal financial

institutions. Significant share (~40 percent) of the

credit earmarked under priority sector, is focussed

towards units having investments in plant and

machinery up to INR 5 lakh and micro (service)

enterprises having investment in equipment up to INR

2 lakh, which is well below the requirements of an

average franchisee. Only ~ 20 percent of the total

advances to micro and small enterprises sector have

been targeted towards Micro (manufacturing)

Deployment of Gross Bank Credit to Services(As of 22nd Mar 2013)

Besides the above, INR 2842 billion has been disbursed to manufacturing under priority sector lending during the same period

Deployment of Gross Bank Credit to Industry(As of 22nd Mar 2013)

Micro & Small Industries 13%

Medium Scale Industries 5%

Large Scale Industries 82%

Besides the above, INR 2779 billion has been disbursed to services under priority sector lending during the same period

Credit worthiness of the franchisors

Robustness / clarity of the business concept

Viability of the proposed business plan

Level of comfort franchisor is willing to provide

Credit worthiness of the franchisees







A tripartite arrangement with the are looking for. Such arrangements also seek additional assurances

Franchisor, Franchisee and the will ensure complete sharing of from the Franchisor such as first

lending institution is the information and support thorough loss guarantee, change of

collaborative arrangement most due diligence of the franchisee franchisee or location in cases of

lending organizations such as SIDBI business plan. Lending institutions non-performance etc.



•




availing loan







portfolio.


support promising



the franchising fee



Franchisee




















business ventures




















interaction of Franchisors,


institutions

In rare occasions, even franchisors programmes which can be of use to and leasing support for their

are willing to financially support potential franchisees. franchisees with third-party lenders.

promising franchisees by providing In such instances, franchisors also Globally, the franchising industry is initial funding or can considerably undersign a guarantee. Angel witnessing increasing use of non-reduce the initial franchise fee. funding, while considered an traditional funding methods. Regarding this MRK Menon, Aero expensive option in comparison to Franchisors are increasingly Sports states, “I want to provide others, is also being actively adopting direct financing route by employment to 1000 people so that considered by both franchisors and accepting promissory notes for part they can earn a good living. For this franchisees to fund their ventures. or all of the initial franchise fees I am ready to meet the aspirants Such funding requires equity owed. Initial franchise fee is one of halfway. If franchisees are able to participation as part of the overall the heavy investments that provide the basic franchise fee, our offering. Angel investors look for franchisees incur. By lowering the company would provide them with advisory role which can be of initial burden, franchisors can much leverage also”. advantage to the new franchisees. support franchisees. Sometimes,

Options for equipment leasing Financial institutions also provide direct financing also involves

reduces the need for locking up non-monetary support in the form of extensive lending if the franchisor is

capital which can be used in other consultancy services, technology financially strong. Franchisors are

components of the businessassistances and training also using indirect financing means

Details

Month of incorporation

January 2013

Validity For a period of 2 years from the date of signing the MoU and extendable by consent.

The SIDBI – FAI collaboration

Small Industries Development Bank of India (SIDBI):Corporation set up under the Act of parliament, it is the principal financial institution for the promotion, financing and development of India’s Micro, Small and Medium Enterprise (MSME) sector. It is also involved in the coordination of functions of other bodies engaged in similar activities.

Key features of the collaboration and areas of cooperation

Franchising Association of India (FAI):Nodal Agency for the Indian franchise sector which represents franchisees, franchisors and service providers belonging to the sector. Its key objectives include establishing international best practices in the sector, disseminating information to key stakeholders and educating government about key sector issues.

Key enablers for this collaboration:

? SIDBI’s assistance flowing to eligible franchisees under the mentorship and guidance of Franchising Association of India (FAI)

? A good track record of the franchising in terms of success rate and a growing number of win-win arrangements between franchisors and franchisees

? Increasing inclination towards entrepreneurship, spurring new entrepreneurs to increasingly look at franchising as an option

Cooperation on entrepreneurship to create enabling environment for development of MSMEs

Collaboration on avenues related to entrepreneurship such as policy advocacy, structuring of new risk capital and other direct credit products.

Franchising Association of India (FAI) to disseminate information and create awareness

? Under the agreement, Franchising Association of India (FAI) would lay the groundwork for creating a conducive business environment.

? This would include organizing meetings, workshops and other such events for dissemination of information about SIDBI’s schemes.

? Franchising Association of India (FAI) would work to provide visibility and recognition to SIDBI through above events, websites, newsletters and other promotional material.

Franchising Association of India (FAI) to screen the members initially

? Screening of enterprises for extension of financial support is expected to be conducted by Franchising Association of India (FAI).

? The proposals are referred to SIDBI for assistance under schemes such as the Direct Credit Scheme to MSMEs and the Risk Capital Assistance Scheme.

Franchising Association of India (FAI) to mentor Franchisees

Post approval and dissemination of financial support from SIDBI, Franchising Association of India (FAI) comes into the picture by assisting and mentoring the Franchisees

SIDBI reserves the final mandate for assistance

? SIDBI would conduct another round of assistance eligibility based on its established criterion.

? SIDBI’s decision regarding extension of assistance is final and binding on all parties.

