We sit down with the ‘father of Indian franchising’ to discuss how franchises can successfully navigate the country’s complex systems.
I was finally meeting the man himself, the one they hail as the ‘father of Indian franchising’ – Gaurav Marya, chairman of Franchise India and Francorp India. We met in a busy café at the Hilton London Paddington, where we spent the morning discussing the Pandora’s box that is the Indian business market, and how franchises can successfully navigate its complex systems.
And who better to discuss franchising in India than Gaurav, who first came across the concept on a business trip to the U.S. in 1998. Having finally found his passion, a year later the entrepreneur founded his franchise venture in India. Over the last two decades, his company has diversified to become a one-stop solution to cracking all things franchising, whether it is an Indian brand going international or a global business trying to establish a presence in India. Today, he is widely credited for sparking the Indian franchise revolution and is the visionary behind India’s largest integrated franchise and retail solution company, Franchise India Holdings Ltd.
GF: Can you elaborate on the Francast Franchise Forecast 2020 for India that you recently published?
GM: This is a report we do every year to forecast trends and where the business is changing. We profile both the franchisor and the franchisee. There are significant changes happening globally in franchising and India is no different.
In my 23 years of being in franchising, I have seen massive changes; the most significant has been in the last two years. This is because franchises are essentially consumer businesses. As the consumer is fast evolving, so is the franchise business in order to keep apace. For example, the food industry, which is 35 per cent of the global franchise contribution, has significantly changed to accommodate delivery concepts. This has resulted in the rise of the cloud kitchen (with the food delivery business turning into a $15bn market, cloud kitchens have become the new norm in food service. The report states that four or more restaurants could be co-located with each other, individually occupying 300 square feet). Major players are emerging, and older, conventional brands are changing their models to become delivery-centric. KFC has launched its first cloud kitchen with no shop front, just delivery outlets. It’s still in its early stages but going forward this is going to be the model.
“The biggest impediment to franchising in India is lending and the lack of finance, even if there is a reliable brand behind the business.”
India is also seeing these changes along with the modernization and branding of services – this means franchises are taking over the market, like UClean’s laundry business. The world is moving away from the local mom-and-pop business to branded ones.
Technology-based franchises are seeing major growth. For instance, we worked with Zomato, a large delivery platform, to franchise its dark kitchens (delivery-only kitchens which service areas where it is hard to open restaurants).
India stands at about 6,000 regional active franchise systems, of which 400 are nationally active (upward of 50 to 500 franchises), while another 1,000 have a national presence but are not as active.
GF: How are these Indian franchise systems attempting to expand globally?
GM: Globally, India has not done much. We haven’t created concepts or formats that are ‘global-ready’. When it comes to a developing nation going to a developed world, it’s not that easy; however, I see a change.
India is now looking internationally from two perspectives. Firstly, from a developing nation to another, or an underdeveloped country, which means Indian concepts are going to the likes of Bangladesh, Sri Lanka, Nepal and Myanmar. There is acceptability of an Indian brand, especially in the sectors of healthcare, education and food service. For instance, Delhi Public School Society (DPS) is an example of a global education franchise that is expanding not only in the Middle East but all over Asia. However, we can do better and look for markets in Africa and East Europe, too. These smaller countries do not have good education or healthcare capabilities and that’s where Indian brands can thrive.
Secondly, mature and iconic brands in food like Copper Chimney or Farzi Café – the latter is now opening franchises in the U.K., U.S., and Middle East – have the potential to become global.
Another major Indian franchise system that is emerging is OYO Rooms and Hotels. It is going to be the largest hotel franchise in the world and Franchise India helped to build its franchise model. A lot of Indian tech-based companies are keen on their global expansion and that is where the future lies.
GF: What are some of the international franchises making their way to India?
GM: Historically, we suffer from an American or British hangover with foreign brands expanding in India. Now we can see a change and people are accepting of non-American and non-British businesses, like with the specialty retailer Miniso from China. The Chinese are investing a lot in building their franchise brands globally, and India is one of the key markets – Miniso will have a big rollout with 600 stores in three years.
India is a key market for Thai, Japanese, Chinese and Malaysian brands, however, we do not see the same flow of Indian brands going abroad. Indian brands have been successful in the Middle East as it has been the most immediate market, but this has slowed down. Thus, we need them to look beyond their comfort zones.
