Empowering employees into franchisees

Franchising has been described as most successful formula to drive any business. Restaurant business, which has almost 95 per cent of brands taking franchisee route for expansion, stands strong at getting most of the franchisee transactions. According to a recent report by KPMG, franchising industry in total is going to quadruple by 2017.

And, pushing on this growth, like every other year, 2016 also has some great arrivals in the franchising trends, both for global brands and on local front. Brands like Barcelos, Domino’s, Burger King amongst others which entered India with company owned and company operated model have started taking quickest formula of getting best returns. Barcelos has opened two franchisee outlets in India; Domino’s which has entered 1500 restaurants mark has started giving franchisee at airports and other such locations. Similarly, Burger King which opened its first restaurant in November 2014 has entered 50 restaurants mark and it may take the route to capture tier II and Tier III cities.

Formula for ‘Local Brands’

For Indian brands to succeed in franchising the rules are similar to that of a global standard. While there may be numerous things we need to get right, the most important piece is a clear positioning of the brand in fast evolving food market. Multinational brands have taken a long time to get focused and arrive at their core offering to consumers. They have been in the making for more than 50 years where they have made many mistakes and when they come to India they benefit from that experience. Likewise, Indian brands will have to go through the same process. The time taken will seem longer. However, according to experts when it comes to lifecycle of a younger brand as compared to the multinationals, brands have to understand that they need to work harder, dig deeper, make mistakes, learn, and take corrective action and move ahead confidently in order to be a game changer.

“Any brand is successful when its franchisee is successful, both are in-seperable. I think perseverance on both ends is the key, “shared Dheeraj Gupta, MD, JumboKing Foods which is successfully running Vada Pav chain in India.

Going forward, restaurants need to see market and trends with open eyes, strong systems, and differentiated consumer connects to succeed and evolve to enter Rs 1000 crore market.

Growing on ‘Global’ diameter

In last few years Indians have become very addicted to global food as compared to their own. With high disposable income, international exchange, travel and food knowledge, many global brands have made a way into the Indian market. With successfully running franchisees of KFC, Pizza Hut, Costa Coffee amongst others Devyani International is one of the few brands that has given a way forward to the fast pace growth of the franchising industry. Likewise, McDonald’s which was one of the few global brands to enter India has mushroomed itself at each nook and corner of the country. But, it is all due to the strong system, places, customer attention, reinvention and experimentation that these brands are gaining ground at a foreign land.

Commenting on the same, Unnat Varma, MD, Pizza Hut India Subcontinent, shared, “Franchising per say, there is a massive opportunity and across industries, a lot of global companies enter local countries on the back of fantastic franchise partnerships. As far as food is concerned, our experience, particularly in India, has been that the corporate franchising setup works best for our requirements. So, unlike some other categories and brands, in our case, less number of franchises, very well capitalise and capable to set up operations or 100 stores or multiple of hundreds is the kind of setup that works best for us.”

So, we can see that going forward franchising has so much to dispense and share when it comes to growing business in a region. And, India as a market which is growing at a fast clip and small blips like the ‘often spoken about’ drop in same store sales during 2015 will be a minor bump on the journey to build large Indian and multinational food chains in our country.

In an exclusive interview with Franchise India, Chetan Arora talks about the modern day franchise model, multi-unit and single-unit franchising, safety audits and inceptions.

How is the modern day franchise owner’s model changing?

The business is getting lot more organised and franchisees are looking to expand their model and they themselves are becoming professional organisations which are more organised. They are hiring Area managers, HR porfessionals etc. In the past five years it was an individual franchisee running 3-4 outlets himself but today franchisee’s are much more organised. They are looking at running their business as professional organisation though within the terms of franchisor.

How can one create an atmosphere of positive Franchise relationships and avoid the pitfalls of being always adversarial?

It is very important to engage the franchise, make them understand what the brand philosophy is and what your expectations are from the franchisee and his franchisor. This will help reduce the adversarial issues at a later date, if any.  The franchise needs to understand that when the franchisor is requesting certain things to be done in a certain manner, it is for the interest of the brand and the franchisee. This mindset, once understood by the franchisee, makes his ability to expand with the brand a possibility.

