Franchising is the way ahead for Indian businesses
Gaurav Marya is the Chairman of Franchise India Group, Asia’s largest integrated franchise solution company since 1999. In this interview with ‘India Global Business’, he discusses recent trends in the brand financing sector in India, future plans of the company and more.
What makes the franchise and licensing market in India vibrant? Facts and figures
Indian economy is very receptive to new business opportunities due to factors such as high disposable income, high entrepreneurial energy, growing urban population etc. and franchising has become the way forward for growth and distribution of Products and services across industries. Currently India is one of the fastest growing large economies of the world with amongst the youngest populations at an average age of 29 years.
Quick Franchise facts about India
- Franchising sector contributes nearly 1.8% to the Indian GDP and forecasted to contribute 5% to Indian National Income by 2025
- States in the South and West region of India continue to lead the nation in franchise employment and output growth in 2018. The top 10 states (UTs) suitable for franchising are: Andhra Pradesh, Bihar, Delhi, and Haryana, UP, Mumbai, Tamil Nadu, Karnataka, and Madhya Pradesh & West Bengal.
- There are 4,600 franchisors in India with 50% Regional Brands, 34% national and 16% global Brands in franchising sector in India
- India has about 2lakh franchise stores operated by almost 1.7 lakh franchisees. Approximately 26% franchise buyers are women in individual capacity or as couple led/Family business.
- Approximately 1.5 million people are employed by franchised businesses in India and the industry’s Big Push in Micro Franchising &Fulfillment services promises to convert the 50 million employed in the unorganized sector towards higher paying blue collar jobs. An average franchise Centre employs between 8-20 people with 70% in white collar and 30% in blue-collar jobs.
- Currently only 35% of the franchisees are first time business owners in India. Franchising in India has played a consistent role in getting people into the Self-employment pool. 47% people have no Prior experience of running a business.
- Post Graduates and Graduates are forerunners in taking a franchise today to start a business with 84% franchisees in India who have this educational qualification.
- 53% franchising brands offer a startup Business cost of less than or equal to Rs.5, 00,000 to a Prospective Business owner thereby addressing the high entrepreneurial drive in the country at the Bottom of Pyramid.
- Nearly 60% Franchise Locations are in Unit Franchise format
Brand licensing in India is getting to a point where we are witnessing a lot more maturity in the way it is shaping as compared to what it was a decade ago. The Indian licensing and merchandising industry is pegged at $1476 million and is expected to grow at a fast pace, credits to the influx of global as well as home-grown IPs. While character/entertainment genre dominates the global licensing landscape, it is fashion that rules the L&M scenario in India with a market size of $673 million. The country is growing economically and technologically at a phenomenal rate according to projections by the World Bank and IMF. Licensing can play a key part in partnering with companies and making profits in India.
What are some of the recent big brands brought in by Franchise India?
There are over 4,600 brands currently in India that are growing through franchise route and yet the influx doesn’t seem to slow down. The number of ultra-HNIs in India has been growing at 12 per cent CAGR. The number of ultra-HNIs in India to double to 3,30,400 with over 300 million dollars worth of assets by 2022. This rise in the number of High Net worth Individuals has also ascertained a level of sustainability in various ecosystems including franchising. 53% senior professionals have a more opportunity-driven approach, followed by 45 percent inheritors and 44 per cent entrepreneurs taking this approach to introduce new concepts into the Indian market.
Franchise India has been actively involved in getting both Indian brands to grow from regional to national and international markets.
Some of the key Indian Brands where Franchise India is involved includes – Farzi Café, OYO hotels, Patanjali, Sri SriTattva, 3M, Mad About Dogs to name a few
Farzi Cafe aims to bring Indian cuisine back “in-Vogue” and the name “creating an illusion” with its cuisine. Best described as a gourmet experience, it amalgamates traditional global and Indian classics, with Indian influences, contemporary presentations, culinary styles and ambiance.
OYO Hotels is a well-known budget hotel company that we have been working with
We also have very strong associations with home grown organic/ ayurveda companies such as Patanjali, by Baba Ramdev and Sri Sri Tattva by Sri Sri Ravi Shankar.
As far as international brands are concerned, we have introduced a number of companies across sectors through direct or indirect associations.
