Franchising is termed as one of the popular business expansion systems worldwide in today’s scenario. Franchising is practiced by using another person’s business model where franchisor grants operation rights to distribute its products, techniques, and trademarks against royalty or as agreed between both the parties. Franchising gives many advantages to both franchisor and franchisee as mentioned below:
- Easily Replicable Business Model
- Faster Business Expansion
- Low Risk
- Knowledge Transfer
- Structured Operations
- Maintaining Standards
- Brand Building
‘Franchise consulting‘ traditionally means the same consultant-to-client relationship as any other industry wherein the consultant charges a ‘fee for services’. But, as of the late 1990s, the term ‘consultant’ was adopted by franchise salesmen and brokers who began representing themselves as ‘free’ consultants to prospective franchise buyers. These ‘free consultants’ provide introduction services for franchise opportunity sellers with whom they have worked out a pay-for-sale agreement. Therefore, they are driven by the desire to connect the ‘client’ to a particular franchise.
Franchise Consulting in India:
Your Complete Guide to Buy a Franchise Opportunity in India
Buy a Franchise Opportunity in India
What is Franchise Consulting?
Here the owner or franchisor grants or licenses some rights and authorities – like to sell their products, goods, services – and gives rights to use their trademark and brand name with a contractual agreement to the franchisee (acts like a dealer). In return, the franchisee pays a one-time fee or commission to the franchisor and some share of revenue. Here the franchisees are at an advantage as they do not have to spend time and money on training employees, and they get to learn about business techniques.
Franchising Consulting in India
The liberalization of the Indian economy in the 1990s led to the birth of the franchise management model. Information technology companies and some educational institutions were among the first to adopt this strategy to expand to new geographies.
Today, food service businesses dominate the franchise scene in India. Well-known international brands in the market include:
- Starbucks
- Subway
- Domino’s Pizza
- Pizza Hut
- Burger King
- Taco Bell
- Nando’s
- Chilis
Many global brands are expanding their footprint in India through franchising. They utilize the expertise and knowledge of local Indian partners to navigate the market and understand consumer preferences. Some of the popular non-food franchised brands are:
- Miniso
- Zara
- L’Oréal
- Chanel
- Ralph Lauren
Franchise business in India will cross the $51 billion mark by 2020 according to a recent KPMG and Franchise Association of India (FAI) report. The current trend, however, shows a slightly different picture, highlighting that the growth is much faster, and expected to overtake the initial underestimating predictions easily.
While one can argue over these statistics, few can deny that a greater number of entrepreneurs in the country are steering towards franchising today.
- Franchising is growing faster than any other sector in the Indian economy.
- This industry is expected to grow at an average rate of 28 percent through the next decade.
- The Indian Franchise Eco-system comprises over 3,700 franchisors and 1,50,000 franchisees.
This explains the crucial role of a franchise consultant when it comes to achieving a franchise’s growth and maintaining the relationship between a franchisor and franchisee. This demand has resulted in the rise of Franchise Consultants recruiting for franchisors in India.
Franchise Consultant – Profile
A franchise consultant is a seasoned and qualified professional who helps entrepreneurs (both franchises as well as franchisors) to sell or buy a franchise business. The franchise consultant wears several hats: counsellor, guide, trainer, and strategist in planning, reviewing business plans & legalities, expanding & uncovering business opportunities, and launching new products and services. Although business validation can be done with an external business expert, how a franchise consultant can bring about the changes is crucial to the business.
If a business concept can travel places, as a business owner, it is something to be explored and should essentially help multiply business opportunities; this is where the role of a franchise consultant can be crucial.
A franchise consultant, therefore, firstly, showcases the franchisor’s products and services to a potential franchisee that is looking to set up the franchise business.
A franchise consultant, with his/her expertise, helps tone down business risks; identifies suitable geographical regions; prepares financial details like setting up franchise fee, profit margins, royalty fees, business formats like FOCO (franchisee owned and company operated) and FOFO (franchisee owned and franchisee operated), etc.
He/she also does the franchise & location profiling and rolls out operation plan, branding strategy, etc. Further, there is greater confidence shown by the investor if a business is validated by a franchise consultant compared to it being done by a brand or business owner alone.
Steps to Franchising Your Business in India
- Self-evaluation: What appeals to you about opening a franchised business?
- Are you ready, willing, and able to work long hours, including weekends and holidays (especially in the beginning)?
- Can you commit to following pre-determined business methods with very little variation, if any variation at all?
- Can you accept paying a portion of your profits to another entity (the franchisor)?
- Are you comfortable with the reputation of your business being largely dependent on the franchise’s network and not just your business unit?