Please tell something about the expansion plan of Subway in India?

At the moment we have 390 stores in India. We have aggressive plan to grow and by the next year we target to cross 500 stores. We see ourselves having over 2000 stores in the next 8-10 years.

It was in the news that the recent expansion would focus on the Veggie market. Please tell us more about it.

We are not focusing on veggie market but in all our stores we have separate vegetarian prep counter and non-vegetarian prep counter. We have a separate vegetarian menu because in India we have a high veg eating population. We have certain locations where we have pure veg stores. For example, we have one in the Amity University, Delhi because the entire campus is veg. We have a pure veg outlet coming up right next to the Golden Temple in Amritsar. We would look at the sensitivities of the area, our partners and then take a informed decision on whether we need to open a pure veg Subway in a particular location.

How do you find the balance between the slower you move the faster you die concept?

I think it really depends on the Franchise in terms of a multi-unit owner. You don’t want to let somebody, who is not organised, grow fast. You need to have franchisees who are planning for their growth and work with them to expand. It is a judgement call that you take with the franchisee to find out whether he is ready for growth, whether he understands his role and what he needs to do to grow in terms of HR, organisational structure and inventory management, etc.

How can one avoid the speed traps?

The only way to avoid the speed traps is to be prepared to plan and grow. And if you are growing too fast, say you have 3-4 stores and you want to open 10 more but you don’t have the right people and right systems on board. So it is very important to be planned for the next 12-24 months for that growth and move on.

Why are food safety audits and inception non-negotiable in multi-unit franchising?

Firstly it is non-negotiable in any unit. It is non-negotiable because whether it is a multi unit owner or a single unit owner, every store should be audited for food safety and hygiene. This also ensures that the customer gets the best experience.

Please tell us about your role as Master Franchisee at Subway?

Currently we have 133 stores in the area where I am the master Franchisor. My role is multi-dimensional. I identify franchisee and which franchisee we want to work with. We negotiate with the landlords, identify the sites and identify the vendors for subway, for the marketing for brand within the territory and the country. Thus a multi-dimensional role.

What advice would you like to give to aspiring restaurateurs?

I think if you are buying into a franchise restaurant concept, the owner or the restaurateur must understand that it is a system which has been worked on and perfected over the years and you need to work within that system. Many entrepreneurs want to become restaurant owners, but it has to be understood that one has to be very dedicated, involved all the time and innovate within the parameters of the brand. The restauranteur must also remember that the franchise concept will bring the systems, but he/she still needs to work hard to ensure systems are followed. He/she needs to work hard to ensure that the brand is well marketed and represented; this will bring success.

What is the reason for drop in sales in Indian Restaurants?

In the last quarter the business was slow for the food industry. I think the food industry gets impacted when the economy is slow, like most other sectors. Discretionary spending is lower, leisure time. Spends on shopping have droppped which has impacted the food industry. However, I see this as a temporary situation and growth should be healthy going forward.

Rashi Mathur

Indian café market stood at Rs 25,166 crore in 2013 and is expected to touch Rs 41,800 crore by 2017. And with this growing opportunity, International brands are conducting extensive research in terms of brand positioning, menu offering, supply chain support, the retail design and fit-out specifications. India has emerged as a destination satisfying the basic parameters set by international brands. Let us learn which all countries are robust on tapping a wide share of Indian café market.

The USA taste for India

Coffee Bean and Tea Leaf, a brand of US origin has already captured the region via franchise route. New entrants are also eyeing growth. US-based brand, Green Beans Coffee is also positive on signing a Master Franchise deal in India soon. The brand is known for serving 20,000 cups of coffee every day all over the world. It has a presence across the United States, Middle East, West Asia, East Africa and Japan. Brian Laliberte, COO, Green Beans Coffee Company said, “Green Beans Coffee Company is looking forward to opening a minimum of 2-3 outlets by late 2016, ideally in a large metropolitan city like Delhi or Mumbai. Our long-term target is to open 30 stores in the next 10 years pan-India.”