Source: Franchising Association of India


Edible Arrangements, a US firm, has a separate capital firm, Direct Capital. This financing company

provides packages to the franchisors and franchisees for the following:• to open franchise outlets at new locations• to upgrade existing stores• to buy/lease new equipments for new franchiseesThe Company also guarantees and services the loans to support operations at franchised stores.



A tripartite arrangement with the are looking for. Such arrangements also seek additional assurances

Franchisor, Franchisee and the will ensure complete sharing of from the Franchisor such as first

lending institution is the information and support thorough loss guarantee, change of

collaborative arrangement most due diligence of the franchisee franchisee or location in cases of

lending organizations such as SIDBI business plan. Lending institutions non-performance etc.



•




availing loan







portfolio.


support promising



the franchising fee



Franchisee




















business ventures




















interaction of Franchisors,


institutions

In rare occasions, even franchisors programmes which can be of use to and leasing support for their

are willing to financially support potential franchisees. franchisees with third-party lenders.

promising franchisees by providing In such instances, franchisors also Globally, the franchising industry is initial funding or can considerably undersign a guarantee. Angel witnessing increasing use of non-reduce the initial franchise fee. funding, while considered an traditional funding methods. Regarding this MRK Menon, Aero expensive option in comparison to Franchisors are increasingly Sports states, “I want to provide others, is also being actively adopting direct financing route by employment to 1000 people so that considered by both franchisors and accepting promissory notes for part they can earn a good living. For this franchisees to fund their ventures. or all of the initial franchise fees I am ready to meet the aspirants Such funding requires equity owed. Initial franchise fee is one of halfway. If franchisees are able to participation as part of the overall the heavy investments that provide the basic franchise fee, our offering. Angel investors look for franchisees incur. By lowering the company would provide them with advisory role which can be of initial burden, franchisors can much leverage also”. advantage to the new franchisees. support franchisees. Sometimes,

Options for equipment leasing Financial institutions also provide direct financing also involves

reduces the need for locking up non-monetary support in the form of extensive lending if the franchisor is

capital which can be used in other consultancy services, technology financially strong. Franchisors are

components of the businessassistances and training also using indirect financing means

Details

Month of incorporation

January 2013

Validity For a period of 2 years from the date of signing the MoU and extendable by consent.

The SIDBI – FAI collaboration

Small Industries Development Bank of India (SIDBI):Corporation set up under the Act of parliament, it is the principal financial institution for the promotion, financing and development of India’s Micro, Small and Medium Enterprise (MSME) sector. It is also involved in the coordination of functions of other bodies engaged in similar activities.

Key features of the collaboration and areas of cooperation

Franchising Association of India (FAI):Nodal Agency for the Indian franchise sector which represents franchisees, franchisors and service providers belonging to the sector. Its key objectives include establishing international best practices in the sector, disseminating information to key stakeholders and educating government about key sector issues.

Key enablers for this collaboration:

? SIDBI’s assistance flowing to eligible franchisees under the mentorship and guidance of Franchising Association of India (FAI)

? A good track record of the franchising in terms of success rate and a growing number of win-win arrangements between franchisors and franchisees

? Increasing inclination towards entrepreneurship, spurring new entrepreneurs to increasingly look at franchising as an option

Cooperation on entrepreneurship to create enabling environment for development of MSMEs

Collaboration on avenues related to entrepreneurship such as policy advocacy, structuring of new risk capital and other direct credit products.

Franchising Association of India (FAI) to disseminate information and create awareness

? Under the agreement, Franchising Association of India (FAI) would lay the groundwork for creating a conducive business environment.

? This would include organizing meetings, workshops and other such events for dissemination of information about SIDBI’s schemes.

? Franchising Association of India (FAI) would work to provide visibility and recognition to SIDBI through above events, websites, newsletters and other promotional material.

Franchising Association of India (FAI) to screen the members initially

? Screening of enterprises for extension of financial support is expected to be conducted by Franchising Association of India (FAI).

? The proposals are referred to SIDBI for assistance under schemes such as the Direct Credit Scheme to MSMEs and the Risk Capital Assistance Scheme.

Franchising Association of India (FAI) to mentor Franchisees

Post approval and dissemination of financial support from SIDBI, Franchising Association of India (FAI) comes into the picture by assisting and mentoring the Franchisees

SIDBI reserves the final mandate for assistance

? SIDBI would conduct another round of assistance eligibility based on its established criterion.

? SIDBI’s decision regarding extension of assistance is final and binding on all parties.

Source: Franchising Association of India


Edible Arrangements, a US firm, has a separate capital firm, Direct Capital. This financing company

provides packages to the franchisors and franchisees for the following:• to open franchise outlets at new locations• to upgrade existing stores• to buy/lease new equipments for new franchiseesThe Company also guarantees and services the loans to support operations at franchised stores.



