Franchising takes hold in India

Warc, 10 July 2013

NEW DELHI: A growing middle class with a preference for branded products and greater exposure to international brands is driving the growth of franchising in India's retail and service sectors, according to a new report.

Collaborating for Growth, from consultancy KPMG, in association with the Franchising Association of India, forecast that the franchising industry would quadruple between 2012 and 2017, by when it would potentially contribute 4% of the country's GDP and 11m jobs.

Already, there are around 3,000 brands operating via a franchise in India, including global brands such as McDonald's, Baskin Robbins and Subway, as well as local brands like Tata shoes and Titan watches.

As well as the demand side factors outlined above, supply side factors are also at work. Awareness and understanding of franchising as a relatively low-risk business opportunity is growing and government initiatives, such as the relaxing of foreign direct investment rules, are creating new openings for global brands.

The latter, especially, is likely to prove an attractive route for international retail brands seeking to establish a presence in tier 2, tier 3 and smaller cities.

"Companies are now entering India with a long-term perspective and franchising is an easily scalable model," Anand Ramanathan, associate director of KPMG's management consulting practice in India, told the Financial Times.

India is a large and far from homogenous market and foreign investors can benefit from the knowledge of local entrepreneurs. The FT observed this was one of the reasons McDonald's, seeking to selling cheap burgers to a largely vegetarian population, opted to license out its operations.

KPMG also surveyed franchisors and franchisees and found that only 36% of the latter were happy with the operational and financial support they were given. Half thought the business met expectations "to an extent" while 14% were entirely unhappy, indicating that brands considering the franchise route may have to engage in more than a marketing support function.

Franchisees specifically highlighted location and rentals as major problems, and, to a lesser extent, employee recruitment and retention.

Data sourced from Financial Times, KPMG; additional content by Warc staff