The middle-east invasion

Investors from the Middle East are eyeing India as a vast destination to expand their brands. Hailing from the UAE, FiLLi Café is looking at launching its first unit in India. Apart from setting in the Indian market, it is currently operational in the UAE, and recently entered into a franchise agreement for the Qatari market. It has ongoing negotiations to enter into two separate area development agreements in the UK as well. Sharing a word on the growth plans for Indian market, Rafih FiLLi, Founder, FiLLi Café said, “We are currently in the midst of finalising the specific franchising plan for India.  We would be announcing the plans soon. Our target for the launch of the first unit in India is around the first quarter of 2016.”

Revamping by Australian brands

After ending ties with India, Australian café chain, Di Bella re-entered Indian market last year. Another Australian brand, Gloria Jean’s Coffee is revamping itself in India. A brand of Retail Food Group (RFG), it is currently recruiting master franchise partners. Andre Nell, CEO, RFG said, “With opportunity for at least seven licenses across India, we are confident that our business model will be a point of difference for potential partners.” RFG is seeking master franchise partners for Gloria Jean’s Coffee and other brands under its umbrella like Cafe2U, Crust Gourmet Baker, Michel’s Patisserie and Donut King among others. “India’s franchising industry continues to thrive, driven by a growing appetite for internationally branded products and an emerging café culture, providing a great deal of opportunity for brands systems like Gloria Jean’s Coffee,” added Nell of RFG.

Franchising is most promising and paying model for entrepreneurs and start-ups in the food business to give a kick to their venture and helping them spread their brand presence in the market. A franchise can give a headstart to anyone from the roadside hawker to a small coffee shop or even a local grocery shops. 

However, giving or taking franchise is not an as easy as it looks, as the process demands a lot of extensive knowledge, research, strategy formation, information about the existing market opportunities and much more.

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 per cent of India GDP in 2017 (assuming 6 per cent Y-o-Y GDP growth between 2012 and 2017), growing from a current estimated contribution of 1.4 per cent of GDP.

Significantly, the industry is expected to create job opportunities for an additional 11 million people by 2017.

Currently, Jumboking is the fastest growing QSR and now has over 50 franchised outlets in India. The franchise has helped Jumboking to become one of the reputed and well-established brands in the Food & Beverage industry that gets excellent returns on investment (ROI), getting guidance and support from the head office while opening the franchise and also field assistance is available for franchisee.

Thereby, encouraging start-up brand like Star Vada Pao, VadaPav.com, Wow Vada Pao etc to tap the food space via franchising.

Franchising Opportunities 

Franchising business model proves to be a secure route to being self-reliant. It helps a business mind to make presence in Indian market without getting into complicated process of starting a new brand from scratch. And, further, franchising helps in training and backing the franchisees, which is an added benefit for the new business mind.

On the same note Mohit Kumar Bhati, Co-founder at Dumpling Momo says “Franchising gives us opportunities to expand in other cities for instance with the help of franchising, we are planning to expand in cities like Guwahati, Patna, Delhi, Jaipur, Hyderabad, Bangalore etc. And in return we can provide support, staff training, procuring raw materials, serving to guest, equipments, furnishing the outlets and marketing the outlets to the franchisor”.

Offering franchise at a meagre amount of Rs 6.5 Lakh, Co-founder of food start-up Star Vada Pao, Manoj Dalal explained, “We make the franchise route as it is the best way to expand. It helps me to take care of the production, while the franchisee will take care of the sales. The opportunities one can get from the franchise are the sense of pride, self-learning and standing on their leg.”

With the presence of thousands of brands and products existing in the market, it’s difficult for a franchisee to select a suitable brand, comparing prices and other facilities on offer.

Thus, to get a clear picture of the franchise model, India’s leading franchising company- Franchise India Holdings has organised a two daylong event, the 13th International Franchise & Retail Show, slated to take place on 18-19th October 2015 at Pragati Maidan in New Delhi.

Aiming to fetch good number of franchisees during the event, franchisors like Star Vada Pao are betting on the upcoming franchise event

“We wish from the show we get a huge response as it is one of the largest shows in Delhi. And we think things should go great there,” said Dalal.

During the event, other food franchisors including VadaPav.com, Wow Vada Pav and Dumpling Momo are also expected to grace the event.

