kpmg franchising industry india
TRANSCRIPT
CONSUMER MARKETS
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
© 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
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
© 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
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
© 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.
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
© 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.
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
© 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.
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 Durables 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 %
Source: KPMG in India Analysis
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.
Source: KPMG in India Analysis
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.
Source: KPMG in India Analysis
Bubbles represent the Potential number of outlets required by 2017(This size corresponds to approx 20,000 outlets)
© 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.
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 Durables 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 %
Source: KPMG in India Analysis
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.
Source: KPMG in India Analysis
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.
Source: KPMG in India Analysis
Bubbles represent the Potential number of outlets required by 2017(This size corresponds to approx 20,000 outlets)
© 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.
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
Source: KPMG in India Analysis
© 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.
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
Source: KPMG in India Analysis
© 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.
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
© 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.
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
© 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.
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.
Franchising – Pushing India ahead
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
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
Growth in the last 5 years (CAGR)
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
People employed by franchising sector as a % of total workforce
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
Source: KPMG in India Analysis
13.4
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. © 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.
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.
Franchising – Pushing India ahead
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
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
Growth in the last 5 years (CAGR)
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
People employed by franchising sector as a % of total workforce
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
Source: KPMG in India Analysis
13.4
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. © 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.
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
04Franchising Industry in India
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)
GDP Growth Rate (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)
Source: KPMG in India Analysis
Source: Brazilian Franchise Association
© 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.
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
04Franchising Industry in India
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)
GDP Growth Rate (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)
Source: KPMG in India Analysis
Source: Brazilian Franchise Association
© 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.
Franchising Industry in India
Current market landscape for franchising in India
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
Current market landscape for franchising in India
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.
© 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.
Franchising Industry in India
Current market landscape for franchising in India
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
Current market landscape for franchising in India
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.
© 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.
Franchising Industry in India
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
•
•
•
•
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
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%
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
Franchising Industry in India
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
Furniture & fittings
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
2012 2017 (Projected)
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
© 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.
Franchising Industry in India
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
•
•
•
•
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
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%
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
Franchising Industry in India
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
Furniture & fittings
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
2012 2017 (Projected)
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
© 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.
Franchising Industry in India
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.
Health, beauty and wellness
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.
Franchising Industry in India
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
franchising in India.
Source: KPMG India Analysis
Source: KPMG India Estimates
Source: KPMG India Analysis
Source: KPMG in India Analysis
Source: KPMG India Analysis
09 10
Figures indicate franchising revenues and franchisee outlets respectively
© 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.
Franchising Industry in India
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.
Health, beauty and wellness
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.
Franchising Industry in India
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
franchising in India.
Source: KPMG India Analysis
Source: KPMG India Estimates
Source: KPMG India Analysis
Source: KPMG in India Analysis
Source: KPMG India Analysis
09 10
Figures indicate franchising revenues and franchisee outlets respectively
© 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.
Franchising Industry in India
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
2012 2017 (projected)
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: KPMG in India Analysis
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.
© 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.
Franchising Industry in India
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
2012 2017 (projected)
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: KPMG in India Analysis
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.
© 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.
Franchising Industry in India
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
Franchising Industry in India
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
Consumer Durables 2017
Jewellery 2017
Food & Grocery 2017
F&B 2017
Health & Wellness 2017
Consumer Services 2017
Education 2017
Apparel 2012
Consumer Durables 2012
Consumer Services 2012F&B 2012
Education 2012
Health & Wellness 2012Jewellery 2012Food & Grocery 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
Bubbles represent the Potentialnumber of outlets required by 2017(This size corresponds toapprox 20,000 outlets)
X %
Avg
sq
ft
ROI / sq ft (in INR)
Travel Services
IT Training
Salon
Consumer Durables
Cafe/Bar
QSR
Spa
Apparel
Furniture and Furnishing
FSR
Fitness and Slimming
Food and Grocery
(500) - 500 1000 1500 2000 2500
1900.00
1800.00
1700.00
1600.00
1500.00
1400.00
1300.00
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
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
Bubbles size representrevenue per sq. ft.(This size corresponds toINR 8,000 per sq. ft.)
© 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.