Furthermore, how much of your personal cash are you willing to part with to establish the business? Unless you are fortunate enough to have enough money personally, will you be able to secure a loan?
- Research: Gaining a comprehensive understanding of prevailing market conditions and the changing trends is a crucial step in the process of starting your franchise outlet. To get the lay of the land, it is vital for a prospective franchise owner to talk to existing businesses and understand the needs of the market better. This can help you assess whether a particular location would be right for the franchise type you have in mind or vice versa.
- Capital requirements: Before you sign an agreement with a franchise business, carefully go through the funding requirements of the business. Many franchise business owners require an upfront fee from the franchise outlet owners. These funds typically include the capital to finance the franchise, inventory, setup charges, royalty fee, and working capital. Thus, it is essential to understand these requirements and pitch them against your investment budget.
- Finalize the franchise brand: Once you have an idea regarding the type of franchise you want to own and your investment range, it is time to now shortlist franchise brands that you think would be the right fit. There are several national, as well as international, franchise options that you can choose from depending upon your interests, business goals and investment. Once this list has been finalized, it is time to go on-ground for intensive and comprehensive research.
- Attend a ‘discovery day’: A discovery day is an in-depth meeting between the franchisor and one or more potential franchisees. It can take place at a local outlet of the franchise, but will most likely happen at the company’s corporate office.
Often, the franchisees in attendance will see presentations about what the franchisor can offer in terms of support and can ask questions. If done at the corporate office, a tour of the different departments and introductions to franchisee training and support personnel are common.
- Speak to other franchisees: Within the FDD provided by the franchisor is a listing of all current franchisees in their system. Find a few that are close to you and pay them a visit. Are they satisfied with the franchisor’s support? Is the reality of the business in line with prior expectations (financially and otherwise)? There is no better teacher than someone in the middle of franchise ownership.
- Choose your franchise partner: Make a list of potential franchisors that you are interested in working with and ask them to share a working proposal, the franchise disclosure document and the overview of the agreement. Compare these proposals and weigh the pros and cons of each business before reaching your final decision. If you need a third-party perspective and expertise, consult a lawyer or a franchise consultant to help you in the process and vet the documents carefully.
Three important things to note
- Will all the verbal promises made by the franchisor be translated in the written agreement?
- Can the royalty fee or the profit-sharing percentage be further negotiated?
- Would the franchisee get all the trademark rights and legal support from the franchisor?
Once you are satisfied with these details and are ready to start your franchise business, sign the agreement with the franchisor.
- Obtain all necessary permits and insurance: Each industry has its own requirements for permits and insurance. Regulations by state, city, county, etc. will vary as well. The franchisor will likely have background knowledge of the permits and insurance needed to operate their business system. However, it is a good idea to check with local authorities to ensure compliance.
*Remember, obtaining all required permits and getting them renewed timely is critical to smooth running of the business.
- Hire staff and attend training: The number of staff members needed to run the operation will depend on the type of franchise chosen.
One of the most appealing aspects of franchising to those wanting to open a business is the training component. Franchisors usually provide training, in a combination of classroom and practical experiences, to at least the franchisee and another manager. A copy of the franchise operations manual is also typically presented at this time.
- Open your franchise business: Before opening, you will need to alert potential customers to their new marketplace option. Franchisors will often have defined processes for signage, ads, and other initiatives to be performed. Estimates for these initiatives will usually be a part of the start-up costs quoted in the FDD.
Some franchisors will do a ‘soft opening’ before the ‘grand opening’. A soft opening is designed to smooth out problems with the operation of the business before the big marketing blitz, and hopefully larger crowds that will come with the grand opening. Some franchisors also arrange for a corporate trainer to be on hand at the franchise location during the opening days.
The Power of the Franchisor’s Brand in India
Franchisor’s brand image plays an important role in franchising, especially in franchisor-franchisee relationship, give strong contribution to build franchisee trust and furthermore give impact on franchisee intention to remain in franchise system. In order to maintain the sustainability of franchise business, franchisor’s brand image is one of the most important aspects that must get the best attention by franchisor. Building a superior brand image can increase franchisee trust and furthermore give positive impact on franchisee intention to remain in the franchise system. Likewise, a superior franchisor’s brand image can attract the potential franchisee to buy and make franchise agreement.
