Franchise Blog India

2020 was year of consternation and confusion as consumers around the world struggled to find what they needed under circumstances that changed weekly. Counterintuitively for many companies, it was the best year in their history as consumers had a range of new needs resulting from working from home and various levels of lockdowns. However, for other conventional businesses, more specifically retailers in malls, urban areas in countries with strict lockdown orders, it was a year of major losses. They surely have been jolted and have created their own pathways to becoming relevant in a post covid world.

We are extremely confident that some very big franchise brands will emanate from this pandemic in India and across the world as we prepare for opportunities that lay ahead. These brands will use all the means and tools available for the next-gen consumer and use interesting modern franchising models and the resources that are now at our disposals, which hitherto, were non-existent.

Franchising is growing at an impressive pace in India. Franchising has witnessed a growth of around 30-35% over the last four-five years and the overall turnover is estimated at around INR 938 billion. Currently, the sector contributes nearly 1.8% to the Indian GDP and is estimated to contribute to around 4% by 2022

India has over 4600 franchisors which comprise of:

• 16% – Global brands
• 34% – National brands
• 50% – Regional brands

This country has nearly 2,00,000 franchise outlets being operated by and under 1,70,000 franchisees and nearly 60% of franchise locations are in a unit franchise format. These are pre-pandemic numbers, while the segment is poised for the explosion, by the beginning of 2022.
The franchise formats for brands have been popular to experiment with because of the brand reputation they’ve earned and who wants to use that reputation to attract and attach many customers to them.

The significant benefits of starting a franchise business in India right now are:
• Lower operating cost
• Local Business Knowledge
• Rapid Expansion
• Branding
• Training and technical know-how
• Less risk for franchisee
• Easy access to capital

Lower rate of failure :

Franchises have a lower rate of failure as compared to start-ups. According to a study by IBM and Oxford in 2016, 90% of the Indian start-ups fail within the first five years, against only 15% of franchises. Since the business concept has already been worked out with the existing loopholes been fixed, the model today is efficient, low risk, and low cost over any start-up. Thus, making it more appealing to the investor.

Increasing income and purchasing power :

Indian disposable income was approximately INR 131 trillion in 2018 and is expected to double by 2025. The rising income levels in rural and urban India have resulted in increased spending on discretionary items as against necessities. This rise in income and spending capacity across India coupled with increased awareness, has created a substantial demand for domestic and international brands. A large number of companies are expanding beyond tier-I cities and increasing their presence by adopting the franchise model. Hence a large number of franchisee seekers have emerged in TIER II and TIER III cities and towns of India seeking to buy popular franchise brands which they see which are popular in bigger cities around them.

Privatization in different sectors :

With the rapid privatization in India across various sectors such as education, healthcare, telecommunication, and others, there is a constant rise in the influx of international brands in the country. With this increase, the scope for franchising has also gone up. Today, companies across sectors such as EuroKids, Ferns and Petals, Vakrangee, Connect India, and DTDC are key examples of successful privatization and franchising in India.

First-time entrepreneurs:

The newfound entrepreneurial spirit of young Indians has led many individuals to enter the franchise business. Presently, around 35% of all franchise owners have been first-timers in business. These entrepreneurs choose franchising due to the range of benefits it offers such as reduced risk, association with an established brand, training, and support, etc.

• Relatively higher unemployment rates, with both lower-cost workers and seasoned career professionals seeking opportunities.
• Favorable market conditions that provide ready access to capital for investing in franchises.
• Available commercial real estate due to business closures in 2020.
• Several existing franchises available for sale due to owners being affected by COVID-19 or not being able to manage the working capital requirements.
• Several franchisors are offering preferential one-time terms while signing their franchise agreements in India. Prospective franchisees can surely negotiate on some terms based on the current scenario for their advantage.

Potential of Franchising in India, Industry-wise in Post Covid Era.

Whether you are buying a franchise in India post covid or franchising your business across India post-2021, here is a snapshot of 6 different segments we have covered for your understanding. You could stay connected with the sparkleminds blog for the latest on the franchising industry of India as we pretty much cover all types of businesses and you can get the information you seek about any specific business, brand, segment or location.

Healthcare:

Driven by better healthcare awareness, rise in incomes increased access to insurance and lifestyle-related diseases, India’s healthcare market is expected to reach USD372 billion by 2022.4 The Indian government aims at increasing the healthcare spending to 2.5 per cent of the GDP (gross domestic product) by 2025. Franchising will be the vehicle to push products and services, many medical store brands will be up, and many are looking to invest in polyclinics, fertility centres, animal clinics and so on so forth.

