Collaborating For Growth Franchise

CONSUMER MARKETS
Collaborating
for Growth
Report on Franchising
Industry in India 2013
kpmg.com/in
Message
I am pleased that as a part of our services and activities for the benefit of members
and the Franchising Community at large we initiated a study of the Indian
Franchising Industry in partnership with KPMG in India about six months ago.
The result in the form of a 'Report on Indian Franchising Industry'- 2013 prepared
by KPMG in India is in your hands. As you will notice this is the first and the most
authentic study report on the Franchising Industry in India and KPMG in India have
done an excellent job of covering a lot of ground in term of the rapid progress
made by this Industry in India so far in the context of the International scene and
otherwise. The context of growth of the modern retail trade has been an
important driving force. The issues and challenges before this Industry including the
required Government support are well brought out. The Franchising Industry has
great potential going forward and is going to be a significant contributor to GDP
growth.
Franchising is clearly a rapidly growing model for business expansion in the retail
sector and is going to be an increasingly important part of the growing services
sector of the Indian economy in the years to come. Franchising has also got a huge
potential for job creation, direct and indirect, particularly for our young and educated
class besides of course providing immense entrepreneurial opportunities for young
and not so young people wanting to be their 'own boss
I hope this report will stimulate further and faster growth of the Franchising concept
and the related best practices to ensure healthy growth of the Franching Industry in
India.
Mr. CY Pal
President
Franchising Association of India
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Message
The World Franchise Council (WFC) is an association of 45 National Franchise

Associations, whose purpose is to encourage international understanding and
cooperation in the protection and promotion of franchising worldwide.
Communication between representatives of world franchise organisations helps
assist the members of each nations franchise association and in turn the
economies and wellbeing of the people involved in franchising at the local and
national level.
This independent analysis of the past, present and future of franchising in India
will assist in a clearer understanding of the opportunities to develop the franchise
business model, which can play a major role in the countrys economic
development, as well as the potential to become an agent of social change.
Franchising, with its multiplier effect in terms of enterprise creation and job
generation, has the power to produce the needed sustainable jobs that can
provide a better future for hundreds of millions of individuals all over the world.
With the evidence from more than 30,000 franchise systems generating at least
2,000,000 business enterprises worldwide, franchising is a proven business
strategy worldwide that can have immense positive impact on the Indian
economy.
We hope that this report prepared by KPMG in partnership with Franchising
Association of India, our only recognized member Association from India, will add
a lot of value and be of great help for healthy and faster growth of the
Franchising Industry in a large market like India.
Graham Billings
Executive Director
Franchise Association of New Zealand
World Franchise Council General Secretariat
Message
The International Franchise Association is excited to see this

research on Franchising in India and commends the
Franchising Association of India and KPMG on assembling the
data to tell the success story of franchising in India. U.S.
Franchisors count India as one of their growth markets. This
research will help educate the media, government officials and
the public about the potential of franchise business to spur
economic growth in India. The Franchising Association of
Indias partnership with the International Franchise Association
and the Institute of Certified Franchise Executives (CFE)
program further shows FAIs commitment to the growth of
franchising in India.
John Reynolds, CFE

President
IFA Educational Foundation
Foreword
According to KPMG India estimates, the franchising industry is expected to

quadruple between 2012 and 2017. There is scope for Franchising industry to
contribute almost 4% of India GDP in 2017 (assuming 6% Y-o-Y GDP growth
between 2012 and 2017), growing from a current estimated contribution of 1.4
percent of GDP. This is also expected to create job opportunities (including both
direct and indirect) for an additional 11 million people by 2017. While increasing
consumption, willingness to spend, growing preference for branded products,
global exposure and use of international brands is driving the demand side of
franchising, increasing set of opportunity-driven competent entrepreneurs,
growing awareness of Franchising as a business opportunity and its relative low
risk profile are driving the supply of new franchisee units.
Services sector which includes Consumer services such as Financial Services,
Courier Services, Health & Wellness and Food Service subsegments is expected
to contribute to majority of the growth in Franchising in the next half decade.
KPMG India estimates suggest that franchisees in these areas are expected to
form around 55 percent of total estimated Franchisees in 2017. Franchising in
Health & Wellness sub-segment is expected to grow to almost 6 times the
current penetration. Retail (which includes sectors such as Apparel, Jewelry,
Neighborhood stores, Food & Grocery) and Education are expected to be the
other major areas where there is huge scope for franchising to succeed.
Allowing Foreign Direct Investment (FDI) in single brand & multi-brand retail is
expected to generate interest among large international players to adopt the
franchising route to enter and expand in the country.
While certain operating models with-in franchising such as Area development
and Regional Master Franchisee - appear more attractive than others, diversity in
Indian consumer preferences and degree of localization are expected to impact
the choice of final model to be adopted.
Today, India does not have any franchising specific laws; however various generic
Indian laws such as Competition laws, Indian contract Act etc are applicable on
Franchising operations. Any future consolidation with formulation of franchise
specific regulations in this area should allow conducive growth of franchise
systems along with protection of franchisee rights. Success of franchising is also
dependent on role financial institutions can play in promoting franchising.
Changing dynamics in franchising industry would warrant a mindset change as
well. A collaborative approach involving Franchisees, Franchisors, Financial
institutions and industry associations is the need of the hour.
The analyses and point of view presented in the report have been validated
through extensive discussions with industry players. We take this opportunity to
thank the industry players for making this endeavor possible.
Ramesh Srinivas
Head, Consumer Markets
KPMG in India
Executive Summary
Franchising Market Potential