Franchising success: Role of the government


11 http://www.millercanfield.com/publications-articles-240.html, accessed on 7 June 2013

Figure 1: Country rankings for doing franchise business, 2012

India Singapore Malaysia Brazil US UK

Expected 2013 GDP growth

Market size (customers)

Legal concerns for international brands

Ease of setting up a new business

Political risk (stability)

Overall country ranking

1

1

2

3

2

1.8

1

4

1

1

1

1.6

2

2

3

3

2

2.4

2

1

2

3

1

1.8

3

1

2

1

1

1.6

3

1

2

1

1

1.6

Country ranking : 1 is good, 2.5 is fair, 4 is worstSources : 'The Economist';EIU;Heritage Foundation; World Bank

11Different economists have The absence of a regulatory government) and also relaxed

expressed different views on the framework and formal franchise Foreign Direct Investment (FDI)

role of a government in any society. laws in India could deter potential norms in single brand and multi-

One school of thought, represented franchisees from investing. brand retailing, many industry

by John Maynard Keynes and John Countries such as Singapore and stakeholders believe that the degree

Kenneth Galbraith, states that an the US, which offer attractive of government support must be far

activist government is essential for franchise opportunities due to greater than what it is currently.

the efficient growth of an economy. substantial government support, are

As a first step India could look at However, another point of view was examples of how a government can

some of the leading practices for developed by twentieth century facilitate and promote franchising in

Franchise regulations in other economists Frederick von Hayek a country.

countries and initiate dialogue with and Milton Friedman. They argued

While India has liberalized franchise Indian Franchising community to that an activist government is the

royalty/fee payments since 2011 understand their needs and key cause of economic instability

(Foreign franchisors can now charge concerns.and inefficiencies in the private

a lump-sum fee and royalty without sector.

any maximum limit for transfer of

However, all economists agree that technology and royalty for use of

government support is critical for trademark/brand name on the

the operational efficiency in a automatic route without any prior

private market. approval from the Indian





11 http://www.millercanfield.com/publications-articles-240.html, accessed on 7 June 2013

Figure 1: Country rankings for doing franchise business, 2012

India Singapore Malaysia Brazil US UK

Expected 2013 GDP growth

Market size (customers)

Legal concerns for international brands

Ease of setting up a new business

Political risk (stability)

Overall country ranking

1

1

2

3

2

1.8

1

4

1

1

1

1.6

2

2

3

3

2

2.4

2

1

2

3

1

1.8

3

1

2

1

1

1.6

3

1

2

1

1

1.6

Country ranking : 1 is good, 2.5 is fair, 4 is worstSources : 'The Economist';EIU;Heritage Foundation; World Bank

11Different economists have The absence of a regulatory government) and also relaxed

expressed different views on the framework and formal franchise Foreign Direct Investment (FDI)

role of a government in any society. laws in India could deter potential norms in single brand and multi-

One school of thought, represented franchisees from investing. brand retailing, many industry

by John Maynard Keynes and John Countries such as Singapore and stakeholders believe that the degree

Kenneth Galbraith, states that an the US, which offer attractive of government support must be far

activist government is essential for franchise opportunities due to greater than what it is currently.

the efficient growth of an economy. substantial government support, are

As a first step India could look at However, another point of view was examples of how a government can

some of the leading practices for developed by twentieth century facilitate and promote franchising in

Franchise regulations in other economists Frederick von Hayek a country.

countries and initiate dialogue with and Milton Friedman. They argued

While India has liberalized franchise Indian Franchising community to that an activist government is the

royalty/fee payments since 2011 understand their needs and key cause of economic instability

(Foreign franchisors can now charge concerns.and inefficiencies in the private

a lump-sum fee and royalty without sector.

any maximum limit for transfer of

However, all economists agree that technology and royalty for use of

government support is critical for trademark/brand name on the

the operational efficiency in a automatic route without any prior

private market. approval from the Indian



Case study: Singapore — government support boosts sector growth

Since 1985, the Singapore Government has been SPRING is a statutory board under the Ministry of Trade

actively promoting franchising as a means of and Industry (Singapore). It offers financial assistance

internationalizing domestic small companies. Eligible to local SMEs to foster the franchise business

companies can leverage various schemes related to environment, facilitate the growth of industries, and

franchise consulting, the registration of trademarks, enhance innovation and enterprise capabilities

market surveys and participation in overseas domestically. Similarly, IE Singapore facilitates the

exhibitions. overseas growth of domestic companies and promotes

international trade.

The lead government agencies that promote franchise

development in Singapore are:

• Standards, Productivity and Innovation Board

(SPRING), Singapore

• International Enterprise (IE) Singapore

SPRING provides financial assistance to local entrepreneurs

IE Singaporefacilitates franchise opportunities outside the country

*Productivity & Innovation Credit (PIC) scheme provides 400 percent tax deduction of up to US$0.4 million or 60 percent cash grant up to US$100,000 expenses in productivity improvements and innovation.

** Capability Development Grant (CDG) supports up to 70 percent of the cost of productivity improvements and capability development , which results in greater enterprise competitiveness and business growth.

External economic opportunities:

IE Singapore is a government agency, under the Ministry of Trade (Singapore), which facilitates the overseas growth of domestic companies and promotes international trade.

SPRING: offers and interventions

Several financial incentives—in the form of cash/voucher to defray expenses, tax incentives (PIC scheme)* and grants (CDG)**— support enterprising competitiveness, increase productivity and improve human resource management practices for local small enterprises in Singapore. The country supports the industry in working capital, trade finance and equipment finance activities through government - backed loans and schemes such as the Local Enterprise Finance Scheme (LEFS), the Loan Insurance scheme (LIS) and the Micro Loan Program (MLP).