Mental Health Services, is a new area that will open with many mental health care centres, like Psychiatric, Psychological, and mental wellness service centres that will open with people using many AI tools in helping clients.

The Indian ‘eHealth’ sector is at a tipping point and is projected to grow by ~13x, to become a $16 Bn opportunity by FY 25. The $135 Billion Indian healthcare industry is at an exciting tipping point, with the Indian Government prioritizing healthcare as one of the key focus areas for the next few years. The Government plans to increase its healthcare spending from the current 1.6% to 2.5% of the GDP until FY 25.

There is significant opportunity for improving the healthcare services across the country, especially in Bharat, where penetration of quality and affordable outpatient & inpatient care services is limited.
The eHealth sector will have 3 potential growth scenarios in terms of the number of tapped households over the next 5 years:

• Base Scenario: eHealth will tap 41 Mn households by FY 25, growing at eHealth’s historic 2 Yr. CAGR of 57%.
• Moderate Scenario: eHealth will tap 57 Mn households by FY 25, growing at grocery’s historic 2 Yr. CAGR of 68%.
• Aggressive Scenario: eHealth will tap 68 Mn households by FY 25, growing at Foodtech’s historic 3 Yr. CAGR of 74%.

India is home to around 5,295 health tech startups, out of which 133 are funded eHealth startups. The eHealth market in the country is expected to reach $10.6 Bn by 2025. However, it will only be 1.6% of the total addressable healthcare market, pegged to reach $638 Bn by 2025. This amply indicates the huge headroom for growth and the massive opportunity that can be leveraged by the eHealth sector.

Healthcare companies or brand can make the most of the growth this segment is seeing by franchising and appointing franchises who are scrambling for a piece of the healthcare pie which otherwise is not possible for individual entrepreneurs for the sheer scale of investments that could be required. Hence entrepreneurs could join the segment for as low as Rs2 Lakhs by starting a collection centre or as high as a crore for a diagnostic lab. For the brand, they get entrepreneurs at the last mile, ensuring a asset-light expansion model.

E-Education:
Print in India shrunk to 25-30% of pre-Covid levels. Also, since the lockdown led to the adoption of digital as the mainstream mode of teaching and learning, the demand for educational books dropped by 40-50% due to the closing of schools and colleges.

The COVID-19 has resulted in schools shut all across the world. Globally, over 1.2 billion children are out of the classroom. As a result, education has changed dramatically, with the distinctive rise of e-learning, whereby teaching is undertaken remotely and on digital platforms. Research suggests that online learning has been shown to increase retention of information, and take less time, meaning the changes coronavirus have caused might be here to stay. It is clear that this pandemic has utterly disrupted an education system that many asserts was already losing its relevance.

21 Lessons for the 21st Century, a book published by scholar Yuval Noah Harari outlines how schools continue to focus on traditional academic skills and rote learning, rather than on skills such as critical thinking and adaptability, which will be more important for success in the future. Could the move to online learning be the catalyst to create a new, more effective method of educating students?

While some worry that the hasty nature of the transition online may have hindered this goal, others plan to make e-learning part of their ‘new normal’ after experiencing the benefits first-hand.

The importance of disseminating knowledge is highlighted through COVID-19. Major world events are often an inflexion point for rapid innovation – a clear example is the rise of e-commerce post-SARS. While we have yet to see whether this will apply to e-learning post-COVID-19, it is one of the few sectors where investment has not dried up. What has been made clear through this pandemic is the importance of disseminating knowledge across borders, companies, and all parts of society.

If online learning technology can play a role here, it is incumbent upon all of us to explore its full potential. Edutech platform upGrad reached a million users recently. It grew 100% in 9 months from the start of the financial year and is targeting Rs 2,500 crore in revenue for FY21-22. The platform has forecasted that it will reach the 2 million user mark within the next 18 months.

Between April and December 2020, ‘edtech’ searches gained 60 percent on the Indian internet, according to Google Trends. Searches for individual companies such as BYJU’S, Vedantu, Toppr, and others that cater to India’s 265 million school-going students — the highest in the world — gained even further. A joint report by BARC India and Nielsen revealed that there was a 30 percent increase in the time spent on education apps in the first three months of lockdown.

