prof p.k sinha-1-retail channel management fai
TRANSCRIPT
Retail Channel Management – Managing Relationships
Prof. Piyush Kumar SinhaChairperson, Centre for Retailing
IIMA
• Isaac Singer, the inventor of the sewing machine in 1858, is credited with starting the modern-day franchise concept.
• After successfully inventing the machine, Singer was seeking to distribute his new product outside of his immediate area, and also wanted to provide training to customers on the proper way of using them.
• As a result, he began selling licenses to entrepreneurs in different parts of the country – the predecessor of the current franchise agreement.
http://www.franchisedirect.com/information/guidetobuyingafranchise/whatisfranchising/29/190/
Franchising Industry
• Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications.
• The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried and tested products, (3) standard building design and décor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of the products.
• The franchiser gains rapid expansion of business and earnings at minimum capital outlay.
http://www.businessdictionary.com/definition/franchising.html
• A special privilege to do certain things that is conferred by government on an individual or a corporation and which does not belong to citizens generally of common right
• A privilege granted or sold, such as to use a name or to sell products or services. In its simplest terms, a franchise is a license from the owner of a trademark or Trade Name permitting another to sell a product or service under that name or mark. More broadly stated, a franchise has evolved into an elaborate agreement under which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods and procedures prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion, and other advisory services.
http://legal-dictionary.thefreedictionary.com/franchise
• An agreement or license between two legally independent parties which gives:– A person or group of people (the franchisee) the right to market a
product or service using the trademark or trade name of another business (the franchisor)
– The franchisee the right to market a product or service using the operating methods of the franchisor
– The franchisee the obligation to pay the franchisor fees for these rights
– The franchisor the obligation to provide rights and support to franchisees
International Franchise Association (IFA)
THE HONEY
India - The Growth Country
Indicator 2010 2011 2012 2013 2014
GDP, Purchasing Power parity ($ Per Capita)
3453 3777 4103 4434 4819
GDP, Purchasing Power parity (Per Capita %)
12 9.3 8.6 8 8.6
Gross Disposable Income Per Household $
5295 6151 6867 7627 8447
Gross Disposable Income Per Household Growth %
16.3 26.1 11.6 11.07 10.75
Rural Population % 70.21 69.98 69.75 69.53 69.3
Urban Population % 29.79 30.02 30.25 30.47 30.7
Consumers Ready to Spend
Household 2006 2007 2008 2009 2010 2011
Couple with children 3,29,364 4,01,651 4,37,863 4,48,467 5,55,701 6,22,907Couple without children 82,941 1,05,418 1,16,065 1,19,630 1,49,432 1,68,575Single parent family 10,012 13,149 14,473 14,926 18,646 21,039Single person 6,825 8,115 8,603 8,547 10,319 11,292Other 1,20,100 1,60,975 1,73,835 1,76,419 2,16,964 2,41,361Total 5,49,241 6,89,308 7,50,838 7,67,990 9,51,061 10,65,174
Couple with children 3,001 3,596 3,854 3,882 4,734 5,223Couple without children 1,984 2,446 2,617 2,625 3,195 3,517Single parent family 2,214 2,825 3,025 3,039 3,702 4,078Single person 1,012 1,204 1,276 1,268 1,529 1,672Other 2,494 3,316 3,550 3,571 4,351 4,795Total 2,603 3,210 3,437 3,457 4,212 4,643
Total US$Million
US$ per household
Consumer Expenditure