Globally Competitive Companies (GCCs):

These companies facilitate international trade opportunities for potential domestic players. GCCs compete in about 35 countries in various industries. They contribute to Singapore’s economic buoyancy, cultivate global business leaders domestically and strengthen the country’s overall brand value.

Source: http://www.iesingapore.gov.sg/wps/portal and www.spring.gov.sg/


Case study: Brazil — government support boosts sector growth

Brazil is the 7th largest economy in Despite the presence of this The following diagram exhibits the

the world, where all the franchise comprehensive law for franchising various aspects of the franchising,

operations are regulated by 'The in the country, the government also which are directly governed by

Brazilian Franchise Law (Law No. proactively interferes in the some government agencies in

8955 of December 15, 1994)'. country's franchise transactions. Brazil:

Learning from International franchising regulatory scenario for the GoI:

US Malaysia

Specific franchising Law



Conflicts resolution


KPMG CommentsUK Brazil

Franchising focused rules & regulations are expected to send a positive message to both Indian and global franchising community about the seriousness of Indian government in promoting franchising as a mainstream sector that can contribute to overall GDP growth and employment generation.

This is important to protect franchisee rights as well as will ensure only serious players look at franchising.

Free market pricing should be encouraged while making sure that royalty and fee payments lie within industry standards.

It is critical to have a transparent dispute resolution mechanism and an independent body to address conflicts that may arise between a franchisor & franchisee


Disclosure laws Competition laws Dispute resolution

The National Institute of Industrial

Property (INPI) is a goverment entity,

responsible for multiple aspects related

to franchise agreements such as

industrial property rights, issuance of

letters patent, certification of licensing

agreements involving industrial property

rights, and registration of domestic and

cross-border franchise agreements.

The competition laws are governed by

the Brazilian Competition System

(SBDC). This system comprises the

Administrative Economic Defence

Council (CADE), an independent agency

linked to the Ministry of Justice; and the

Economic Policy Bureau (SEAE), a

government entity reporting to the

Ministry of Finance.

The conflicts and disputes in franchise

transactions are obliged to follow the

Brazilian Code of Civil Procedure (Law

No. 5,869/1973). This law is common for

all kinds of conflicts in the country,

irrespective of the relation to the

franchise transactions.

Source: http://www.franchise.org//uploadedFiles/F2013%20Brazil.pdf, accessed on 10 June 2013.




Case study: Singapore — government support boosts sector growth

Since 1985, the Singapore Government has been SPRING is a statutory board under the Ministry of Trade

actively promoting franchising as a means of and Industry (Singapore). It offers financial assistance

internationalizing domestic small companies. Eligible to local SMEs to foster the franchise business

companies can leverage various schemes related to environment, facilitate the growth of industries, and

franchise consulting, the registration of trademarks, enhance innovation and enterprise capabilities

market surveys and participation in overseas domestically. Similarly, IE Singapore facilitates the

exhibitions. overseas growth of domestic companies and promotes

international trade.

The lead government agencies that promote franchise

development in Singapore are:

• Standards, Productivity and Innovation Board

(SPRING), Singapore

• International Enterprise (IE) Singapore

SPRING provides financial assistance to local entrepreneurs

IE Singaporefacilitates franchise opportunities outside the country

*Productivity & Innovation Credit (PIC) scheme provides 400 percent tax deduction of up to US$0.4 million or 60 percent cash grant up to US$100,000 expenses in productivity improvements and innovation.

** Capability Development Grant (CDG) supports up to 70 percent of the cost of productivity improvements and capability development , which results in greater enterprise competitiveness and business growth.

External economic opportunities:

IE Singapore is a government agency, under the Ministry of Trade (Singapore), which facilitates the overseas growth of domestic companies and promotes international trade.

SPRING: offers and interventions

Several financial incentives—in the form of cash/voucher to defray expenses, tax incentives (PIC scheme)* and grants (CDG)**— support enterprising competitiveness, increase productivity and improve human resource management practices for local small enterprises in Singapore. The country supports the industry in working capital, trade finance and equipment finance activities through government - backed loans and schemes such as the Local Enterprise Finance Scheme (LEFS), the Loan Insurance scheme (LIS) and the Micro Loan Program (MLP).

Globally Competitive Companies (GCCs):

These companies facilitate international trade opportunities for potential domestic players. GCCs compete in about 35 countries in various industries. They contribute to Singapore’s economic buoyancy, cultivate global business leaders domestically and strengthen the country’s overall brand value.

Source: http://www.iesingapore.gov.sg/wps/portal and www.spring.gov.sg/


Case study: Brazil — government support boosts sector growth

Brazil is the 7th largest economy in Despite the presence of this The following diagram exhibits the

the world, where all the franchise comprehensive law for franchising various aspects of the franchising,

operations are regulated by 'The in the country, the government also which are directly governed by

Brazilian Franchise Law (Law No. proactively interferes in the some government agencies in

8955 of December 15, 1994)'. country's franchise transactions. Brazil:

Learning from International franchising regulatory scenario for the GoI:

US Malaysia

Specific franchising Law



Conflicts resolution


KPMG CommentsUK Brazil

Franchising focused rules & regulations are expected to send a positive message to both Indian and global franchising community about the seriousness of Indian government in promoting franchising as a mainstream sector that can contribute to overall GDP growth and employment generation.