Franchising Industry in India
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
Franchising Industry in India
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
Consumer Durables 2017
Jewellery 2017
Food & Grocery 2017
F&B 2017
Health & Wellness 2017
Consumer Services 2017
Education 2017
Apparel 2012
Consumer Durables 2012
Consumer Services 2012F&B 2012
Education 2012
Health & Wellness 2012Jewellery 2012Food & Grocery 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
Bubbles represent the Potentialnumber of outlets required by 2017(This size corresponds toapprox 20,000 outlets)
X %
Avg
sq
ft
ROI / sq ft (in INR)
Travel Services
IT Training
Salon
Consumer Durables
Cafe/Bar
QSR
Spa
Apparel
Furniture and Furnishing
FSR
Fitness and Slimming
Food and Grocery
(500) - 500 1000 1500 2000 2500
1900.00
1800.00
1700.00
1600.00
1500.00
1400.00
1300.00
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
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
Bubbles size representrevenue per sq. ft.(This size corresponds toINR 8,000 per sq. ft.)
© 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.
Franchising Industry in India
Case studies in the Indian franchising space
Franchising Industry in India
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
Case studies in the Indian franchising space
15 16
© 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.
Franchising Industry in India
Case studies in the Indian franchising space
Franchising Industry in India
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
Case studies in the Indian franchising space
15 16
© 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.
Franchising Industry in India
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
Franchising Industry in India
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
Presence across cities
Turnover (INR million)
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
800 - 1,200 square feet
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
Key investment considerations
Source:Moneycontrol.com
Source: Images retail, Lakme website
17 18
© 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.
Franchising Industry in India
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
Franchising Industry in India
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
Presence across cities
Turnover (INR million)
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
800 - 1,200 square feet
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
Key investment considerations
Source:Moneycontrol.com
Source: Images retail, Lakme website
17 18
© 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.
Franchising Industry in India
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.
Training and support
Key investment considerations
1,700 - 1,800 square feet (VC)
900 - 1,000 square feet (VS)
INR4.1 - 4.4 million (VC)
900 - 1,000 square feet (VS)
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
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
19 Franchising Industry in India
Aptech
Aptech’s performance Why Aptech ‘clicks’ with partners
Aptech
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
Key investment considerations
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
© 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.
Franchising Industry in India
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.
Training and support
Key investment considerations
1,700 - 1,800 square feet (VC)
900 - 1,000 square feet (VS)
INR4.1 - 4.4 million (VC)
900 - 1,000 square feet (VS)
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
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
19 Franchising Industry in India
Aptech
Aptech’s performance Why Aptech ‘clicks’ with partners
Aptech
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
Key investment considerations
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
© 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.
Franchising Industry in India
Segment
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
Key investment considerations
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
Franchising Industry in India
Area of operations
Start of operations
Key brands
Franchise units
Presence across cities
Turnover (INR million)
Net profit (INR million)
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)
75–300 square feet
Category A: INR150,000Category B: INR100,000Category C: INR 50,000(A – Metros; B,C – Smaller cities)
4–9 months
More than 20 percent
Premises should be ground floor.
2–4 depending on category
Area
Investment
Break-even period
Expected ROI
Other requirements
Staff
Key investment considerations
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.
Leveraging local expertise
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.
Source: Moneycontrol.com
Source: Moneycontrol.com
Source: Company website
21 22
© 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.
Franchising Industry in India
Segment
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
Net profit (INR million)
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
Key investment considerations
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
Franchising Industry in India
Area of operations
Start of operations
Key brands
Franchise units
Presence across cities
Turnover (INR million)
Net profit (INR million)
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)
75–300 square feet
Category A: INR150,000Category B: INR100,000Category C: INR 50,000(A – Metros; B,C – Smaller cities)
4–9 months
More than 20 percent
Premises should be ground floor.
2–4 depending on category
Area
Investment
Break-even period
Expected ROI
Other requirements
Staff
Key investment considerations
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.
Leveraging local expertise
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.
Source: Moneycontrol.com
Source: Moneycontrol.com
Source: Company website
21 22
© 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.
Franchising Industry in India
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
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
Presence across cities
Turnover (INR million)
Net profit (INR million)
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.
Source: Moneycontrol.com
Source: Moneycontrol.com
© 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.
Franchising Industry in India
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
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
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.
