FRANCHISING AND ITS PROFITABILITY

THE MARKET POTENTIAL & CURRENT STATUS 

Franchising sector in India is growing at swift pace of 35 -38 % per annum

In spite of the rapid growth of franchising in the recent years, it constitutes as of now
about 2 % of the total retail sale of about US$405 billion

The market size of franchising sector estimated to be US$ 7.2 billion and is expected
to reach US$ 20 billion by 2013

There are about 1,200 active franchise concepts operating in India and over 100,000
franchisees with a large number of foreign and particularly American brands that
include McDonald’s, Pizza Hut, UPS, MedicineShoppe, Kodak, Gold’s Gym and
KFC

In addition, there are many home grown companies going into franchising in a large
number of areas of the economy that include computer education, schools, financial
institutions, restaurants, health care, courier logistics, travels, beauty parlours and
apparels Source: The Food Franchising Report 2009
 What’s in the name?
“Franchising in simple terms is essentially an agreement by which the
franchisor provides license to use trademark/brand name, product, or system of
a business to the franchisee in consideration of fees and/or royalties”
 WHY DO COMPANIES FRANCHISE?
For a company with a product or service to sell, franchising provides an
excellent opportunity for :

Rapid expansion without an enormous outlay of capital

It is a distribution system that allows a business to conserve capital, and at

the same time achieve fast market penetration making it a very attractive
proposition to most business owners

100% commitment from their franchisees who have a stake in the business
rather than staff or managers who simply work for a salary and may be less
motivated
TOP REASONS WHY FRANCHISES ARE PURCHASE
1. People want to buy into an idea that’s already proven to be successful
2. The management of the business has already been formulated
3. The support network is already in place
4. Right to use the Brand Name & provides swift market recognition
5. Collective buying power
6. Procuring goods from the franchisor at less than the market rates
7. Reaching economies of scale
8. Helps in Local and national advertising
9. Supervision, training programs and consulting
10. Managerial, operational (R&D) and accounting systems
11. Stay current with legal issues

With franchising, you are in business for yourself not by yourself

 FRANCHISING IS CLASSIFIED INTO
On the basis of ownership,

Single Unit franchise

Area Development franchise

Master franchise
On the basis of functionality, the franchise could be divided into:

Product Distribution franchise, where franchisee has to concentrates on only

marketing the products manufactured by the franchisor. This type of franchise will also
include some form of integration of the business activities.

Business Format franchise, where franchisor agrees to provide the license to use its
brand together with the business package and exactly the same format and standards.

Affiliation franchise, where the franchisor enters into franchise with franchisees that
are already operating in the same or similar business. Arvind Mills, Madura Garments
 LEGAL ASPECTS TO BE KEPT IN
MIND

The agreement between the franchisor and the franchisee is governed by the
Indian Contract Act, 1872

Depending upon the various conditions governing the relationship between the
franchisor and franchisee documented in the franchise agreement, the Trade Marks,
1999, other Intellectual Property Right legislations like :

Copyright Act, 1957,

Patent Act, 1970,
Standard of Weights and Measures Act, 1976
Designs Act, 2000 ,
Foreign Exchange Management Act, 1999,
Limited Application of Sale of Goods Act, 1930,
Transfer of Properties Act, 1882, the tax legislations need to be taken into
consideration
 In the event of the franchisor being a foreign entity,

 Foreign Exchange Management Act, 1999, royalties are subjected to tax too
 Implications of Specific Relief Act, 1963,
 Code of Civil Procedure, 1908 and
 Arbitration Act, 1996, need to be conceived for the purpose of the dispute
resolution aspect, in case of difference of opinion between franchisor and the
franchisee.
 With the advent of the Competition Act, 2002, the restrictive covenants
provided for in the franchise agreement, will also come under the scrutiny of
the Competition Commission of India.
KEY ELEMENTS MENTIONED IN THE AGREEMENT

The time span/duration of the agreement.