This is important to protect franchisee rights as well as will ensure only serious players look at franchising.

Free market pricing should be encouraged while making sure that royalty and fee payments lie within industry standards.

It is critical to have a transparent dispute resolution mechanism and an independent body to address conflicts that may arise between a franchisor & franchisee


Disclosure laws Competition laws Dispute resolution

The National Institute of Industrial

Property (INPI) is a goverment entity,

responsible for multiple aspects related

to franchise agreements such as

industrial property rights, issuance of

letters patent, certification of licensing

agreements involving industrial property

rights, and registration of domestic and

cross-border franchise agreements.

The competition laws are governed by

the Brazilian Competition System

(SBDC). This system comprises the

Administrative Economic Defence

Council (CADE), an independent agency

linked to the Ministry of Justice; and the

Economic Policy Bureau (SEAE), a

government entity reporting to the

Ministry of Finance.

The conflicts and disputes in franchise

transactions are obliged to follow the

Brazilian Code of Civil Procedure (Law

No. 5,869/1973). This law is common for

all kinds of conflicts in the country,

irrespective of the relation to the

franchise transactions.

Source: http://www.franchise.org//uploadedFiles/F2013%20Brazil.pdf, accessed on 10 June 2013.




Expected role of the government in addressing the industry's key challenges:

Absence of a strong legal framework

Need for financial assistance

Regional diversity

•specific laws including pre-disclosure norms, effective dispute resolution and governance mechanism.

• However, such laws should not be restrictive in nature

• Single window clearance for international franchisors

• Government could look at setting up funding programs to encourage adoption of franchising business model by entrepreneurs

• Government could also look at providing guarantees to bank loans for certain identified sectors with-in franchising

• Counter guarantee collective mutual credit guarantee schemes

• Provide data/information to franchisors, especially on demographics, as well as growth rates and trends in various industries/regions.

Evaluate the need and urgency to formulate franchising • The absence of a dedicated regulatory framework and formal franchise laws sometimes acts as a mind block for a business investor or a prospective franchisee looking to invest in a new franchise system.

• No specific financial assistance programs or schemes for franchise market, except for the SME sector.

• A balanced and well-informed strategy is required for smooth franchise operations in a diverse country such as India.

India could take a cue based on key areas of support identified byInternational Franchise Association in the context of Franchising.

Identified federal legislative areas where government attention and support is required:

Identified key issues and challenges faced by the industry

Expected support from the government


Source: International Franchise Association (IFA) http://www.franchise.org/IndustrySecondary.aspx?id=10070

The GoI needs to benchmark its

priority to promote franchise

industry in India against the

legislative priorities of the

International Franchise

Association (IFA).

•

• Capital access

• Depreciation reform

• Business activity taxes

• Labor issues

• Lawsuit abuse reform

Franchise relationship legislation •

• Restaurant nutrition labeling

• Tax reform

• Small business loan program

• Veterans policy

Private equity taxation



Expected role of the government in addressing the industry's key challenges:

Absence of a strong legal framework

Need for financial assistance

Regional diversity

•specific laws including pre-disclosure norms, effective dispute resolution and governance mechanism.

• However, such laws should not be restrictive in nature

• Single window clearance for international franchisors

• Government could look at setting up funding programs to encourage adoption of franchising business model by entrepreneurs

• Government could also look at providing guarantees to bank loans for certain identified sectors with-in franchising

• Counter guarantee collective mutual credit guarantee schemes

• Provide data/information to franchisors, especially on demographics, as well as growth rates and trends in various industries/regions.

Evaluate the need and urgency to formulate franchising • The absence of a dedicated regulatory framework and formal franchise laws sometimes acts as a mind block for a business investor or a prospective franchisee looking to invest in a new franchise system.

• No specific financial assistance programs or schemes for franchise market, except for the SME sector.

• A balanced and well-informed strategy is required for smooth franchise operations in a diverse country such as India.

India could take a cue based on key areas of support identified byInternational Franchise Association in the context of Franchising.

Identified federal legislative areas where government attention and support is required:

Identified key issues and challenges faced by the industry

Expected support from the government


Source: International Franchise Association (IFA) http://www.franchise.org/IndustrySecondary.aspx?id=10070

The GoI needs to benchmark its

priority to promote franchise

industry in India against the

legislative priorities of the

International Franchise

Association (IFA).

•

• Capital access

• Depreciation reform

• Business activity taxes

• Labor issues

• Lawsuit abuse reform

Franchise relationship legislation •

• Restaurant nutrition labeling

• Tax reform

• Small business loan program

• Veterans policy

Private equity taxation



Conclusion


Conclusion

In the absence of any specific law • Comply with all laws and agencies in addition to the

for franchising, it becomes critical regulations to operate franchise benefits available for SME's.

for all the industry players in India to business in India.Financial institutions should also

collaborate and support the industry come up with innovative financial

to ensure the country's franchising products to support franchisee

potential is leveraged to its fullest. ecosystem. Industry associations such as

The following are some areas where Franchising Association of India • Support industry associations

the industry stakeholders could help should act as a common platform to such as Franchising Association of

leverage the availability of the serve and promote all the franchise India in setting up franchise

country's entrepreneurs and the industry operations in India.incubation centres for domestic

country's ability to cater to the retailers aspiring to operate in • Proactively engage with

prevailing consumption boom:India through the franchise model. government, financial institutions

and other industry stakeholders

on policy matters that may need

to be addressed to drive growth of • Franchisor should evaluate setting The government should play a key

franchising industry in India.up financing programs to help the role in supporting all the franchise

potential franchisees. This industry stakeholders including • Support government bodies and

concept of financing franchising franchisors, franchisees, financial financial institutions to improve

by franchisor has not yet emerged institutions, banks and industry laws and promote franchising.

in India. associations.