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
Presence across cities
Turnover (INR million)
Net profit (INR million)
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.
Source: Moneycontrol.com
Source: Moneycontrol.com
© 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.
25 Franchising Industry in India
NIIT’S performance
NIIT
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
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)
Sales Turnover Operating Profit Reported Net Profit
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.
1500–3000 square feet
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
Key investment considerations
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.
26Franchising Industry in India
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
Turnover (INR million)
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
Key investment considerations
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.
Source: Moneycontrol.com
© 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.
25 Franchising Industry in India
NIIT’S performance
NIIT
Area of operations
Start of operations
Key brands
No of outlets
Presence across cities
Turnover (INR million)
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)
Sales Turnover Operating Profit Reported Net Profit
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.
1500–3000 square feet
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
Key investment considerations
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.
26Franchising Industry in India
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
Turnover (INR million)
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
Key investment considerations
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.
Source: Moneycontrol.com
© 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.
Franchising Industry in India
International Franchising Scenario
27 28Franchising Industry in India
International Franchising Scenario
Global Franchising BrandsThe following section lists a set of global franchising case studies.
© 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.
Franchising Industry in India
International Franchising Scenario
27 28Franchising Industry in India
International Franchising Scenario
Global Franchising BrandsThe following section lists a set of global franchising case studies.
© 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.
29 Franchising Industry in India
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
Launch of operations
Key brands
No of outlets
Presence
Turnover
Quick service restaurants
1974 (franchise)
Subway
39,402 outlets (as on June 2013)
102 countries (as on June 2013)
US$18.1 billion (2012)
Subway
Note: *refers to the figures quoted in the Subway global website, **refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Subway global website, Wall Street Journal, Forbes, Nreionline.com, KPMG Analysis
A ‘bite’ of success
Subway
Initial franchise fee of US$ 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
Key investment considerations
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
30Franchising Industry in India
Hertz
Area of operations
Launch 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
Key investment considerations
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.
Source: Company website
© 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.
29 Franchising Industry in India
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
Launch of operations
Key brands
No of outlets
Presence
Turnover
Quick service restaurants
1974 (franchise)
Subway
39,402 outlets (as on June 2013)
102 countries (as on June 2013)
US$18.1 billion (2012)
Subway
Note: *refers to the figures quoted in the Subway global website, **refers to figures quoted in the Franchisedirect websiteSource: Franchisedirect website, Subway global website, Wall Street Journal, Forbes, Nreionline.com, KPMG Analysis
A ‘bite’ of success
Subway
Initial franchise fee of US$ 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
Key investment considerations
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
30Franchising Industry in India
Hertz
Area of operations
Launch 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
Key investment considerations
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.
Source: Company website
© 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.
31 Franchising Industry in India
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
Key investment considerations
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
32Franchising Industry in India
• 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
Key investment considerations
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.
Innovative royalty system
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)
© 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.
31 Franchising Industry in India
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
Key investment considerations
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
32Franchising Industry in India
• 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
Key investment considerations
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.
Innovative royalty system
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)
© 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.
33 Franchising Industry in India
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.
‘Driving’ success through franchising
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
Launch of operations
Key brands
No of outlets
Presence
Turnover
Women fitness centre
1995 (franchise)
Curves
Over 10,000 locations
Over 50 countries
US$20 billion (from the US alone)
US$0.037–0.45 million
US$29,900
5 percent of gross revenue subject to a minimum amount
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
Key investment considerations
Investment
Franchise fee
Royalty
Other requirements
Agreement period
Financial requirements
Assisting franchisee markets for rapid growth
Other supportScale and brand name
foster franchisee growth
50 locations
Over 10,000 locations
1995 2012
Source: Published Reports, Franchising Association of India
Curves’ performance
34Franchising Industry in India
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
Quick service restaurants
Quick service restaurants
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
Master Franchise model
Master Franchise model
Master Franchise model
Master Franchise model
Master Franchise model
Multi-unit franchise model
Joint venture Franchising
Joint venture Franchising mode
Master Franchise model
Master Franchise model
Source: Company website
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
© 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.
33 Franchising Industry in India
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.