Incomes Rising All Over
2015 2025 2015 2025 2015 2025
Globals (>1,000) 3.3 9.5 6.3 21.7 4.1 14.1Strivers (500-1,000) 5.5 33.1 3.8 20.9 2.7 16.5Seekers (200-500) 55.1 94.9 15.2 30.6 11.8 24.6Aspirers (90-200) 106 93.1 14.6 13.7 12.2 11.9Deprived (<90) 74.1 49.9 3.8 2.6 3.3 2.4Source: McKinsey Global Institute
Number of Households, mn
Aggregate Disposable
Income, INR tn
Aggregate Consumption,
INR tn
Household Income Brackets, Annual
('000 INR)
Development of Modern Retail
Source: Indian Retail report
Buying All Products - Share of Food and Grocery Very High
US$bn 2006 2007 2008 2009 2010 2011Apparel Specialist Retailers 23.81 26.63 29.72 33.37 37.44 42.31
Electronics and Appliance Specialist Retailers 7.18 8.26 9.08 9.90 10.99 12.28
Health and Beauty Specialist Retailers 7.32 8.21 9.09 9.92 10.96 12.15
Home and Garden Specialist Retailers 7.52 8.47 9.09 9.48 10.11 10.84
Leisure and Personal Goods Specialist Retailers 13.92 16.31 18.15 19.78 22.48 24.93
Mixed Retailers 0.71 0.98 1.22 1.23 1.50 1.85
Other Non-Grocery Retailers 0.36 0.39 0.43 0.46 0.51 0.55
Non-Grocery Retailers 60.82 69.26 76.78 84.14 94.01 104.91
Grocery Retailers 109.98 123.49 139.78 155.50 176.39 202.66
Retail Sales
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources
Prof. Piyush Kumar Sinha, IIMA 19
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Standalone 1,143 1,244 1,340 1,428 1,523 1,609 1,685 1,737 1,771 1,791 1,803Leisure 5.9 7.6 11.3 12.5 13 14.4 15.5 16.9 17.7 19.2 19.8Retail 31.4 44.9 55.9 75.5 87 99.1 112.3 119.9 130 136.1 144.7Lodging 54.8 56.3 57.3 58.2 60.5 63 63.1 65.5 67.4 68.8 69.2Travel 31.8 40.7 48.2 55 64.2 68 72.7 76.5 79.8 82.7 87.1Total 1,267 1,394 1,513 1,629 1,748 1,853 1,949 2,016 2,066 2,098 2,124
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Standalone 90.2% 89.3% 88.6% 87.6% 87.1% 86.8% 86.5% 86.2% 85.7% 85.4% 84.9%Leisure 0.5% 0.5% 0.7% 0.8% 0.7% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9%Retail 2.5% 3.2% 3.7% 4.6% 5.0% 5.3% 5.8% 5.9% 6.3% 6.5% 6.8%Lodging 4.3% 4.0% 3.8% 3.6% 3.5% 3.4% 3.2% 3.2% 3.3% 3.3% 3.3%Travel 2.5% 2.9% 3.2% 3.4% 3.7% 3.7% 3.7% 3.8% 3.9% 3.9% 4.1%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Consumer Food Service Outlets ('000)
The Number of Outlets is Increasing and Will Keep Increasing
Prof. Piyush Kumar Sinha, IIMA 20
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Standalone 1,778 1,973 2,183 2,518 2,755 3,091 3,285 3,429 3,532 3,601 3,655
Leisure 23 31 45 55 59 70 76 83 87 94 98Retail 128 167 201 257 290 344 389 434 474 508 531Lodging 211 226 240 262 272 298 304 317 323 327 330Travel 88 108 121 150 168 191 208 220 231 242 253Total 2,227 2,504 2,789 3,241 3,543 3,993 4,261 4,483 4,647 4,772 4,867
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Standalone 79.8% 78.8% 78.3% 77.7% 77.8% 77.4% 77.1% 76.5% 76.0% 75.5% 75.1%
Leisure 1.0% 1.2% 1.6% 1.7% 1.7% 1.7% 1.8% 1.8% 1.9% 2.0% 2.0%Retail 5.7% 6.7% 7.2% 7.9% 8.2% 8.6% 9.1% 9.7% 10.2% 10.6% 10.9%Lodging 9.5% 9.0% 8.6% 8.1% 7.7% 7.5% 7.1% 7.1% 7.0% 6.8% 6.8%Travel 3.9% 4.3% 4.3% 4.6% 4.7% 4.8% 4.9% 4.9% 5.0% 5.1% 5.2%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Consumer Food Service Value (Rs. Billion)
The Value is Increasing and Will Keep Increasing
Prof. Piyush Kumar Sinha, IIMA 21
2010-15 CAGR
2010/15 TOTAL
2010-15 CAGR
2010/15 TOTAL
2010-15 CAGR
2010/15 TOTAL
2010-15 CAGR
2010/15 TOTAL
2010-15 CAGR
2010/15 TOTAL
100% Home Delivery 6.3 35.8 - - 8.4 49.4 - - 4.8 26.3
Cafés/Bars 1.1 5.7 - - 4.5 24.8 3.1 16.5 4.3 23.3Fast Food 3 15.9 - - 8 47.1 -7.1 -30.7 8.6 50.8Full-Service Restaurants
3.3 17.9 - - 9.1 54.7 2 10.2 4.5 24.8
Street Stalls/Kiosks 5.5 30.9 - - 15.5 105.9 - - 5.1 28.4
