India: The Next Big Hot Spot for Global Franchisors?
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India: The Next Big Hot Spot for Global Franchisors?

India: The Next Big Hot Spot for Global Franchisors?

In India, whether you are in a metro city or smaller town, a quick look around the bustling markets will give you a sense of the presence of numerous brands all around. From heading to the nearest Domino's or KFC for a bite or for a shopping spree with brands like Levi's or the Gap, the Indian masses have helped franchising to rise substantially in recent years.

According to a recent KPMG and Franchise Association of India (FAI) report, the Indian franchise industry is estimated at US$50.4 billion, a fourfold growth since 2013. A majority of this growth can be attributed to professionals, especially those from an IT background, who chose the franchising route to entrepreneurship in the past 4 to 5 years.

Brand India

With a population of more than 1.3 billion, India is poised to become the third-largest consumer market, behind only the U.S. and China; and consumer spending in India is expected to grow from US$1.5 trillion at present to nearly US$6 trillion by 2030. This makes India a huge potential market for international brands, as well as for in-house entrepreneurs.

Further, the number of "ultra" high-net-worth individuals (HNIs) in India is expected to double to 330,400, with more than US$300 million worth of assets by 2022. This rise in the number of HNIs is creating a level of sustainability in the franchising ecosystem.

Moreover, India offers vast opportunities for franchisors, thanks to the surging entrepreneurial instincts of its people. According to estimates, almost 35 percent of all franchise buyers are first-timers in business. While earlier franchising was mainly done by people who were already doing some business, franchise opportunities currently act as a gateway for first-time entrepreneurs. These new entrepreneurs are very receptive to international franchises.

In fact, the growing interest toward franchising in India is not uncalled for when compared against industry estimates that 90 percent of Indian startups fail within 5 years from lack of mentorship and structure; whereas the success rate in franchising is about 85 percent. More entrepreneurs are associating with brands that assure a relatively higher rate of success.

Indeed, franchising is one way India can fight the issue of economic disparity. Besides, franchising is not only a great way to encourage self-employment, it also is a big employment generator. A single franchise store employs between 5 and 30 people. The job creation from franchises in India is estimated to be to the tune of 1.5 million.

International franchise hotspot

India is already the second-largest franchise market in the world after the U.S., with 4,600 active franchisors (50 percent regional brands, 34 percent national brands, and 16 percent global brands) and nearly 200,000 outlets operated by almost 170,000 franchisees.

Over the past 20 years, India has been a major hotspot for international brands. Some of the international brands that operate in India through franchisees include Anytime Fitness, Baskin-Robbins, Burger King, ChemDry, Domino's, Dunkin', Gold's Gym, Johnny Rockets, KFC, Krispy Kreme, McDonald's, Pizza Hut, RE/MAX, Subway, and Toni & Guy.

In fact, Domino's represents one of the most successful franchise growth stories in India. The company opened its first pizza outlet in New Delhi in 1996 through Jubilant FoodWorks and has grown to more than 1,250 stores in India. In fact, with its product improvements and strategic changes, Domino's has struck the right chords with customers to become the largest pizza company worldwide and in India.

Subway, which holds the title of the world's largest fast-food chain with more than 44,700 franchises, has found success in simplicity, focusing on what it calls its "core carrier": fresh bread and the oven it bakes in. Subway began its operations in India in 2001 and currently operates a chain of more than 650 restaurants across more than 70 cities. The company's key unique selling points consist of strong marketing, supply chain management, a value-driven business operation, and complete back-end support for entrepreneurs.

RE/MAX India, the largest network of Indian real estate brokers, is setting records with 1,000 brokers having a presence in 46 cities with close to 200 offices in India. The international real estate giant aims to add 1,500 agents in the current fiscal year.

Brands from North America, Australia, and the U.K. top the list because of the large Indian diaspora living in these regions. Many non-resident Indians have brought these brands to India through a master franchise arrangement.

Additionally, brands from the Asia/Pacific and China regions, including Singapore, Malaysia, Hong Kong, Japan, and Korea, have been aggressively entering in the Indian market. Mobile phone brands from China to specialty retailers like Miniso, Mumuso, and lifestyle brands like Muji have been vying for the Indian customer with their quality products and competitive prices. We are hoping to see more service-based formats like cleaning services, education, and healthcare move from these countries to India.

Following a slew of foreign direct investment (FDI) relaxations on retail, and the government's aspirations to make it into the top 50 in the "Ease of Doing Business" rankings, international brands are making a beeline to enter the India market.

Key sectors

Sectors like retail, food service, and health and wellness contribute almost 60 percent to the overall franchising business in India.