We recently associated with Malaysia based Berjaya Foods. BERJAYA FOOD BERHAD (“BFood”) was incorporated in Malaysia in October 2009. It was converted into a public limited company on 3 December 2009 and listed on The Main Market of Bursa Malaysia Securities Berhad on 8 March 2011. As part of The Listing Scheme, Berjaya Roasters (M) Sdn Bhd (“BRoasters”) was acquired and became a wholly-owned subsidiary of BFood in January 2011. We engaged with them through World Iconic Brands Hospitality Pvt Ltd (WIB)
BRoasters is engaged in the development and operation of the Kenny Rogers Roasters (“KRR”) chain of restaurants in Malaysia. KRR has been producing healthy concept of less fat… less salt… less calories by serving healthy meals for the last 20 years.
Malaysia’s TeaLive, a bubble tea concept has been introduced this year itself.
We are associated with UK based SSP Global, Food Travel experts; through which brands such as Crepe Cafe, a crepe specialty restaurant chain, Millies cookies, a renowned dessert and cookie speciality serving flavour delights outlet from London and Cafe Ritazza, premier coffee house chain in UK specializing in handcrafted coffees, suiting different cultures worldwide have entered the Indian market.
Under our company, Franglobal, we have got prominent global brands under our kitty. UK’s Chaiiwala, is the most recent one apart from Wrap it Up again from UK; There are other famous brands such as Donor & Gyros, Dubai-based quick service restaurant chain entered in India, offering sandwiches in Berlin and Chicago style; Malaysia’s yogurt brand MOO COW; The Cheese Cake Shop, Little Kickers, a kids football academy etc. also part of it.
Also, there are several global brands that have brand licensed in India through Bradford India (our licensing arm) including Compaq for its smart televisions; FTV’s real estate business; Pepsi’s footwear; Marie Claire Salon & Wellness Academy; Billboard Lifestyle Footwear; Cartoon Network, Family entertainment Centers; Swiss Military’s men’s electronic grooming products; Chhota Bheem merchandise among others.
Compared to other up and coming franchise markets like those of Ethiopia and Brazil, India has a much more scope for diversity because of the large population and its diversity in variety.
Consumer Spending in India stands at INR 18183.00 Billion by the end of this quarter, according to Trading Economics global macro models and analysts expectations. The high disposable income of the middle class, a high entrepreneurial energy encompassing the economy and a preference for recognised brands makes franchising a win-win.
Is franchising a two-way trend; are some Indian brands equally sought after overseas?
Select Indian domestic brands have successfully forayed in overseas market; however with market still under-penetrated in India, most Indian brands first tend to focus on opportunities within the national market. However, we are witnessing a gradually growing demand for Indian brands in overseas markets in MENA & APAC regions in select categories such as Food Service, SpecialtyFashion & Home retail, bags & accessories, beauty & wellness amongst others.
A lot of Indian franchising brands have gone international and are doing well. The most famous ones would be Food Service Brands Cafe Coffee Day (which is already in Austria, Malaysia, Egypt & Czech Republic) and Premium Casual Dining Brand Farzi Café, Speciality Indian Fashion and Home Brand Fab India, Mid Market Hotel chain OYO Hotels and Taxi Aggregator OLA cabs. Seeing their success and growth one can imagine that more F&B and Apparel brands will soon be able to take the global route. Typically Private equity funded Indian brands have shown most aggressiveness to step outside India for growth.
Which are some key source markets for Franchise India and why?
As far as key source markets are concerned, Brands from countries such as North America, Australia and UK top the list because of big Indian diaspora living in these countries who have experienced the success of the brands and a lot of Non-Resident Indians want to bring these brands to India through a Master franchise arrangement.
Additionally brands from the APAC & China region including Singapore, Malaysia, Hong Kong and, Japan and Korea have beenaggressively entering in the Indian market. From Mobile Phone Brands from china to Specialty Retailers like Miniso, Mumoso, and Cosmetics Brands from Korea and Lean Living brands like Muji from Japan have been vying the Indian customer with their quality products and competitive prices. Till now more retail and Food service brands have in fluxed in the market. We now are hoping to see more service based formats like cleaning services, education, healthcare move from these countries to India.
What are the major sectors in play and the ones with growth capacity in coming years?
Food & Beverage and Apparel retail have always remained key sectors in franchising; we have observed a growing traction in other verticals such as Edutainment, Beauty & wellness & specialty retail concepts. We also have emerging sectors such as pet grooming, education, service sector franchising/licensing, IT, laundry services and many more.