‘Driving’ success through franchising
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
Launch of operations
Key brands
No of outlets
Presence
Turnover
Women fitness centre
1995 (franchise)
Curves
Over 10,000 locations
Over 50 countries
US$20 billion (from the US alone)
US$0.037–0.45 million
US$29,900
5 percent of gross revenue subject to a minimum amount
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
Key investment considerations
Investment
Franchise fee
Royalty
Other requirements
Agreement period
Financial requirements
Assisting franchisee markets for rapid growth
Other supportScale and brand name
foster franchisee growth
50 locations
Over 10,000 locations
1995 2012
Source: Published Reports, Franchising Association of India
Curves’ performance
34Franchising Industry in India
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
Quick service restaurants
Quick service restaurants
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
Master Franchise model
Master Franchise model
Master Franchise model
Master Franchise model
Master Franchise model
Multi-unit franchise model
Joint venture Franchising
Joint venture Franchising mode
Master Franchise model
Master Franchise model
Source: Company website
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
© 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.
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
35 Franchising Industry in India
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
36Franchising Industry in India
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
© 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.
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
35 Franchising Industry in India
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
36Franchising Industry in India
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
© 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.
37 Franchising Industry in India
Franchise industry survey
38Franchising Industry in India
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
Franchise industry survey
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
© 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.
37 Franchising Industry in India
Franchise industry survey
38Franchising Industry in India
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
Franchise industry survey
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
© 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.
39 Franchising Industry 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.
40Franchising Industry in India
Franchisee View - Growth Drivers
Franchisee View - Reasons for Franchising Option
Business Differentiators
Business Models in Franchising
Huge consumer class
Growing Preference for branded and quality products amongst consumers
Exposure to global media, fashion trends
Entrepreneurial Spirit
Investment Availability
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.
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
5
10
8
3
5
5
6
1
2
2
8
11
© 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.
39 Franchising Industry 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.
40Franchising Industry in India
Franchisee View - Growth Drivers
Franchisee View - Reasons for Franchising Option
Business Differentiators
Business Models in Franchising
Huge consumer class
Growing Preference for branded and quality products amongst consumers
Exposure to global media, fashion trends
Entrepreneurial Spirit
Investment Availability
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.
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
5
10
8
3
5
5
6
1
2
2
8
11
© 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.
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 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
© 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.
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 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
© 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.
43 Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
44Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
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
Recruitment of right talent
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.
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
4
2
8
5
9
7
© 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.
43 Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
44Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
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
Recruitment of right talent
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.
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
4
2
8
5
9
7
© 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.
45 Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
46Franchising Industry in India
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:
© 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.
45 Franchising Industry in India
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
46Franchising Industry in India
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:
© 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.
47 Franchising Industry in India
Franchising Regulatory Scenario
Franchising Regulatory Scenario
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
48Franchising Industry 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. © 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.
47 Franchising Industry in India
Franchising Regulatory Scenario
Franchising Regulatory Scenario
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
48Franchising Industry 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. © 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.
49 Franchising Industry in India 50Franchising Industry in India
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.
Not specified separately
• 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.
Not specified separately
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
© 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.
49 Franchising Industry in India 50Franchising Industry in India
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.
Not specified separately
• 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.
Not specified separately
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
© 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.
52Franchising Industry in India51 Franchising Industry in India
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
© 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.
52Franchising Industry in India51 Franchising Industry in India
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
© 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.
54Franchising Industry in India53 Franchising Industry in India
Business Models in Franchising
Business Models in 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:
© 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.
54Franchising Industry in India53 Franchising Industry in India
Business Models in Franchising
Business Models in 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:
© 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.
55 Franchising Industry in India 56Franchising Industry in India
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
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
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:
Source: KPMG in India Analysis
Source: KPMG in India Analysis
© 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.
55 Franchising Industry in India 56Franchising Industry in India
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
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
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:
Source: KPMG in India Analysis
Source: KPMG in India Analysis
© 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.
57 Franchising Industry in India 58Franchising Industry in India
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 franchisor-franchisee relationship could be critical.
• 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
Tier 1 Tier 2 Tier 3 Tier 4
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
© 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.
57 Franchising Industry in India 58Franchising Industry in India
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 franchisor-franchisee relationship could be critical.
• 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
Tier 1 Tier 2 Tier 3 Tier 4
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
© 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.
