India is one of the fastest-growing markets in the world, with the potential to be the 3rd largest economy by 2030. This was kicked off because of the globalization and industrial policies of 1991, the increasing rich middle class, and the expanding population. India is a country with diverse ethnic backgrounds that comprises a large number of consumers with varied needs. The diversity and ever-changing needs of consumers create a special vortex where certain business models are more sustainable and profitable than others. In a competitive industry like food and beverage, franchisee models have turned out to be the star of the show with regards to profitable and sustainable brand expansion.
A franchise is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks, which allows the franchisee to sell a product or service under the franchisor's business name. In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees, or royalties. When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. This is a popular way for entrepreneurs to start a business, especially when entering a highly competitive industry. This helps a new entrepreneur to access and sell a pre-established product and a brand name, which in turn reduces the resources needed to drive in customers.
India is the second-largest franchise market in the world after the USA, with about 4,600 operating franchisors and 2 lakh franchisee outlets in 2017. The 4,600 franchisors include 50% regional brands, 34% national brands, and 16% global brands. The industry contributed approximately 2–4% to the GDP of India in 2022. Franchising is a huge employment generator, estimated to have employed over 14 million people, which is almost 10% of the total estimated Indian workforce. An IBM study estimated that 90% of Indian startups fail within five years. Whereas, the success rate in franchising is about 85%. This is helped by low initial investment, reduced costs, better margins, low risk, pre-existing training, and resource allocation by the franchisor.
International franchising holds an important part of the industry, with players like McDonald's and Domino's occupying more than 30% of the Indian food franchising industry. But mutual cooperation and regular communication based on trust between Indian franchisors and international franchisees have become more significant as geographic and cultural distance may hamper consistent communication and support. Due to this, some Indian players, such as Amul India, Burger King, Sagar Ratna, and more, are taking India to the next level of franchising through their urban-rural India focus. This success is enhanced due to local adaptation of taste in the food sector, which is much easier to do with homegrown brands.
There are different types of franchising models, each with their own unique advantages. We can broadly classify them into three types: single-unit franchising, multi-unit franchising, and master franchising. Single-unit franchising is the most simple and common type of franchise model. In this case, the franchisor grants a franchisee the right to open and operate a single unit of the franchise concept. The franchisee is responsible for all aspects of the operation, including finding a location for the restaurant, hiring employees, and managing the day-to-day operations. It is a great option for small food and beverage restaurants that are just starting to franchise or for those that have limited resources and are trying to test the restaurant franchise concept and make adjustments before expanding to multiple units.
Multi-unit franchising allows a franchisee to operate multiple units of the franchise concept within a defined territory. It is a great option for franchisees who have in-hand experience running a single unit and are ready to expand their restaurant business by leveraging their experience and resources across multiple units, which can lead to an increase in the restaurant’s efficiencies and profitability. For franchisors, multi-unit franchising can lead to faster growth and increased revenue. In Master franchising, the franchisor grants the rights to a master franchisee to operate and sub-franchise the franchise concept in a specific geographic area. The franchisee is responsible for finding and recruiting sub-franchisees for their restaurant, providing them with training and support, and supervising their operations. The master franchisee typically earns a portion of the sub-franchisee’s commission fees and royalties. It is a great option for franchisors looking to expand their restaurant business in international markets or in areas where they have limited expertise. It allows the master franchisee to adapt the franchise concept to local markets and cultures while still maintaining their restaurant brand standards and consistency.
While the food franchising model is ripe for investment with certain advantages like brand visibility, customer loyalty, and a higher return on investment, it is not a sure-shot investment, with around 15% of franchisees in India not succeeding and being unsustainable. This is due to the complex structure of Indian society, with varied regional cuisines to compete with, a wide range of dietary restrictions and cultural sensitivity, a complicated regulatory environment, strict food safety standards, and price sensitivity in a middle-class-dominated society, among other things, which cause speedbumps.