India, by witnessing huge demographic
transformation fuelled by the
consumption led growth, stands as an
attractive destination globally for the
franchising fraternity. Consumerism is
growing rapidly aided by high
population, increasing household
incomes over the last two decades.
Overall, the Indian economy has
witnessed a structural shift from an
agricultural based economy to a service
based economy.
branded products, global exposure

and use of international brands is
driving adoption of the franchising
route to growth. According to KPMG
in India estimates, the franchising
industry is expected to quadruple
between 2012 and 2017. There is
scope for the franchising industry to
contribute to almost 4 percent of
Indias GDP in 2017 (assuming 6
percent Y-o-Y GDP growth between
2012 and 2017), growing from a
current estimated contribution of 1.4
percent of GDP. This is also expected
to create job opportunities (including
both direct and indirect) for an
additional 11 million people by 2017.
Franchising as a concept has been

prevalent in India since a long time.
However, shifting consumer trends
including growing preference for
Estimated franchising industry

market potential (2012-2017)
Contribution of Franchising to GDP and Employment (2012)

12.0%
60
131 Australia
8.0%
210
168
6.0%
769 USA
Malaysia
8
4.0%
2.0%
0.0%
0.0%
India
78 Germany
13.4
20 UK
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Value (US$ billion)
50
Brazil
103
180
150
40
120
30
50.4
45
20
60
7.0%
People employed by franchising sector as a % of total workforce

Source: KPMG in India Analysis
Note: Bubble size represents size of franchising sector
in USD Bn in 2012 except for UK where the numbers are for 2011
10
90
No. of outlets ('000)
Franchise Sales/ GDP (%)
10.0%
30
13.4
0
2012
2017 (projected)
Both demand and supply side factors are expected to contribute to this growth.
Demand side factors
Supply side factors
Increasing consumption and willingness to spend

Increasing purchasing power of the middle class.
Growing preference for branded and quality products among
consumers
Increased global exposure and growing aspirations to adopt
western culture and use international brands.
Increasing set of opportunity-driven competent entrepreneurs

Increasing awareness of Franchising as a business
opportunity and its relative low risk profile
Government initiatives such as the liberalization of FDI in
retail which has allowed foreign brands to enter India.

Franchising Opportunity: Sector Overview

As per KPMG in India analysis, retail and consumer services
sectors are expected to emerge as high potential service
sectors within franchising to cater to the prevailing consumption
boom. Non-traditional segments such as food service, jewellery,
pre-schools etc. also present a huge opportunity for growth in
franchising.
Despite the challenges the country presents, there have been
many successful case studies of franchising in India. From

franchisors such as Aptech and NIIT which have pioneered
the franchising model in India to new age franchisors such
as Gitanjali and VLCC who are adopting innovative
expansion models within franchising, many
brands/companies are adopting the franchising model to
expand and provide a consistent and quality experience to
its end customers.
Estimated Sector wise Franchising growth in India (2012-2017)

Consumer Durables 2017
12
Apparel 2017
X%
Represents the CAGR growth from 2012 - 2017

Bubbles represent the Potential
number of outlets required by 2017
(This size corresponds to
approx 20,000 outlets)
10
Franchising Market Size (USD Billion)
8
7.6%
10.4%
6
Apparel 2012
F&B 2017
Consumer Services 2017
Health & Wellness 2017

Jewellery 2017
10%
2 2017
Food & Grocery
20%
17%
Food & Grocery 2012 Jewellery 2012
0
-10
0
10
20
Education 2017
6.5%
26%
Education 2012
F&B 2012
23.5%
30
40
50
60
70
80
Franchising Penetration
-2
Franchise Business Models

Firms that have created an easily replicable business model,
often choose franchising as their preferred route to expand their
operations and scale their brand. However, within the realm of
franchising, there are several franchising models that differ
significantly in terms of operation, control and legal scope.
Factor/Degree of Attractiveness
No-franchising
While certain operating models within franchising such as

area development and regional master franchisee - appear
more attractive than others, diversity in Indian consumer
preferences and degree of localization impact the choice of
the final model to be adopted.
Direct
Area
Regional Master
National Master
Resources For Operation