Most Receptive Sectors to Franchises in India are:
- Food and beverage
- Hotels
- Retail
- Beauty and fitness
- Health care
- Medical services
- Education
Foreign Investment and Franchise Establishment Using Franchise Consulting
Foreign Direct Investment (FDI) and franchise arrangements are two mutually independent routes of expansion available to the foreign entities and it is a fallacy to assume that franchising is one of the forms of FDI. There is no sure shot formula to decide which of the two is economically a more sound and viable option, the choice varies with different situations and business models involved. In situations where both models (direct investment and franchise) are available, companies can actually make decisions based on a balanced analysis of their needs and resources.
*In May 2020, the Government increased FDI in Defence manufacturing under the automatic route from 49 percent to 74 percent.
Safeguarding Your Franchise From Bankruptcy
Gruellingly slow processing times for bankruptcy and insolvency have plagued businesses in India in the past.
The new Insolvency and Bankruptcy Code, 2020 (the code provides a time-bound process for resolving insolvency in companies and among individuals. Insolvency is a situation where individuals or companies are unable to repay their outstanding debt) aims to ease the process by consolidating existing policies, regulating insolvency professionals, and accelerating processing times for bankruptcy cases.
Success Factor
The success of the new Bankruptcy Code will, inevitably, be dependent on the effectiveness of its implementation. The bill also aims to reduce crony-capitalism, where the regulations only seem to benefit a select few. This bill is a step forward in allowing market forces to freely decide economic outcomes. The right amount of government and agency intervention is allowed to prevent stagnating firms from imposing negative externalities on other portions of the national economy. It can also be looked at as a step towards combating corruption, private sector complacent risk-taking, and overall efficiency losses.
Some Loose Ends
Analysts do have some reservations about the bill. For instance, the bill has proposed to establish an Insolvency and Bankruptcy Fund; however, the role of the Fund has not been specified. The code also provides for the creation of multiple IUs. However, it does not specify that full information about a company will be accessible through a single query from any IU. This will lead to the scattering of financial data. If the bill addresses these reservations, it can be a landmark economic legislation. The code has the potential to set India on a path to sustainable economic development and financial stability.
Contracts between franchisors and franchisees must take India’s Bankruptcy and Insolvency Code into consideration. Contracts should clearly stipulate that a franchisor can terminate an agreement with an individual outlet if they file – or threaten to file – for bankruptcy.
Some Practical Recommendations:
- Keep your eyes and ears open
- Retain bankruptcy counsel
- Organize with other franchisees
- Do not miss bankruptcy proceeding dates
- Begin a relationship with a new franchisor and investigate renegotiating your franchise agreement
- Be prepared to take action concerning non-competition provisions
- Explore your rights to continue using the franchisor’s trademark
Preparing Franchise for Effective Conflict Resolution
Franchises are complicated business models, and tensions can arise if you are not careful. In reality, the success of any franchisor is inextricably linked with the ability to support the aim of their franchisees.
There are several recognised causes for a conflict to occur:
- Lack of support from the franchisor
- Compliance with systems
- Marketing concerns
- Fees
- Misrepresentation issues
- Communication problems
- Shortfall in earnings
- Dealing with disputes
The Franchisee’s Options
Franchise agreements usually run to about forty pages and are written by experienced franchise lawyers. Sometimes the franchisee may be confused by the legal terminology and may just feel ‘let down’.
However, if they feel that they have a justifiable complaint, they will probably telephone their franchisor in the first instance. If there is no meeting of minds, the franchisee can put their complaints in writing. Again, if there is no satisfactory conclusion, the franchisee will usually turn to a solicitor for help.
The Franchisor’s Options
The franchisor, of course, is fully aware of the terms of the agreement and the content which governs the conduct of their franchisees. Therefore, should they believe that the franchisee is in breach of their agreement, they can also attempt to heal the rift through a face-to-face meeting.
If discussions fail to resolve a dispute, then the franchisor may have no option but to issue a notice instructing the franchisee to remedy the breach, or even threaten termination of the agreement.
Termination of a franchise by the franchisor should always be a last resort, but is not a step to be ignored. A badly disaffected franchisee can lose sight of reason and become vitriolic to the point of damaging relationships within the network as well as the wider brand. In such cases a franchisor is left with no option.
Indeed, even formal terminations can be agreed during resolution discussions, where it has become apparent and understood by the franchisee that they have just not met their contractual obligations.
Only in the case of complete intransigence on either side of the franchise relationship will it be necessary to “go legal” – with a fair and commercial approach all round. Very few such disasters happen.
Do Your Due Diligence: Regional Tastes, Regional Laws
Before taking a Franchise, you should always carry out legal due diligence in respect of all relevant matters.
Legal due diligence should cover:
- Financial Due Diligence: Do a full credit check on the Franchisor. Check out its latest accounts. Make all appropriate enquiries as to the financial position of the Franchisor.