The Indian food and beverage industry is worth USD 400 billion today. The constantly evolving industry is fed by great demand for quality food and food delivery services and is being fully supported by finer operational tools and product innovation by the industry operators. This sector has been identified as one of the priority sectors under “Make in India” initiative. In the year 2016, funds of INR 20 billion have been set up by National Bank for Agriculture & Rural Development (NABARD) to provide credit facilities to meet the needs of the F&B sector. The sector is going to benefit immensely from the large agriculture and livestock sector in the country.
As far as sales are concerned, 98% of it comes from offline channels. The shift is gradually leaning towards online sales. Nearly 50% of fast-casual operators have embraced digital ordering.
The CAGR of the sector is over 14% while other industries hover around 10% consistently.
Food and grocery
The grocery market accounts for more than 60% of total retail market in the country. The grocery stores have been through a transformational phase. Grocery Retail has experienced sea change with new players opening stores in self-service mode and older players adopting the new format. Over the counter format has rapidly changed to self-service mode. With Government’s initiative towards digitization and transparency in the banking system combined with consumers’ inclination towards modern self service chained stores, more traditional players are nowadays changing the format of their stores.
Apart from this, the CAGR of the sector like that of F&B sits high at 15%.
This raises an opportune age for franchising retail stores for groceries. We have seen almost an infinite rise in the sector, as it was non-existent up until a few years ago. Brands like 24/7, Big Bazaar & Easy Day have made the most of it.
The healthcare sector has a substantial CAGR of 20.5%. Major brands such as Dr. Batra’s, Dr. Lal Path Labs, Clove Dental and Indira IVF have sat on the growing franchise bandwagon and seen bright results. The factors causing these increasing life expectancy, growing incidence of chronic diseases, ageing population base, increasing disposable income, rising health consciousness, and growing adoption of wellness and personal care products by the young population.
The education sector in India is poised to witness major growth in the years to come as India will have world’s largest
tertiary-age population and second largest graduate talent pipeline globally by the end of 2020. With 1.5 million schools and over 260 million students enrolled. With 70 million students in higher education, India has the largest student base in higher education in the world.
The present education system has changed what it was a decade ago. India has become the second largest market for e-learning after the US. The sector is currently pegged at US$ 2 billion and is expected to reach US$ 5.7 billion by 2020.
In a country where more than 47% of the population is under the age bracket of 25 years, health and wellness plays a very vital role. The wellness industry in India has come a long way from its nascent unstructured beginning in the early 1990s to a comprehensive ecosystem today. People are more aware and conscious about their health than they ever were. The sector has a potential to create over 3 million job opportunities.
Again, the promise of this sector is reflected by a high CAGR of 12%
Fashion & Retail
The Indian fashion retail market is valued at US $100 billion in 2016. With push from demonetization and GST, rising disposable income and consumer getting brand conscious, will lead to growth in organized fashion industry.
With the data showing men purchase apparel every 48 days and women every 62 days, the fashion industry is soon to become the new FMCG.
With a CAGR of 63.47, online fashion retail is perhaps the most promising sector in the country.
I see upcoming brands that provide just kitchen services to restaurants. Now, that is new and innovative trend. It is providing a solution for restaurant owners, and I don’t see the model failing, unless something goes terribly wrong.
Like I said, the potential is high for all sectors. The Indian economy is resourceful and all the indicators are in favour of the industry. I don’t see that changing in the foreseeable future.
What in your view makes the franchising and licensing model a lucrative option for companies with global ambitions?
I feel that franchising is an excellent strategy for horizontal expansion, but when a brand looks for multi-dimensional expansion or diversification, brand licensing is the best bet. Licensing not only helps a brand scale up in terms of value proposition, it also grows beyond its core category. For instance, a brand like Kodak forays into categories like televisions or washing machines, or the Head Sports foraying into fragrance segment. This results in additional revenue, without much of a risk or hassle thus becoming a lucrative growth strategy for brands wanting to go global. At one of our recent flagship shows, MTV, a renowned music television channel had launched its drink in India.
Franchising & licensing offers a convenient market entry option to brands with global expansion. A brand can target a market with a sizeable opportunity through these routes even as brand has limited market understanding. Financial commitment is considerably reduced when foray market through these routes with a strong upside with master fee & royalties.