59 Franchising Industry in India 60Franchising Industry in India
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
© 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.
59 Franchising Industry in India 60Franchising Industry in India
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
© 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.
Food & Beverage
(F&B)
61 Franchising Industry in India
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: 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)”
62Franchising Industry in India
Employment potential in the franchising industry
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)
10 lakhs (1% of total workforce)
31 lakhs (2.2% of total workforce)
20 lakhs (1.5% 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
© 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.
Food & Beverage
(F&B)
61 Franchising Industry in India
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: 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)”
62Franchising Industry in India
Employment potential in the franchising industry
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)
10 lakhs (1% of total workforce)
31 lakhs (2.2% of total workforce)
20 lakhs (1.5% 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
© 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.
03 Franchising Industry in India 64Franchising Industry in India63 Franchising Industry in India
Financing franchising business
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
Do not exceed INR 25 lakh
More than INR 25 lakh but does not exceed
INR 5 crore
Number of respondents
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Reserve Bank of India
2
3
9
13
© 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.
03 Franchising Industry in India 64Franchising Industry in India63 Franchising Industry in India
Financing franchising business
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
Do not exceed INR 25 lakh
More than INR 25 lakh but does not exceed
INR 5 crore
Number of respondents
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013 Source: Reserve Bank of India
2
3
9
13
© 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.
65 Franchising Industry in India 66Franchising Industry in 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
Source: Reserve Bank of India
Source: Reserve Bank of India
Source: KPMG in India analysis
Source: KPMG in India analysis
© 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.
65 Franchising Industry in India 66Franchising Industry in 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
Source: Reserve Bank of India
Source: Reserve Bank of India
Source: KPMG in India analysis
Source: KPMG in India analysis
© 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.
67 Franchising Industry in India 68Franchising Industry in India
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.
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
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
Source: KPMG in India analysis
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.
© 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.
67 Franchising Industry in India 68Franchising Industry in India
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.
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
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
Source: KPMG in India analysis
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.
© 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.
70Franchising Industry in India69 Franchising Industry in India
Franchising success: Role of the government
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
© 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.
70Franchising Industry in India69 Franchising Industry in India
Franchising success: Role of the government
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
© 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.
71 Franchising Industry in India
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/
72Franchising Industry in India
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
Pre-contractual disclosure norms
Control on royalty payments and franchisee fees
Conflicts resolution
Intellectual property protection
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
It is important to protect intellectual property rights of all the franchisors to discourage counterfeiting brands.
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.
Source: KPMG in India analysis
© 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.
71 Franchising Industry in India
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/
72Franchising Industry in India
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
Pre-contractual disclosure norms
Control on royalty payments and franchisee fees
Conflicts resolution
Intellectual property protection
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
It is important to protect intellectual property rights of all the franchisors to discourage counterfeiting brands.
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.
Source: KPMG in India analysis
© 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.
73 Franchising Industry in India
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
74Franchising Industry in India
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
© 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.
73 Franchising Industry in India
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
74Franchising Industry in India
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
© 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.
75 Franchising Industry in India
Conclusion
76Franchising Industry in India
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:
© 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.
75 Franchising Industry in India
Conclusion
76Franchising Industry in India
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:
© 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.
77 Franchising Industry in India 78Franchising 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
© 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.
77 Franchising Industry in India 78Franchising 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
© 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.
79 Franchising Industry in India
Appendix
80Franchising Industry in India
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
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)
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)
© 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.
79 Franchising Industry in India
Appendix
80Franchising Industry in India
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
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)
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)
© 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.
81 Franchising Industry in India
Franchisee Data – Sector wise
Health & Wellness
Spa
Salon
Fitness &Slimming
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)
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
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)
Education
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)
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
82Franchising Industry 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. © 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.
81 Franchising Industry in India
Franchisee Data – Sector wise
Health & Wellness
Spa
Salon
Fitness &Slimming
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)
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
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)
Education
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)
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
82Franchising Industry 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. © 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.
83 Franchising Industry in India
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.
84Franchising Industry 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. © 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.
83 Franchising Industry in India
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.
84Franchising Industry 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. © 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.
KPMG in India Contacts
Head
Markets
T: +91 22 3090 2040
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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