The Future: Physical vs Online:
Covid-19 has altered the landscape of education. Even large universities are adopting e-learning and thus in turn saving on investment in more physical infrastructure. This is also making education more accessible and affordable. Ever since the pandemic, upGrad enabled over 100 universities and colleges, including MHRD’s NIRF Top 100 universities to replicate their classes online.
We have seen an upsurge of online education brands seeking franchises at FranchiseBazar.com. Almost every segment which had a physical classroom presence is now looking at additional physical classroom franchises who offer virtual classes to students in the catchment area and provide in person attention as well. This is the norm most education franchisors in India are adopting. National Skill Development Corporation or NSDC is pushing hard for private participation in this segment as well, as companies tied up with this government initiative also need last-mile classrooms and are using the franchise model for expansion.

Retail Convenience Stores:
According to a survey about the impact of the coronavirus (COVID-19) on Indians in May 2020, retail stores seemed more reliable in terms of sourcing essential grocery. For those ordering online, only ten percent got everything they needed easily, compared to 40 percent among retail store shoppers.
India implemented a lockdown for 21 days, announced on March 24, 2020. This was after the “Janata Curfew” on March 22, 2020 – a so-called practise lockdown. Panic-buying commenced among consumers days before the lockdown was announced, much like in other countries. This lockdown was the largest in the world, restricting 1.3 billion people, extended until May 3, 2020.
Reliance Retail will exit direct sale of packaged food, grocery and FMCG goods on its e-commerce platform JioMart by roping in Kirana stores as franchise partners that will sell these products to consumers in their respective neighbourhoods. This marks a shift in strategy that differentiates it from other big online grocery platforms such as Big Basket, Amazon and Grofers. This also opens up the gates for millions of shop keepers or Kirana store owners to convert their existing shop into a reliance jiomart franchise and join the organized retail revolution underway in India.

100’s of other supermarket brands or franchisors are also now in expansion mode in India as they have seen unprecedented demand during this phase and need a local convenience store close to the customer to fulfil their immediate requirements. This is the beginning of the consolidation of the kirana industry of India, delivering to the doorsteps of crores of customers now backed by strong online players like Reliance, Walmart, Amazon & Alibaba in India.

E-commerce:

The Indian e-retail market is primed to reach nearly 300 to 350 million shoppers over the next five years—propelling the online Gross Merchandise Value (GMV) to $100 to 120 billion by 2025. As Indian e-retail sees a steep increase in shopper penetration, driven by lower data prices and investments to improve customer experience, online platforms are innovating to onboard the next hundreds of millions of shoppers.

49% of Indian consumers say online sites and apps became the preferred mode of shopping for them in the last 12 months, as per a Local Circles survey. Safety from Covid-19 and convenience were cited as top reasons by consumers for using eCommerce. 69% of those who shop on eCommerce bought groceries/essential supplies online. Consumers used large e-commerce platforms as well as small verticals or local e-commerce sites to purchase groceries and essentials.

This spike in B2C ecommerce in India is of course due to existing online shoppers stocking up on essentials given the coronavirus outbreak and the lockdown imposed by the Government (to check its spread). However, it also consists of perhaps two more segments –apart from the one that buys online, regularly. India’s e-commerce is expected to reach 99 billion dollars by 2024, growing at a 27 per cent CAGR over 2019-24 with grocery and fashion/apparel likely to be the key drivers of incremental growth.

India’s e-commerce market is projected to grow by 84 per cent between now and 2024 to about $111 billion (from about $60 billion in 2020) driven by mobile shopping, which is projected to grow 21 per cent annually over the next four years, the report said.

Brands like Lenskart.com have witnessed great push from their retail presence despite seeming like an online brand, garnering a major share from their offline sales through franchise and own stores. This trend will continue for several ecommerce & retail brands where touch and feel is an important criterion for converting consumers. A Lot of Indian retail and ecommerce brands are deploying this hybrid strategy for growth. All conventional players like Bata, Raymonds, Lakme, Prestige and several others are all in an aggressive franchise and ecommerce expansion mode in India.

Logistics :

The immediate impact of the pandemic on the logistic sector has been a sharp fall in freight availability due to restrictions on the production of non-essential goods, and shortage of fleet for movement of goods owing to the dearth of drivers and a consequent spike in truck rentals and air freight prices. More than 9 percent of the shipments were stuck, 21 percent of the orders were delayed and the delivery percentage has seen a clear decline of 19 percent, forcing the logistics sector to face the brunt of the crisis. More than 9 percent of the shipments were stuck, 21 percent of the orders were delayed and the delivery percentage has seen a clear decline of 19 percent, forcing the logistics sector to face the brunt of the crisis.