Obligation/ duties of the franchisor.
Obligation/ duties of the franchisee.
The territory under which the franchisee will operate.
The franchise fee and the right to use the franchisor’s trademark/brand/patent
and signage's.
The training or support(advertisements & other promotions) that will be
provided by the franchisor
Royalties as may be payable
Terms of renewal /and termination/cancellation policies.
2009
1996
Overall India Rs 400cr (2009)
2010 expected Rs 600cr
1st quarter – Rs 183cr
20% of sales is reinvested in budgeting
COST INCURRED
Capital 1.5 - 2cr
Term of Land 14 - 15 yrs
Salary 2L*
-Minimum Rs 8500
 Area reqd Min 1200-1600 sq.ft
Food cost 30-33 % of sales
-Veg 30%
-Non - Veg 31 - 33%
ROI %*
BEP 3 yrs
Royalty 3.50%
Store operating cost 6L
- 3 - 3.5L
Sign Board renewal 1.4L
Flex expenses 70 - 80K
 FACTS
1 hour – 160 -180 calls

1 hour – 150 orders delivery

1 bike – 2 order delivery

1 pizza – 6 min

1 hour – 200 pie

1 cheese dip – 10 minutes

CRM software – POS (Point of Sale)sync with

their inventory management software
Range – 2.5km

All ingredients are chopped when brought

Horbort

Ghodbunder

Cheese – Amul, FunFood, Dynamix

Coke

20 – 20 format
1 bike – Rs 35k

PUC – Rs 40 per bike

Training program – FIDA (Financial Invention Data Analysis)

MBA programs for Managers

Pizza’s are prepared in deck system

 OUTLETS

POWAI
DAHISAR LOKANDWALA

MIND SPACE JOGESHWARI

$ SALARY
CSR
 ABOUT THE FIRM
Anand Rathi is a leading full service investment bank founded in 1994 offering a wide
range of financial services and wealth management solutions to institutions, corporations

Footprint to over 350 locations across India with international presence in Hong Kong &
New York. Founded by Mr. Anand Rathi and Mr. Pradeep Gupta

The group today employs over 2,500 professionals through out India and its international
offices.

The firm’s philosophy is entirely client centric, with a clear focus on providing long term
value addition to clients, while maintaining the highest standards of excellence, ethics
and professionalism

The entire firm activities are divided across distinct client groups: Individuals, Private
Clients, Corporates and Institutions
ANAND RATHI -FINANCIAL INSTITUTION
Franchisee Business: A stock broking unit

Franchisee fee: 2 lakh (one time) (NSE, BSE, Future & Options, MCX, NCDEX)
More than 1 lakh, franchisee gets 6% Interest p.a

Franchisee Margin ratio:

 If generated Rs 50,000, profit is divided in the ratio of 50:50

 Above Rs 75,000, 40:60( Franchisee’s)
 Above Rs1,00,000, 30:70( Franchisee’s)

Brokerage - 0.03p -0.05p (Intra-day Transactions)

- Delivery Point 0.30p- 0.50p (Depending on the agreement fixed with the clients)

Office Size : Min 250 Sq ft

 Legal Procedures:

 Address Proof with photo

 Bank Statement of last 6 months transactions
 Pan Card
 No. of fixed landline services - 1 (mandatory)
 Registration Deposited ( Refundable) with SEBI- Rs 35,000
NSE- Rs 10,000
F&O- Rs15,000
MCX -Rs 10,000

Renewal of the Contract: Every after 3 yrs

Office location: Santa Cruz(East)

 COST STRUCTURE
Office Rent: Rs. 25,000

Computers 2 pcs @ Rs.60,000

Printer 2 pcs @ Rs 20,000

No. of Employee’s - 2 ( Salary – Rs8000 per month/employee)

Electricity - Rs 5,000

Misc Expenses – Rs 8,000

Eligibility required by a Franchisee are:

NCFM Exam
 Derivative Dealer Module
 Capital Market Module
 BSE Cash
 Currency Module
 Commodity Basic Module(MCX)

Value Added Services (VAS) provided by the franchisor

 Provides Trading Software/platform
 Consultancy Services
 Account Statement
 Stock Tips
THANK YOU