Things You Need To Know About Franchise Business In India

Table of Contents

1. What Is A Franchise Business?

2. Franchise Businesses Concept

3. Franchise Business Functioning

4. Why Chose Franchise Business?

5. Need For Franchise Businesses

6. Franchise Business India

7. Pros And Cons Of Franchise Businesses

8. Franchise Opportunities In India

9. Key Takeaways

1. What Is A Franchise Business?

The past two decades have seen unprecedented growth of brands both domestic and international all across India and franchising has been a major contributor to it. The franchise business model has been a win-win for brands as well as aspiring business owners.

• As per a report published by the US Government, 21 million people got employment and $2.3 trillion economic activities materialised through franchised outfits in the US in 2018.
• In India, the franchise sector has grown up to a size of 50.4 billion USD as per a recent report by KPMG and Franchise Association of India (FAI).
• More and more aspiring entrepreneurs are choosing the franchise route as a more secure way to start a business.

The same holds for brands that want to expand their business. So what is franchising all about? What are the important things that both franchisor and franchisee should know before signing the franchise agreement? Let’s find out.

2. Franchise Businesses Concept

A franchise is a type of license that a company (franchisor) gives to an investor (franchisee). Going by the franchise agreement, the franchisee is introduced to the franchisor’s business model through the sharing of proprietary knowledge, trademark, and processes. The franchisee can run his business using the franchisor’s business name.

3. Franchise Business Functioning

The franchisor has a tried and tested business model. The franchisee pays him a fee to get the entire format of the business. The franchisee follows the guidelines of the company to grow the business and earn profit out of it. The entire business protocol including the marketing and branding strategies are decided by the franchisor.

The franchisee as well as the manpower appointed by the franchisee is trained to be aligned with the mission, vision, and brand commitment set by the franchisor. In addition to the franchisee fee, the franchisor also charges a royalty fee that comprises a percentage of the franchisee’s gross income on a monthly or weekly basis.

4. Why Chose Franchise Business?

The franchising route has been a proven way of spreading the brand presence across geographies. The franchisee is a local to the place has a better understanding of the taste and preferences of the customer base of the area he belongs to. This holds particularly beneficial for a multilingual and multicultural country like India where the language, attire, and lifestyle changes every 100-150 kilometres intervals.

5. Need For Franchise Businesses

Investors who venture into franchise businesses get a tried and tested formula of a successfully established, up and running brand. The job of an investor is to replicate the same format in his own locality. The risk of starting a new business is largely reduced in a franchise business model because you are constantly getting the handholding from the franchisor and you are also accountable to the franchisor for your business operations and revenue generations.

6. Franchise Business India

• There were several constraints to Foreign Direct Investment in India up to a decade back.
• At that time, the most legalised way for any brand to enter India was through the franchise route. Hence, several global brands such as McDonald's, Dominos, KFC, Levis, Baskin Robbins had made their way into the Indian market through the franchise route.
• These global brands joined hands with established business houses in India and gave them the master franchise of their brands.
• These master franchisees then expanded the brand presence all over the country by appointing franchisees. 16 percent of the Indian franchisors comprise global brands.
• It was also around the same time that India’s retail sector was experiencing an overhaul.
• It was the time when the retail sector had started to become organised.
• Franchising has been instrumental in making this transition happen most profoundly.
• It helped several global brands to become household names for Indian customers.

7. Pros And Cons Of Franchise Businesses

Franchising has so far been the most widely accepted business expansion model in the majority of the countries including India. In most cases, it has also proved to be a win-win for both franchisors and franchisees. However, the chances of failure can’t be denied completely.

As there has been a surge of brands opting for the franchise route which has been complimented adequately by the rise in the number of investors interested in taking up franchises, there have been countless failed franchises as well. It is indeed important to read the fine lines of the agreement before deciding which franchise to buy. Let’s now take a look at some of the franchise advantages as well as disadvantages that both the franchisor and franchisee should keep in mind before signing the franchise agreement.

Pros

• It allows working independently.
• Comes with the guidance and established network of an already successful brand
• Franchisors give proper training to the franchisee and his staff in business operations.
• The franchisors have set guidelines in regards to every aspect of the business that the franchisee has to merely adhere to.
• The franchisor has established brand image and marketing campaigns designed at the national level which accentuates the chances of success for the franchisee.

Cons

• Even as you run a business, you have to be accountable to a big boss and abide by his terms and conditions. Each and everything is set by the franchisor and there not much scope of creativity for the franchisee.
• The royalty and franchisee fee have to be paid from your revenue which can become frustrating at times, particularly if the business is not making as much money as expected or it is running at a loss.
• Just as the established franchise network helps to get the benefits of the brand recall, it turns out to be equally detrimental if any franchisee has faltered to keep up with the brand image. Just as the credit is shared, in the same way, the discredit or bad reputation of a few franchisees impacts the customer’s response towards the rest of the franchisees.

8. Franchise Opportunities In India

India has always been a sweet spot for global brands. Even a lot of national and regional brands have successfully expanded their business network through franchising. There are 34% national brands and 50% of regional brands that franchise their businesses. Currently a contributor of 1.8% of the Indian GDP, franchise business is poised to make a contribution of 5% to the country’s GDP by 2025. There are 4,600 franchisors in India, 2 lakh franchise stores that are owned by 1.7 lakh franchisees.

