Cos betting on multi-unit franchisee model to tap huge market

Even as India lags other developing nations in generating sales, approximately $13 billion, through franchising operations across product categories, industry experts are of the view that franchising has the potential to grow four-fold over the coming years.

According to J Suresh, managing director and chief executive officer, Arvind Lifestyle Brands Ltd, in the US franchising contributes almost 6% to the gross domestic product (GDP) while it's just about 1% in India.

"Even in a developing market like Brazil, the corresponding number is 4%. India is a huge market with a large number of towns and cities thus presenting a huge opportunity for franchising as a business opportunity.

"In terms of absolute numbers, if you take into account 30% to 35% annual growth of organised retail in the country, I think franchising can very well grow to a size of between $40 billion to $50 billion over the next few years," he said on the sidelines of the Retail Leadership Summit organised by the Retail Association of India in Mumbai.

While growth of organised retail will boost franchising operations, retail players feel, a key catalyst in this growth story will be the emergence of a new breed of multi-unit franchisees (entrepreneurs with more than one outlets) who are taking it up as a business / opportunity.

According to Rajesh Jain, CEO, Lacoste India, earlier retailers would appoint a master franchisee (more of the investor breed with access to large capital) to take care of a particular region or state.

"What we are seeing now is the emergence of passionate entrepreneurs with great business sense who, after tasting success with their first franchise store, are keen to open more outlets and expand the business. So far, Lacoste only operated company owned, company operated (CoCo) stores but we have recently opened up to the idea of franchising and have got a few multi-unit franchisees on-board. Going forward, our expansion will see a combination of CoCo and franchise stores in equal proportion (50:50) and of the franchisee stores a significant number will be operated by multi-unit franchisees," said Jain adding that multiple units also help in de-risking the business.

While the percentage of multi-unit franchisee operators in the overall franchisee networks differs from category to category, industry experts are of the opinion that the share is significant in business with higher level of standardisation like fashion, apparels, footwear etc. Like in the case of beauty salon operator Lakme Lever, the number of such franchisees is almost 50% of the entire franchise stores in its network.

"We currently operate in 50 cities with 240 stores of which 70% or 170 salons are operated by franchisees. Approximately 50% of the franchise outlets are run by multi-unit franchisees partners and we feel very comfortable with the idea of putting all our eggs in the same basket," said Pushkaraj Shenai, CEO, Lakme Lever. He added that the company has been partnering business school graduates with entrepreneurial mindset to expand their multi-unit franchisee base.

Pondicherry-based global lifestyle brand Hidesign is another player warming up to the idea of franchising. After operating 72 company owned stores, the management is now toying with the idea and will explore the multi-unit franchising model to expand the reach.

In the case of food and beverage operations however, the share of multi-unit franchisees is slightly on the lower side mainly because it involves dealing with a perishable item. This probably is also the reason why players like McDonald's have still not opened up to the idea of franchising despite being a leading operator or quick service restaurants in the country.

But there are certain other players like the Graviss Group that runs ice-cream chain Baskin Robbins, which currently operates 600 outlets across 140 cities in the country. According to Sanjay Coutinho, CEO, Baskin Robbins, there are approximately 400 outlets operated by franchisees.

"Of the overall franchisee stores, 10% are operated by multi-unit franchisee partners. We feel adopting the multi-unit franchising model will play a significant role in expanding the business going forward and the percentage of such franchisees will increase as well," said Coutinho.

With increasing number of qualified and business minded people entering the market, organised retailers feel that franchising presents a huge opportunity going forward and are confident that multi-unit franchising will play a crucial role in the overall growth story. Also with e-retailing gaining traction across the country, increasing penetration through franchising will help in effectively implementing the omni-channel (brick and click retail) strategy to build consumer connect.