Consumer Foodservice
3.4 18.2 6.5 37 9.1 54.6 2.1 10.7 5.1 28.0
TravelConsumer Foodservice Sales Value Growth %
Standalone Leisure LodgingRetail
The Number Of Outlets Is Increasing And Will Keep IncreasingBut
Not In Every Location
THE TRAP
Prof. Piyush Kumar Sinha, IIMA 23
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Standalone
1,55,475 1,58,579 1,62,825 1,76,355 1,80,870 1,92,191 1,94,914 1,97,432 1,99,424 2,01,050 2,02,757
Leisure 3,93,220 4,02,632 3,95,575 4,40,000 4,51,538 4,83,333 4,90,323 4,88,757 4,92,655 4,89,583 4,92,424Retail 4,06,369 3,71,047 3,59,392 3,40,132 3,32,989 3,46,620 3,46,483 3,61,968 3,64,385 3,73,255 3,66,966Lodging 3,84,124 4,01,599 4,18,150 4,49,828 4,48,926 4,73,333 4,81,775 4,84,275 4,79,525 4,75,000 4,77,023Travel 2,75,786 2,64,128 2,51,660 2,72,000 2,61,526 2,80,147 2,85,695 2,87,582 2,89,348 2,92,261 2,90,930Total 1,75,704 1,79,673 1,84,324 1,98,969 2,02,695 2,15,482 2,18,674 2,22,409 2,24,918 2,27,455 2,29,200
Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Standalone
100.0% 102.0% 102.7% 108.3% 102.6% 106.3% 101.4% 101.3% 101.0% 100.8% 100.8%
Leisure 100.0% 102.4% 98.2% 111.2% 102.6% 107.0% 101.4% 99.7% 100.8% 99.4% 100.6%Retail 100.0% 91.3% 96.9% 94.6% 97.9% 104.1% 100.0% 104.5% 100.7% 102.4% 98.3%Lodging 100.0% 104.5% 104.1% 107.6% 99.8% 105.4% 101.8% 100.5% 99.0% 99.1% 100.4%Travel 100.0% 95.8% 95.3% 108.1% 96.1% 107.1% 102.0% 100.7% 100.6% 101.0% 99.5%Total 100.0% 102.3% 102.6% 107.9% 101.9% 106.3% 101.5% 101.7% 101.1% 101.1% 100.8%
Average Per Outlet Consumer Food Service Value (Rs.)
Value Per Outlet Will Start Tapering Very Shortly
REALITY CHECK
Sources of Power Franchisor Franchisee Franchisor Franchisee Franchisor Franchisee
Position + - + + + +Reward / Punishment + - + - + +Expert - + - + + +Referrant + - + + + +Knowledge - + + - + +Type of Relationship Dependent IndependentInterdependent
Power Dynamics in Franchisor - Franchisee Relationships
Why is Franchising Used Commonly
• I have a strong Brand• I want quick entry/expansion• I need not invest in Capex• I have the SOPs (Standard Operating Procedure)• I sell standard product/ My product or service does not require much
customisation• Regular MIS reports would help in tracking the performance• It is the most used and hence the most effective way of
distribution/channel arrangement
Successful Franchises
• QSRs (McDonald )• Retailing (LVMH/Hugo Boss)• Hotels (Holiday Inn)• Education – NIIT• Courier (FedEx)• Third Party Service• Health (Apollo)• And Several Others
Thumb Rules• Ownership of Customers• Franchisee Profitability• Prominence of Franchisor without Subservience of Franchisee• Sales Through NOT Sell Into• Micro-Management• Trading Area Assessments
Key Success Factors• Franchisee
– Commitment– Involvement
• Customer Focus– Customer Orientation– Solicitation of Customer– Knowledge of Customers
• Employee Orientation– Welfare– Motivation
• Ethical and Transparent Operation– System Orientation– Process Capabilities
Customer Symbolic AdoptionF
ran
chis
ee A
do
pti
on
High
High Low
Low
Order Taking/Order Fulfillment
Margins / Good to Have Brands
Stringent Company Policies
Emotional Atyachar
New Paradigms• P – A to Partnership• Knowledge over any other source of Power• Franchisee Recruitment based on Chemistry and not just market
potential• Working together in the initial period even when the brand is
strong and the franchisee is reputed• Role of Franchisee Managers as Key Account Managers• Role of Franchisees as the Extended Company• It is all about implementation and attention to details• The switching costs for the customer is absolute minimal• Customers are very un-pardoning and give a damn to a retail
brand