• Actively persuade industry-• Franchisor should collaborate and

• Frame policies which liberalize government partnerships to adopt support franchisee throughout the

Indian foreign trade policies to global best practices in business life cycle; specifically the

encourage more foreign franchising. This is expected to start-up support, operational

franchisors in the country. Set up enhance overall competitiveness support, financing support and

regulations around the pre- of the sector.initial infrastructural support.

contractual disclosures and • Partner with Franchisors and/ or

streamline the process of entry of • Franchisors should share long Franchising industry associations

franchisors. term business goals with their to assist in screening of potential

franchisees• Streamline approvals for the franchisees for extension of

prospective franchisees by financial support.• Franchisors and Franchisees

allowing single window should discuss in detail growth

clearance / approvals. Also look at opportunities and expectations on

protecting rights of franchisees by returns from franchise business

setting up a strong dispute

resolution mechanism in the

country.

• Support public agencies and

financial institutions to improve

laws and promote franchising.

• Set up a central fund to support

innovative franchise models in

India. Encourage banks and

financial institutions to increase

financial incentives for the

franchisors, franchisees and

concerned associations and

Industry associations:

Government and financial Franchisor and franchisee:

institutions:



Conclusion


Conclusion

In the absence of any specific law • Comply with all laws and agencies in addition to the

for franchising, it becomes critical regulations to operate franchise benefits available for SME's.

for all the industry players in India to business in India.Financial institutions should also

collaborate and support the industry come up with innovative financial

to ensure the country's franchising products to support franchisee

potential is leveraged to its fullest. ecosystem. Industry associations such as

The following are some areas where Franchising Association of India • Support industry associations

the industry stakeholders could help should act as a common platform to such as Franchising Association of

leverage the availability of the serve and promote all the franchise India in setting up franchise

country's entrepreneurs and the industry operations in India.incubation centres for domestic

country's ability to cater to the retailers aspiring to operate in • Proactively engage with

prevailing consumption boom:India through the franchise model. government, financial institutions

and other industry stakeholders

on policy matters that may need

to be addressed to drive growth of • Franchisor should evaluate setting The government should play a key

franchising industry in India.up financing programs to help the role in supporting all the franchise

potential franchisees. This industry stakeholders including • Support government bodies and

concept of financing franchising franchisors, franchisees, financial financial institutions to improve

by franchisor has not yet emerged institutions, banks and industry laws and promote franchising.

in India. associations.

• Actively persuade industry-• Franchisor should collaborate and

• Frame policies which liberalize government partnerships to adopt support franchisee throughout the

Indian foreign trade policies to global best practices in business life cycle; specifically the

encourage more foreign franchising. This is expected to start-up support, operational

franchisors in the country. Set up enhance overall competitiveness support, financing support and

regulations around the pre- of the sector.initial infrastructural support.

contractual disclosures and • Partner with Franchisors and/ or

streamline the process of entry of • Franchisors should share long Franchising industry associations

franchisors. term business goals with their to assist in screening of potential

franchisees• Streamline approvals for the franchisees for extension of

prospective franchisees by financial support.• Franchisors and Franchisees

allowing single window should discuss in detail growth

clearance / approvals. Also look at opportunities and expectations on

protecting rights of franchisees by returns from franchise business

setting up a strong dispute

resolution mechanism in the

country.

• Support public agencies and

financial institutions to improve

laws and promote franchising.

• Set up a central fund to support

innovative franchise models in

India. Encourage banks and

financial institutions to increase

financial incentives for the

franchisors, franchisees and

concerned associations and

Industry associations:

Government and financial Franchisor and franchisee:

institutions:



• Comply with all laws and codes regulating franchising in India

• Set up financing programs to financially help the potential franchisees

• Franchisors should share long term business goals with their franchisees

Franchisor

allow retailers to adopt franchise models of entry

• Set up a central fund to support innovative franchise models

• Allow single window clearances for franchisees and protect their rights

• Support public agencies and financial institutions to improve laws and promote franchising

• Ease FDI norms to financial products to support franchisee ecosystem

• Enhance their knowledge of innovative business models which are different from traditional business models and build policies and processes to fund such business ventures

• Develop innovative platform for the interaction of Franchisors, franchisees, government and lending institutions

• Actively persuade industry-government partnerships to adopt global best practices in franchising. This is expected to enhance overall competitiveness of the sector.

• Partner with Franchisors and/ or Franchising industry associations to assist in screening of potential franchisees for extension of financial support.