- Market Due Diligence: Make sure that there is a real need for the product or service in your area and check out the competition.
- Franchisee Due Diligence: Talk to as many existing franchisees as you can and glean from them as much information about the Franchisor and the Franchise as you can.
- Legal Due Diligence: There is no substitute for having your Franchise Agreement checked out by an experienced, specialist franchising solicitor but here are some pointers for some basic clauses to look for and to consider.
Selling to a different audience means you have to consider the appeal of the product to the region’s culture, and the Middle East is the ultimate challenge for most brands in doing so. Local trends, customs, and consumption habits must be taken into account, including everything from halal requirements to something as personal as taste.
Product compliance for a new country’s regulations may be a hurdle. If there are regulations restricting some of your products from entering the country due to safety and quality regulations outlined in consumer protection laws, you could incur legal penalties and fines for breach.
Best Franchise Opportunities in India
E-ASHWA AUTOMOTIVE PRIVATE LIMITED
Founded in: 2017
Franchising since: 2019
Franchise units: 10-20
Initial investment: From Rs 10 Lakhs
Royalty Fees: From Rs 1.5 Lakhs
CRBTECH SOLUTIONS PVT LTD
Founded in: 2001
Franchising since: 2019
Franchise units: 10-20
Initial investment: From Rs 5 Lakhs
Royalty Fees: 15%
MICHAELS ICECREAM BURGER
Founded in: 2017
Franchising since: 2019
Franchise units: Less than 10
Initial investment: From Rs 5 Lakhs
Royalty Fees: 10%
TECHNOKIDS
Founded in: 2014
Franchising since: 2015
Franchise units: Less than 10
Initial investment: From Rs 20 Lakhs
Royalty Fees: 15%
US PIZZA & FRIED CHICKEN
Founded in: 2013
Franchising since: 2014
Franchise units: 10-20
Initial investment: From Rs 5 Lakhs
Royalty Fees: Rs 2.5 Lakhs
MIDWAY CAFE INDIA
Founded in: 1987
Franchising since: 2016
Franchise units: 20-50
Initial investment: From Rs 10 Lakhs
Royalty Fees: 10%
YUMMERICA FRIES
Founded in: 2017
Franchising since:2017
Franchise units: Less than 10
Initial investment: From Rs 5 Lakhs
Royalty Fees: 4%
CHICAGO DELIGHTS PIZZA
Founded in: 2009
Franchising since: 2013
Franchise units: 20-50
Initial investment: From Rs 10 Lakhs
NIRMAL WORLD PRIVATE LIMITED
Founded in: 2013
Franchising since: 2019
Franchise units: 500-1000
Initial investment: From Rs 50 Lakhs
Royalty Fees: 10%
INXPRESS
Founded in: 2011
Franchising since: 2013
Franchise units: 20-50
Initial investment: From Rs 5 Lakhs
Royalty Fees: 30%
Best Franchise & Business Consultants in India
- Sparkleminds
- FranchiseBazar
- Jobskey
- NeenOpal Inc.
- UXReactor
- BizMania Business Consulting
- Witstuners
- Wisitech InfoSolutions Pvt. Ltd.
- Technousa Consulting Services Pvt. Ltd.
- CapActix Business Solutions
- Innovantes IT Solutions LLP
Local Franchise Consultants:
What Are They & How Do They Help?
A local franchise consultant takes considerations of your area into account, helps with the heavy lifting, streamlines your process, and helps you succeed.
Key Roles:
- They work hand-in-hand with clients to educate them on opportunities and risks throughout their decision to ensure they have the best chance of success
- Setting up a no-obligation review session with a local franchise consultant helps in gaining more insight into what franchise opportunities may be best for your goals.
- They present a number of options and depending on which ones you are interested in, will make an introduction.
Conclusion
Expanding your business by franchising can give you a serious business advantage. It is even possible to fast-track your franchise program and get your product or service to the market even more quickly. This is where the whole world experience can be invaluable, it will help you to quickly get on the road to a successful franchise program. This will support your ideas for franchising and provide a clear roadmap for business expansion.
For a successful franchising, the 3Ps are the foundation:
- Principle
- People
- Partnership
First is PRINCIPLE, to be ‘Investor Centric… Franchise Focussed.’ The importance of an investor is to be centric to work towards his interest. Businesses are dedicated to inform and assist the investor. Along with principle, we believe in PEOPLE. Franchise Consulting is also termed as a people’s company. This is achieved as a combined effort by partners, vendors, team members and our clients for their valuable support. A perfect example of PARTNERSHIP.