Those who are planning to tap the food space with their innovative business ideas or may interested in taking franchise of any renowned Food brand, must taking the opportunity to attend the event.

Tea Trails, a chain of tea cafes in Mumbai, has raised $1 million (about Rs 6.6 crore) in its first round of funding from a group of HNIs led by Anil Matai, former CEO of pharmaceuticals business of Novartis India, Vikram Tandon, regional head, Middle East at Back Office Associates, and Shyam Sundar R, partner at Dubai-based CPM Consulting.

"The large part of the expansion strategy is based on franchise network development. This business model is asset-light with high ROI," said Uday Mathur, Co-Founder, Tea Trails India.

Launched in November 2013, the cafe chain plans to use the funds for its growth and expansion in focus markets even as it plans to open 250 outlets by 2018.

"Of this, 80 per cent of the outlets will be through franchise and 20 per cent will be company-owned. So, we are negotiating master franchise contracts in different regions like the NCR, Maharashtra, Pune, Andhra Pradesh and Karnataka," added Mathur.

Mathur started Tea Trails after exiting his stake in the EuroKids International, a pre-school chain.

Tea Trails currently operates eight outlets in Mumbai. The startup plans to open 45 outlets across the country this year with initial focus on markets such as Mumbai, Pune, Bengaluru, Hyderabad, Vishakhapatnam, Delhi NCR and Ahmedabad. According to Mathur, each outlet takes an investment of about Rs 40 lakh.

Food in India is as diverse as its culture. Just walk a mile; you can feel the difference not just in language and attires but in tastes as well. Indians’ love for all kinds of foods makes restaurants a good business idea. So, what better way than a restaurant franchise to enter and expand in the flourishing food industry.

Today, several leading global food brands, such as Dominos, McDonald's, Yum Brands, Baskin Robbins and Subway, have already established their strong presence in India by adopting the franchise route. KPMG India report says, the Food and Beverages sector is expected to grow at 9 per cent by 2017 from 5 per cent in 2012, opening about 27,000 franchised outlets.

As per Murali Krishna Parna, CEO, Sagar Ratna, “Restaurant franchise is an important channel for speedier expansion and can be used if appropriate systems and processes are in place.”

With restaurant franchising gaining momentum and finances coming from all corners of the globe, the industry can expect a hefty growth in coming years.  According to the latest report by Francorp, “The Indian franchise industry is expected to grow 30 per cent on yearly basis. The figures of total franchising industry is believed to have reached $ 24bn and focused to touch the $ 35bn mark in 2020.”

Building long-term relations

Long-term sustainability is an important aspect which a business demands today.  And hence, to enter into any partnership, it is an essential area to be looked upon. According to industry experts, franchising in itself is a partnership and it’s important that in a partnership for long-term sustainability, the vision and goals need to be aligned. Though in Joint Ventures, an involvement of fewer people need to be aligned, but just like in Chinese Whispers, one is not sure on the next level of franchisee, what their understanding would be. It’s therefore important for the brand to stay as close and direct with the customers ideally, but good systems and processes can also help achieve the same objective.

Commenting on the same, Unnat Varma, Pizza Hut India said, “We are big, highly reputed and global brand and this calls for two things- one-we have to choose partners who can give us scale which means they have capital to invest and they have very strong organisation culture to give similar values and the work culture we talk about. So we need partners who can build such type of organisation- build team, sustain team and grow the business. Second, as we are highly reputed brands, we look for partners who are committed to the long term call and food safety aspects that we follow in the whole of the world.”

However, a Sagar Ratna franchisee needs to operate a 400 to 3,000 sq ft space in an appropriate location depending on the type of format. The chain operates Base Kitchen formats, Service Kitchen formats and Kiosk based formats and operates as per location.

Location...Location...Location

Whenever new brands enter into an unknown place or demography, they take franchising as a route to expand the service as the franchisee being a local partner is well aware about the best location in the particular area where the brand is going to open its outlet. Meanwhile, each store needs to be profitable, because many a times, franchisees don’t average out the profits across stores, for him, his store has to make money.