• Provide a common into the business and should adopt fair business practices

• Insist on complete disclosure by franchisors

• Active involvement

Government Financial Institutions Industry Associations Franchisee

Support from key industry stakeholders: Critical success factor for franchise industry in India



• Comply with all laws and codes regulating franchising in India

• Set up financing programs to financially help the potential franchisees

• Franchisors should share long term business goals with their franchisees

Franchisor

allow retailers to adopt franchise models of entry

• Set up a central fund to support innovative franchise models

• Allow single window clearances for franchisees and protect their rights

• Support public agencies and financial institutions to improve laws and promote franchising

• Ease FDI norms to financial products to support franchisee ecosystem

• Enhance their knowledge of innovative business models which are different from traditional business models and build policies and processes to fund such business ventures

• Develop innovative platform for the interaction of Franchisors, franchisees, government and lending institutions

• Actively persuade industry-government partnerships to adopt global best practices in franchising. This is expected to enhance overall competitiveness of the sector.

• Partner with Franchisors and/ or Franchising industry associations to assist in screening of potential franchisees for extension of financial support.

• Provide a common into the business and should adopt fair business practices

• Insist on complete disclosure by franchisors

• Active involvement

Government Financial Institutions Industry Associations Franchisee

Support from key industry stakeholders: Critical success factor for franchise industry in India



Appendix


Franchisee Data – Sector wise

Retail

Apparel

Consumer Durables

Jewelry

Music, Books & stationery

Furniture & Furnishing

Pharmacy

Food & Grocery

Sector Investment (in INR lakhs)

Area required (sq. ft)

Revenue/sq. ft/month (in INR)

Royalty (% of sales)

Franchisee Fee (INR lakhs)

Return on Investment (%)

Payback-period (years)

Franchise Term (years)

15 – 20

23 – 26

250 – 350

12 – 15

40 – 45

8 – 10

20 – 25

1200 – 1800

1000 – 1500

1000 – 1500

600 – 800

1200 – 1600

400 – 600

1000 – 1500

3500 – 4500

3000 – 3500

1000 – 1300

200 – 250

300 – 400

1200 – 1600

1800 – 2300

10 - 15

NA

None

NA

NA

NA

NA

1 -2

NA

2-3

NA

NA

NA

NA

25

25

20

40

20

20

20

3

4

4

3

5

5

3

5

NA

11

NA

NA

NA

NA

Food & Beverages

QSR

FSR

Café/bars

Kiosks









30 – 40

25 – 30

30 – 40

10 – 15

500 – 1000

1000 – 1500

500 – 1000

250 – 300

1000 – 1200

1000 – 1500

500 – 600

800 – 1000

6 – 8

6 – 8

6 – 8

6 – 8

2.5 – 5

5 – 10

5 – 10

1 – 2

25

20

30

30

4

5

3

3

NA

NA

NA

NA

Abbreviations:QSR – Quick Service RestaurantsFSR – Full Service Restaurants (Fine & Casual dining)



Appendix



Retail

Apparel

Consumer Durables

Jewelry

Music, Books & stationery

Furniture & Furnishing

Pharmacy

Food & Grocery









15 – 20

23 – 26

250 – 350

12 – 15

40 – 45

8 – 10

20 – 25

1200 – 1800

1000 – 1500

1000 – 1500

600 – 800

1200 – 1600

400 – 600

1000 – 1500

3500 – 4500

3000 – 3500

1000 – 1300

200 – 250

300 – 400

1200 – 1600

1800 – 2300

10 - 15

NA

None

NA

NA

NA

NA

1 -2

NA

2-3

NA

NA

NA

NA

25

25

20

40

20

20

20

3

4

4

3

5

5

3

5

NA

11

NA

NA

NA

NA

Food & Beverages

QSR

FSR

Café/bars

Kiosks









30 – 40

25 – 30

30 – 40

10 – 15

500 – 1000

1000 – 1500

500 – 1000

250 – 300

1000 – 1200

1000 – 1500

500 – 600

800 – 1000

6 – 8

6 – 8

6 – 8

6 – 8

2.5 – 5

5 – 10

5 – 10

1 – 2

25

20

30

30

4

5

3

3

NA

NA

NA

NA

Abbreviations:QSR – Quick Service RestaurantsFSR – Full Service Restaurants (Fine & Casual dining)




Health & Wellness

Spa

Salon

Fitness &Slimming









40 – 50

40 – 45

70 – 80

1400 – 1600

1400 – 1600

1500 – 2000

500 – 700

1200 – 1400

200 – 600

10 - 15

NA

6 – 8

10 – 20

NA

8 – 10

30

35

30

3

3

3

9

NA

10

Consumer Services









Education









Note:NA – Data not available

Travel

Financial

5 – 10

10 – 15

1200 – 1600

500 – 1000

300 – 500

800 – 1000

NA

NA

NA

NA

50

5 – 15

2

6

4

NA

Pre-schools

IT Training

10 – 15

15 – 20

1200 – 1600

1200 – 1600

10 – 50

1200 – 1700

10 – 20

NA

1 – 5

NA

16

50

1.5 – 2

2

4

NA





Health & Wellness

Spa

Salon

Fitness &Slimming









40 – 50

40 – 45

70 – 80

1400 – 1600

1400 – 1600

1500 – 2000

500 – 700

1200 – 1400

200 – 600

10 - 15

NA

6 – 8

10 – 20

NA

8 – 10

30

35

30

3

3

3

9

NA

10

Consumer Services









Education









Note:NA – Data not available

Travel

Financial

5 – 10

10 – 15

1200 – 1600

500 – 1000

300 – 500

800 – 1000

NA

NA

NA

NA

50

5 – 15

2

6

4

NA

Pre-schools

IT Training

10 – 15

15 – 20

1200 – 1600

1200 – 1600

10 – 50

1200 – 1700

10 – 20

NA

1 – 5

NA

16

50

1.5 – 2

2

4

NA




Acknowledgements

Acknowledgements

In order to provide a comprehensive industry view in the study, we have interacted with various representatives

from the Franchising community including Franchisors (both Indian & Foreign), Franchisees, Financial Institutions,