Retail. The Indian retail industry has emerged as one of the most dynamic and fast-paced industries following the entry of several new players. This trend is further fortified by the government's decision to allow 51 percent FDI in multi-brand retail and 100 percent in a single brand. Further, there has been sharp rise and improvement in the urbanization and consumption pattern of Indians, which is expected to grow the retail market from an estimated US$672 billion in 2017 to US$1,200 billion in 2021. Total consumption expenditure is expected to reach nearly US$3,600 billion by 2020, about double the US$1,824 billion in 2017.

Food service. On the other hand, food service businesses have never been busier, thanks to Millennials with high disposable income and little inclination to don their aprons in the kitchen. India is home to the world's largest Millennial population, which has lifted the average frequency of eating-out/ordering-in to 6.6 times per month and average spending of Rs 2,500 (about US$35) per person per month. With food and beverages estimated to account for 42 percent of Indian household expenditures by 2021, the trends are indeed positive for food service franchises.

Health and wellness. With increasing awareness, the health and wellness industry is experiencing a "healthy" boom that is shaping the ever-growing industry like never before. Leading the pack, the beauty and wellness industry in India is growing twice fast as markets in the U.S. and Europe. According to a KPMG report, India's beauty and wellness market is estimated at Rs 80,370 crore in 2018. {Editor's note: US$11.35 billion if we've done our math correctly.} The fitness industry is not far behind. According to the IHRSA Global Report 2018, the health club market in India is worth around Rs 6,343 crore in 2018 {Ed: about US$9 billion} because of rising awareness among people to remain fit, and rising disposable income.

Experts opine that the education sector in India is still largely unorganized and unexplored, with a huge scope for franchising in pre-school, coaching institutes, vocational institutes, and after-school brands. India has the world's largest population of about 500 million in the age bracket of 5 to 24 years, which provides a great opportunity in terms of a large addressable education market. In addition, the education sector in India remains a strategic priority of the government, which has allowed 100 percent FDI in the education sector through the automatic route since 2002. The education sector in India, estimated at US$91.7 billion in FY2017-18, is expected to reach US$101.1 billion in FY2018-19.

The franchise facilitator

While India presents numerous exciting opportunities for brands to expand and prosper, there are certain challenges that must be taken into account. The biggest challenge for franchising in India is that the government has not recognized it as a small-business facilitator. Unlike in the U.S., India does not have a comprehensive franchise law to regulate this sector. In fact, to comply with the legal requirements, the Indian franchise venture must follow several state and central government laws.

Understanding local culture, tastes, and "Indianization" of the products is yet another set of challenges faced by global brands entering the country. Further, expensive retail space in the country's large cities is another challenge restricting fast expansion of brands.

Despite these market impediments and constraints, most of the global brands have achieved success with effective market entry and expansion strategies, adapting their products and services to local market preferences. International market entry specialist FranGlobal, part of Asia's largest franchising solutions company Franchise India Holdings, is helping a majority of the international brands enter and expand in the Indian subcontinent and abroad. To date, FranGlobal has successfully partnered with brands like The Coffee Bean & Tea Leaf, Gloria Jean's Coffees, Carl's Jr., Subway, Fatburger, Doner & Gyros, Harrys of London, Chaiiwala UK, Mujosh, and many more in their launch, setup, and expansion in India and other countries.

Experts believe that despite the boom in franchising, India still has a large untapped potential and is set to grow even faster in the coming years.

Want to be a part of the Indian franchising industry? Franchise India 2019, Asia's biggest franchise and retail show scheduled for October 12-13, 2019 in New Delhi, is an event not to be missed to give wings to your entrepreneurial dreams. It's short notice, but perhaps you can make it next year!

India Franchising Fast Facts

  • Indian franchise industry is estimated at US$50.4 billion, a fourfold growth since 2013.
  • There are 4,600 franchisors in India(50 percent regional brands, 34 percent national brands, and 16 percent global brands).
  • India has nearly 200,000 franchise outlets operated by almost 170,000 franchisees.
  • Nearly 60 percent of franchise locations are in unit franchise format.
  • Approximately 1.5 million people are employed by franchised businesses in India.
  • Approximately 26 percent of franchise buyers are women.
  • Almost 35 percent of all franchise buyers are first-timers in business.
  • Postgraduates and graduates together make up 84 percent of franchise businesses.
  • The franchising sector contributes nearly 2 percent to the country's GDP and is forecasted to contribute 5 percent to India's Gross National Income by 2025.
  • The success rate in franchising is about 85 percent, compared with 90 percent of Indian startups that fail within 5 years.
  • The number of ultra-HNIs in India is expected to double to 330,400 with more than US$300 million worth of assets by 2022.

 Ashita Marya is the CEO of Franchise India Holdings Limited. Based in New Delhi, the company has offices throughout the country.

Published: September 26th, 2019

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