The sectors that are driving growth in franchise business include Food and Beverage, Fashion and Retail, Grocery Retail, Healthcare, Wellness, and Education. Tier 2 and Tier 3 cities have shown dramatic response to franchise formats both in terms of investor’s interest as well as customer loyalty. First-time business owners, women, fresh graduates who have least or no prior experience of running a business are showing more interest in taking up franchisees. This apart, there are seasoned business owners as well as consultants who take up franchisees as a side hassle if they have some extra cash that they want to invest in a low-risk business outfit.

9. Key Takeaways

Even at the time of the economic crisis that the nation had been exposed to time and again the past decade and a half, the investors' sentiments towards franchise businesses have remained undeterred. The low initial capital investment and handholding from the franchisor had perhaps been the main driving factor even during testing times.

Hence, all said and done, franchise business has been and will always be a preferred mode for business expansion for the brands and investment option for aspiring business owners.

Also read:

1. How To Start Your Own Franchise?
2. How Does the Franchise Model Work?
3. How to start a Jewellery store? Jewellery franchise in India.
4. How to get DMart Franchise? Here's a step-by-step guide
5. Top 10 Cities to Do Business in India

FAQs

Q. What is the most profitable franchise to own in India?

Ans- These are the most profitable franchises in India:

1. Eurokids
2. Kake di Hatti
3. Wow Kidz and DPS Global Playschool
4. FabIndia
5. Lenskart
6. Louis Unisex Salon and Studio99
7. DTDC Courier and Cargo Ltd
8. Inxpress
9. Affinity Salon
10. The British Institute and English Pillars
11. Rollacosta
12. Jawed Habib Hair & Beauty Ltd
13. Care Pharmacy and Sanjivani
14. Giani's
15. Kathi Junction, and Kathi Express
16. Subway
17. Ferns n Petals
18. Gayatri Electric Vehicle
19. Lounge London Shakes and Juice Lounge

Q. What is the most profitable franchise to open?

Ans- Calculating amongst the most profitable franchise businesses, opening a McDonalds franchise business is best in India. It costs approximately 75-90 lakhs rupees but is a sureshot road for success for answering the question "What is the most profitable franchise to own?".

Q. What are the 4 types of franchising?

Ans- Although there are many types of franchising, these are the major ones:

• Product Distribution Franchising
• Manufacturing Franchising
• Product Franchising
• Business-format Franchising

Q. What is the cheapest franchise to start in India?

Ans- There are several low cost franchise opportunities in India you can opt for. Let us look at the cheapest Low Investment Business Opportunities that can be started under 10 Lakh rupees:

1. Giani's Icecream: 10-15 Lakhs (PAN India)
2. Milky Way Icecream: 5-15 Lakhs (PAN India)
3. Fanusta Global Handicrafts: Starting 6 Lakhs (PAN India)
4. Rocking Deals Electronics Refurbishing: Starting 5.5 Lakhs (PAN India)
5. Zwarma: 4-6 Lakhs (PAN India)

Q. Is Amul franchise profitable?

Ans- According to the brand, you can earn a handsome profit of around Rs 5 to 10 lakhs per month from an Amul franchise. You will also get a commission on MRP products of Amul. The commission percentages go like this:

• 20% on icecream
• 10% on milk-based products
• 2.5% per milk pouch

Q. Can owning a franchise make you rich?

Ans- Yes, with the perfect strategy and a popular brand name franchise under your cap you can roll out good profits in the future. Investing in a franchise business in India can broaden your investment portfolio and increase your income stream amazingly.

Q. What are the 2 types of franchises?

Ans- The 2 most common kinds of franchising that exist in every business model:

1. Product Distribution
2. Business Format

Q. What are the Franchise categories available in India?

Ans- Some of the common franchise business opportunity categories in India are:

• Sports
• Fitness
• Entertainment
• Automobile
• Education
• Health & Beauty
• Business Services
• Food & Beverages
• Fashion
• Hotels, Tourism & Traveling
• Retail
• Home-based business

Q. Is buying a franchise a good investment?

Ans- If you don't have an original brand but interested in doing business then franchise businesses is a good way to go ahead. You won't be risking yourself with a startup company if you're going for a well-known brand's franchise. It won't just diversify your investment portfolio but will help curate a good profit for your future.

Q. Can I own a franchise with no money?

Ans- No, it's not practically possible to own a franchise without money. For any franchise business in India, you need to have a decent amount of seed money for investing in the space, utilities, location, permits, and more. A decent budget of 5 Lakhs can be a good target, to begin with.

Q. Which franchise business can I start with INR 20 lakhs in India?

Ans- Here are the top profitable franchise business opportunities in India categories that you can start with 20 Lakh rupees in India:

1. Tourism
2. Catering
3. Food marketing and packaging
4. Consultancy
5. Education
6. Ecommerce
7. Maintenance Work
8. Ad Media

Q. What should I ask the franchisor before buying a franchise?

Ans- Everything that helps you to understand the business format, investment details, training modules, investment, and other costs involved.

Q. What should a franchisor check before finalising a franchisee?

Ans- A franchisor should see if the franchisee can afford to get the right location and willing to align with the brand’s identity. If he is enthusiastic about the business, willing to be trained by the franchisor and work towards a mutually beneficial journey following the guidelines set by the franchisor.

Q. Can I make independent decisions as a franchisee?

Ans- You can possibly make suggestions to your franchisor. But you can not make independent decisions without the approval of your franchisor. Uniformity across all franchise outfits is essential for the franchise business, and that cannot be compromised.