Franchising giving a great plunge to retail

Retail franchising in India is a crowded playing field which is emerging as a prospective hub offering numerous franchise opportunities from apparel industry to robot retailing, grocery stores to vending machines. Under the various retail categories which include Consumer Durable Information Technology (CDIT) segment, apparel and textile industry, gems and jewellery, food retail sector, flower retailing and so on majority of the players are growing their respective economies by expanding their businesses across the nation via franchising.

As Anupam Bansal, MD, Liberty says, “Franchising is a great model to work upon and developing countries have lot of entrepreneurs thereby creating enough vacuum for the franchisors to opt for this lucrative business expansion model.” This article will give you a snapshot of the retail industry emerging as a giant focal point for various retail franchise businesses of the world and the opportunities it is offering to the aspirants.

Present scenario of Indian retail industry

Before moving ahead, let us have a look at the growing retail industry of India and where it is speculated to be in the near future. According to the Business Monitor International (BMI) India Retail Report for the second-quarter of 2011, the total Indian retail industry is $ 395.96 billion in 2011 and is expected to grow to $785.12 billion by 2015. The industry is driven by the growth of organised retail coupled with changing consumer habits and lifestyle, rising urbanisation and improving purchasing powers. According to a US-based global management consulting firm, AT Kearney, India has been ranked as the third most attractive nation for retail investment among 30 emerging markets in its ninth annual Global Retail Development Index (GRDI) 2010.

But the Indian government restrictions of the FDI are creating ripples among the various foreign players such as Walmart, Tesco, Carrefour, Spar Hypermarket, and many others who are struggling to enter India and mark their presence felt in the Indian markets. However, recent news says that the government is likely to allow FDI in multi-brand retailing only in the six big metros. The emerging agreement of the government is that the reference of the Department of Commerce and Industry to allow such stores in cities with over one million populations is premature. Thus, franchising, strategic licensing and cash & carry wholesale trading modes are the most preferred alternatives left for the international players at present as the government allows only 51 per cent FDI in the sector to a single brand shops. The well established Indian retailers like Reliance, ITC Limited, Arvind Limited, Dabur and many more are rapidly taking up the franchise route to make significant investments in the retail industry, thereby leading to the emergence of successful franchisees.

Organised and unorganised retail market in India

As of today, about 80 per cent of the Indian market is unorganised and only 20 per cent share of the total retail market belongs to the organised players. As KS Raman, Director, NEXT Retail says, “The modern retail for CDIT contributes about nine per cent, while the traditional channel contributes 87 per cent. By 2020, modern retail will contribute 30 per cent, compared to that of 57 per cent of traditional retail, the balance being filled by branded shops, e-commerce etc. As the industry is growing at a very fast pace year after year, the reduction in percentage of traditional channel in no way reduces the value and volume of business for traditional retail.”

Traditionally, the kirana stores have been the best and easiest way to generate self employment as it requires minimum investment but with the rising brand consciousness, brand name has become an utmost necessity today. Keeping all this in mind, franchising has been adopted by the various players of the retail domain thus offering a lucrative and profitable opportunity to the aspiring entrepreneurs of the nation. Today, entrepreneurs prefer taking up a franchise retail business over a kirana store. Supporting this, Pawan Gadia, CEO, Ferns N Petals says, “We never planned to franchise our business. We started expanding through the company owned outlets. But when people started approaching us with the idea to start a similar business with similar kind of layouts and infrastructure, then we thought of taking the franchise route.”

Why company owned outlets over franchising?

Despite the various advantages, many retailers of India such as Future Group, Shopper’s Stop, Spencer’s Retail Limited, Easy Day (a subsidiary of Bharti Retail, and so on still prefer to expand via company owned outlets over franchising. These retailers believe that developing a brand takes hard core efforts and franchising may lead to the dilution of the brand. According to Abhinav Zutshi, Business Head - International Brands, Wadhawan Lifestyle Retail Private Limited, “The company exclusively operates the brand Ed Hardy in India to provide its customers a uniform brand experience across its stores. We believe that this is essential to maintain the brand identity.” Whereas when asked Parikshit Sharma, COO, Dabur India Ltd about the reason behind Dabur’s expanding nationally via company owned outlets for so long, he said, “We had to ensure that New U has a sizable retail and store footprint in the market before taking up the franchise business because as a concept New U was unknown to the aspiring entrepreneurs”

Opportunity for aspiring entrepreneurs

As more and more people have the ambition of getting into self employed businesses, the franchise opportunity will remain high. With their rising acceptance and preference for franchising, there is a huge potential for both the franchisors and the franchisees to grow with the rapidly growing retail industry. As Raman says, “The safest way to get started with a business is to join hands with a well established retail chain that have learnt modern retailing in India the hard way, unless the aspirants wish to reinvent the wheel.” Moreover, retail companies like Dabur, Bluue Mango, VESAG, LUXUS India Pvt. Ltd, Piebee and many more have started weighing their options to expand their presence across the nation via franchise route, thus contributing to the immense growth of franchising in retail industry.

To summarise, franchising in retail industry is poised to grow at a fast pace and offers a rewarding franchise opportunity to the aspiring entrepreneurs.