When Indians look at exporting their product or service abroad, they look at other Indians being the buyers, which is not the best way to go about it. If you want to make a global company, you need to make a global product which can work in different markets.
GF: How do brands that have a core Indian offering (like biryani), make it globally acceptable?
GM: I advise against expansion by convenience, which is going to a country because someone has approached you. International expansion is a very well thought out strategy and we need to develop products for overseas markets. The essence of the brand can be Indian, but it must have wider acceptability. Farzi Café is a good example, but we are not yet ready for an Indian quick service restaurant going global.
GF: Why focus on tech-based franchises?
GM: We are looking at this area from an investment point of view as well as working with clients that have a strong, scalable, tech-based product, where the fulfillment is done by the franchisee but management and control capabilities use technology. Companies like OYO do not have any geographical restrictions. It is a tech-based business and we are working with them in India to first get their business model right and then look at taking it to other markets.
GF: You mentioned that one of the biggest impediments to Indian franchise growth was the lack of proper franchising laws, funding programs, and dual taxation. How has that changed in the last decade?
GM: Very few countries have specialized franchise laws – only the U.S., Australia, Malaysia, and a few others. We are governed by British Contract Law, which is good but primitive, old and needs updating.
Secondly, the government recognizes small businesses as manufacturing businesses, but 75 per cent are service and retail. So the government has to recognize this 75 per cent with policies that facilitate easy lending. The biggest impediment to franchising in India is lending and the lack of finance, even if there is a reliable brand behind the business.
It is because most of the time the franchisee is a new set-up (35 per cent of franchise buyers are firsttimers in business in India). As they have never done business in the past, they have no financial track record and thus, won’t get a banking loan. Entrepreneurs then raise the money through personal loans which are expensive and this puts pressure back on the system and performance becomes difficult.
Franchising in India attracts two types of taxes: one is consumer tax, which is a Goods and Services Tax (GST) and the franchise fee gets taxed as well, which is GST but 18 per cent. This does not promote potential franchises because the overall investment rises. Here is where we are working with the government to encourage more entrepreneurship.
GF: How can the government improve investment?
GM: There are three things that need to be done: firstly, the government should encourage and recognize franchising as an industry. Thus, the bankers would recognize and finance potential franchisees.
Secondly, the government has done a good job so far to get microfinancing, that is less than $20,000, but most of the franchise companies don’t qualify as you need more than that. The government needs to up that limit as most franchise investment is in the bracket of $30,000 to $100,000. This way people can own and set up businesses and further create employment which the government should incentivize.
Thirdly, for the benefit of the overall franchise system, the government needs to have a definition to create a level playing field. As franchising is becoming popular in India, there is an issue of credibility, so we need structure and transparency.
To create this credibility, Franchise India is launching a product in December called FranScore. It will score companies on their performance. We will review franchise systems and check their performance. Every year we will put up a FranScore for each business and every quarter there will be a rating.
GF: How would you define an entrepreneur?
GM: They are not inventors, they are opportunists, and Indians are like that. Historically, we are not big inventors. For example, Ola Cabs was not an original idea, it was inspired by Uber and it works better than Uber in India. It was not an invention but an early adoption. I tell a lot of Indian entrepreneurs that the world is very large and we have only one opportunity: we have a 1.3 billion consumer market. So, if you find a product in Finland that can change human demand, adapt that for India and you will be much bigger than the original Finnish company, as you have the people advantage. Take OYO for example – it is not the original idea. Airbnb was, but OYO has the scalability, and it will grow to be the biggest hotel franchise.
GF: How do you know a business will be successful?
GM: I follow a three-pronged approach. It first starts with the entrepreneurs themselves; I need to see commitment for a long period of time and that they are not distracted by other interests. I give this the highest score. I say that businesses which are built to last will have value, while those that are built to sell never find value. Secondly, I look at the longevity of the business in terms of how it will last the consumer’s change in preferences for the next 10 years and what is its strong differential value. And thirdly, I look at its microeconomics, which means the sustainability of the business model.
ABOUT THE AUTHOR
Amanda Peters is a staff writer for Global Franchise and What Franchise.