Industry experts and Legal consultants. We would like to thank the various industry participants, whose

invaluable contributions have made this study possible.

The support provided by Franchising Association of India (FAI) has been instrumental in providing us with a

platform to base our industry discussions. We would like to thank the team at Franchising Association of India

for assisting us during the course of this study.

We have interacted with the representatives of the following companies/ brands and would like to thank each

of them for providing valuable inputs on the franchising sector.

AIMS Amul Aptech

Arena Arun Ice Creams Brainworks

California Burrito Contours Donut House

Educomp Euro Kids Ferns N Petals

Field Fisher Waterhouse LLP Four Fountain Spa Franchise Mind Corporation

Gitanjali Howards Storage World Indian Cookery Pvt. Ltd.

Jumbo King Just Books Kaati Zone

KB’s Fairprice (Future Group) Lakme Lexmantis

Liberty Shoes Ltd. Little Millennium Marrybrown

Mocha Coffee Naturals Beauty Salon Pink Fitness One Group

Pitman Quiznos Repro India

Ripley’s SIDBI SIP Academy – Abacus training

Siyaram’s South Asian Hospitality Sparkleminds

Talwalkars The Chocolate Room TIME CAT coaching

TTK Prestige VLCC Way2wealth

Zee Learning

We would also like to acknowledge the core team from KPMG in India who made this report possible:

Ramesh Srinivas, Anand Ramanathan, Praveen Govindu, Priyanka Balasubramanian, Urvashi Gupta, Puneet

Luthra, Sidharth Gopalan, Prasanna Venkatesan, Nirupam Das, Ankur Garg, Aditya Muralidhar, Priyanka Gupta,

Jiten Ganatra, Subashini Rajagopalan, Sandeep Yadav and Priyanka Agarwal.




Acknowledgements

Acknowledgements

In order to provide a comprehensive industry view in the study, we have interacted with various representatives

from the Franchising community including Franchisors (both Indian & Foreign), Franchisees, Financial Institutions,

Industry experts and Legal consultants. We would like to thank the various industry participants, whose

invaluable contributions have made this study possible.

The support provided by Franchising Association of India (FAI) has been instrumental in providing us with a

platform to base our industry discussions. We would like to thank the team at Franchising Association of India

for assisting us during the course of this study.

We have interacted with the representatives of the following companies/ brands and would like to thank each

of them for providing valuable inputs on the franchising sector.

AIMS Amul Aptech

Arena Arun Ice Creams Brainworks

California Burrito Contours Donut House

Educomp Euro Kids Ferns N Petals

Field Fisher Waterhouse LLP Four Fountain Spa Franchise Mind Corporation

Gitanjali Howards Storage World Indian Cookery Pvt. Ltd.

Jumbo King Just Books Kaati Zone

KB’s Fairprice (Future Group) Lakme Lexmantis

Liberty Shoes Ltd. Little Millennium Marrybrown

Mocha Coffee Naturals Beauty Salon Pink Fitness One Group

Pitman Quiznos Repro India

Ripley’s SIDBI SIP Academy – Abacus training

Siyaram’s South Asian Hospitality Sparkleminds

Talwalkars The Chocolate Room TIME CAT coaching

TTK Prestige VLCC Way2wealth

Zee Learning

We would also like to acknowledge the core team from KPMG in India who made this report possible:

Ramesh Srinivas, Anand Ramanathan, Praveen Govindu, Priyanka Balasubramanian, Urvashi Gupta, Puneet

Luthra, Sidharth Gopalan, Prasanna Venkatesan, Nirupam Das, Ankur Garg, Aditya Muralidhar, Priyanka Gupta,

Jiten Ganatra, Subashini Rajagopalan, Sandeep Yadav and Priyanka Agarwal.



KPMG in India Contacts

Head

Markets

T: +91 22 3090 2040

E: [email protected]

Head

Consumer Markets

T: +91 80 3065 4300


Associate Director

Consumer Markets

T: +91 80 3065 4475


Senior Consultant

Consumer Markets

T: +91 80 3065 4474


Pradeep Udhas

Ramesh Srinivas

Anand Ramanathan

Praveen Govindu

kpmg.com/in

Franchising Association of

India (FAI) Contacts

President

Franchising Association of India

T: +91 22 2351 7185


Senior Manager

Franchising Association of India

T: +91 22 2827 2490


C.Y. Pal

Nilesh Daivadnya

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein as a part of the Survey are those of the survey respondents and do not necessarily represent the views and opinions of KPMG in India.

© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity“ are registered trademarks or trademarks of KPMG International.

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