“We have different formats for different locations. Locations ideally are assessed for business potential based on the Footfalls, Residential households and the type of households, Strength of offices or work places, Competition intensity, Price sensitivity and importance of the location for people to visit (what need). We share our learning on the site selection with our prospective franchisees,” added Parna.

Growth Prospects and Future agenda

India is going to be the largest market for consumer in terms of consumption by 2030. And with this it brings lots of opportunity for emerging players like FIO, Tea Trail, Cha Palace and global chains like Carl’s Jr, Wendy’s and Jamie’s which are entering the Indian market via franchising mode.

Speaking on the same lines, Vineet Wadhwa, CEO, FIO comments, “Way back in 1980 when Wimpy came to India, I was involved in franchising the company which took the sole franchisee and then wanted to further sub-franchise. So, I know, franchising is very in-depth and keeping that in mind, we have now started developing our core strengths. The business plan is very clear, we have worked on the strategy, we are very clear on our terms and conditions and we are actually going to roll out our franchising.”

“We believe that we are sitting in a national opportunity. And we see a potential of 1,000 of restaurants in India in the years to come,” added Varma.

However, there are no set rules and formulas that can lead a restaurant franchise to a hit. But, the critical ingredients of success in restaurant franchising are the ability to trust each other and work so as to not compromise the brand standards for short-term gains.

A recent Technopak report predicted that the Restaurant sector would grow at 25 percent annually for the next few years which shows that if one aspires to be a food entrepreneur and don’t have the expertise or finances to start their own restaurant, owning a Quick Service Restaurant (QSR) franchise may be just the thing for them. Within the organised food market which is estimated of USD 1.9 billion in 2012, QSRs account for about USD 860 million which is expected to grow to over USD2.2 billion by 2017.

When evaluating restaurant franchises, one must focus on the characteristics of the business from a franchisee's perspective to determine whether this industry is the right industry for them or not. There are some wonderful advantages of having a food business, but there are also a few challenges one needs to be aware of before taking a leap into the industry.

Chetan Arora, Master Franchisee, West and North India, Subway says, “The business is getting lot more organised and franchisees are looking to expand their model and they themselves are opting professional & organised business operation. For example, they are hiring Area Managers, HR professionals etc to make the business operations more effective. In the past five years, it was an individual franchisee running 3-4 outlets himself but today franchisees are much more organised. They are looking at running their business as professional organisation though within the terms of franchisor.”

Many big restaurant chains believe that franchising is a critical part of doing business too. If you go to a well-known brand, chances are you're eating at a shop owned by a franchisee, not the company, whose name is showing outside the outlet. For McDonald's (MCD), 81 percent of its global system is owned by franchisees. At Burger King (BKW), it's 97 percent. Domino's (DPZ), 96 percent, says a report published at Yahoo.

Samir Akhil Kachru, Director, Go Chaatzz shares, “We are looking at new units and new cities. We are looking at metro cities as a start point. We have now gone into Tier-II and Tier-III markets. Home grown brands like ours which is to be functioning in India before are also looking at the international markets because of the reason that one with the exchange rate benefiting us internationally and it is a very viable option. The other thing is the Indian foods demand worldwide has increased tremendously. Newer markets have come up. Initially there were only parts of US and parts of UK and parts of Gulf which were interested in our foods in India. But today the Australian market and even the South African market we have got a lot of leads from Australia and South Africa where people are interested in taking in Indian Franchise brand to their country because they believe that there is the market gap which is available. The modern day franchisor is now looking at entering in to new territory and is what I would look at.”

Red Mango, a frozen yogurt and smoothie brand that is present in 32 countries around the world has entered India in January 2012 through its first store in New Delhi and it currently has five outlets in the city. It is now looking to expand to other parts of the country. Rahul Kumar, CEO, Red Mango India, says “The Company initially set up a few outlets that are owned by it but is now looking towards franchising to grow its base in the country. In two years from now, we will own about one-third of the stores in the country and the rest will be franchises.”

Though there are a lot of benefits of franchising a restaurant, such as instant name recognition and built in marketing, a brand identity but buying a restaurant franchisee and then stick and follow to the rules made by the franchisor is a bit difficult.