According to Economic Survey, the country’s logistics industry is expected to touch $215 billion by the end of 2020, growing at a CAGR of 10.5 percent. It provides employment to more than 22 million people. Rapid and technological advancements in digital technologies, changing consumer preferences due to e-commerce, government reforms, and shift in service sourcing strategies are expected to lead the transformation of the Indian logistics ecosystem. In the new normal, technology has proven its utility and adaptability.

 Strong market trends towards the e-commerce segment continue to transform how brands and consumers interact. The pandemic has brought an increase in the demand for essential items such as groceries, food, and pharmaceuticals. Many logistics companies cater to this demand whilst adhering to safety protocols with OTP-based contactless delivery of items. Leveraging state-of-the-art technology, logistics aggregators should focus on increasing the efficiency of services and optimizing cost.

The Union Budget 2021 promises increased spending on infrastructure, focusing on new and improved economic corridors, and road and railway infrastructure. The Government’s push to port, road and rail infrastructure through various investments, initiatives and projects will further add to the development of the logistics industry in India. With faster construction of the Dedicated Freight Corridors and road highways, not only will the logistics sector benefit, but it will be able to add strong support to our domestic manufacturing programs.

How COVID-19 Shot Franchising into the Future

Weaker Businesses Are Going to Close:
Several businesses are just not strong enough to survive due to weak margins and poor cash flow management.
Businesses will survive the quarantine, but the wheels will have been set in motion to force their closure within a year or so. Businesses that will be so strapped for cash will be unable to market or maintain operations to a decent level, gradually eroding their business. Not only will consumers be more cautious about their expenses, the ones which remain will visit the businesses marketing more aggressively.

The Rise of the Multi-Unit Operator:
Multi-unit operators have been growing for years and now own more than half of all franchise units. Economies of scale help make them sustainable businesses even with lower unit-level margins. Well-capitalized operators will scoop up the units that are having trouble staying afloat but still have the potential to turn a profit. This will accelerate. This is perhaps the most profound trend with regards to the future of franchise coaching.

For the franchising business model, the combination of strong businesses and the multi-unit operator will be a positive as larger systems will be better equipped to assist their operators in surviving than the regular “mom and pop shop” down the street. The overall diversity in the ecosystem will be reduced, but out of all the units that weather the storm, the overall proportion of franchised and corporate chains will be increased.

Changes in the Talent Pool and Discretionary Income:

Overall, with all these units shuttering, franchise businesses should see a return to equilibrium with regards to the current labour shortage. This will help them put better staff in place, should reduce employee turnover and thus improve margins due to less time spent retraining.
However, over the next 12 to 24 months, higher unemployment means that there will be less discretionary income to spend and that may negatively affect certain franchise verticals. This impacts the strategies business owners will need to put in place to attract customers.

Increased Focus on Operational Efficiency:

Businesses will be put under greater pressure to maintain profitability. They will look at ways to run a tighter ship by simplifying their operations, investing in technology and cutting costs where possible. Overall, this is good news for suppliers in the franchise space who focus on operational efficiency. The next few months will be tough for everyone in franchising, but there is light at the end of the tunnel.

Multiple Concept Franchising:

Multiple concept franchises capitalize on an old trick: diversification. Why count on one brand when you can count on many? Franchisees are increasingly trading under several brand umbrellas beneath a single corporate roof. That reduces operational expenses and allows franchisees to work with the same team even when they take on a new brand. In an economic downturn, they can exploit their most profitable markets and hedge against the losses of their unprofitable franchises. There’s something in it for franchisors, too. It helps you to source franchisees with significant skill and experience.

Hence, this could be a great time to franchise your business in India or elsewhere across the globe and set the wheels in motion for your business growth, capitalizing on the real estate, manpower, logistics, technology and other resources which are possibly available at their best costs ever. Franchisors could start the preparation on multiple levels for the expected franchising boom: strategic planning, operations documentation, site selection, marketing and messaging, and franchisee profiling. We could help you create your franchise marketing kits, franchise financials in India specifically building the ROI, franchise fees, royalties from a market reality perspective, franchise manuals, franchise agreements and detailed franchise marketing.
Exclusively Published by Sparkleminds Bureau. All rights reserved.

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