Time To Market
Profitability
Ease Of Contracting
Relationship Management
Control
Resources Deployed For Localisation
Overall Attractiveness
Low Attractiveness
Low-Medium Attractiveness
Medium Attractiveness
Medium - High Attractiveness
Very Attractive
Attractiveness of India in Global Franchising

Many international brands have already entered India and are
adopting the Franchise route to growth. Global brands such as
Dominos, KFC, Baskin Robbins have adopted variations of the
franchise models to grow in India. Many other international
brands are contemplating entry plans into India.
However, Indias growing but fragmented market can seem
chaotic and difficult to deal with. The international franchisors
consider the following factors as challenges while entering into
India:
?
Transparent Legislative framework: Due to no specific rules
or laws promulgated in India to address the functioning of

franchisors and franchisees, international players perceive a
higher risk to business continuity.
?
India is not one market: Entering a new market
becomes more complicated in case of India where

consumers hail from diverse cultural backgrounds.
Several cultures, languages and socio-economic
diversities make it a set of multiple markets. It
becomes a challenge for an international franchisor to
understand all diversified tastes and preferences, to
establish and expand business in India.
?
Bribe and corruption: International franchisors remain
threatened with the bribe and corruption cases in India.

Due to no legislation around anti-bribe in India, as in
the US; it not only discourages the expansion strategies
of many brands, but also impacts Indias credibility in
the international market.
Franchise Industry Survey Key Highlights

While the survey carried out by KPMG in India corroborated the
above key reasons for growth in franchising and operating
models, it also brought out certain key findings as mentioned
below:
?
Franchisors believe that they are providing adequate support
to their franchisees; however the latter are expecting more

support particularly in the post launch phase of operations.
Response to another related question in the survey
suggested that almost half of those interviewed were not
willing to take up additional franchisees with the existing
franchisors suggesting certain level of dissatisfaction.
?
While franchisors adopt franchising model for growth, many
entrepreneurs are opting for the franchising route as it
primarily offers a safe and relatively easy way of

establishing business and is expected to offer higher
than market levels of profitability. This trend
necessitates the need for franchisors to educate the
franchisees on potential profitability and investment
returns from the business. Sectors such as jewellery
where payback periods could range between a
minimum of four to five years are particularly vulnerable
to such mismatch in outlook.
?
Real estate rentals are posing a major challenge for the
success of franchising. Collaborative efforts between

franchisors and franchisees in structuring business
models that are sustainable even under such conditions
could address this concern.
Regulatory Scenario
While franchising sector in India, per se is not regulated, there
are multiple laws which have an impact on franchise operations.
Any future regulations in this area should allow conducive
growth of franchise systems along with protection of franchisee
rights. KPMG Indias comments on a few areas of regulations
have been highlighted in the table below:
Parameter
KPMG Comments
Specific franchising Law
Franchising focused rules & regulations are expected to send a positive message to both Indian and
global franchising community about the seriousness of Indian government in promoting franchising
as a mainstream sector that can contribute to overall GDP growth and employment generation.
Pre-contractual disclosure
norms
This will not only protect franchisee rights but also ensures that only serious
players consider franchising as a business model. This is expected to reduce overall risk to business
continuity.
Control on royalty
payments and franchisee
fees
Free market pricing should be encouraged while making sure that royalty and fee
payments lie within industry standards
Conflicts resolution
It is critical to have a transparent dispute resolution mechanism and an independent

body to address conflicts that may arise between a franchisor and franchisee
Intellectual property
protection
It is important to protect intellectual property rights of all the franchisors to

discourage counterfeiting brands.
Financing the Franchise Business

One of the key criteria of franchisors while selecting a
franchisee is investment capability and financial strength. This in
itself is an indicator of how difficult it is for a franchisee to tap
the debt route to investment. Most lenders do not treat
franchisees as a separate customer segment and usually cover
them under the ambit of the broader Small & Medium sized
Enterprise (SME) sector classification. This gets particularly
magnified in case of services franchising where there is an
absence of asset base on which a collateral can be taken to
provide a loan.
A comprehensive and collaborative mechanism is once

again needed to address this issue. While lending
institutions can offer innovative financial products to
franchisees, adequate support from the franchising
ecosystem including that of franchisors and industry
associations is necessary to make this a success.
Enhancing Funding Ecosystem in Franchising

Franchisor
Franchisee
Lending
Institutions
Franchising Industry
Associations
Provide increased support in

explaining the business
concept and business plan to
banks when franchisee is
availing loan
Needs to prepare a robust

business plan document
describing the business
concept, business viability,
risk mitigation strategy
Build and offer innovative

financial products suited to the
needs of franchisors
Could spearhead formation of

collective and mutual credit
guarantee consortia comprising of
franchisors, franchisees, lending
institutions and government
Should consider providing first

loss default guarantee to the
lending institutions to bear
losses up to a certain specified
limit, say the first 5-10% of
loss on a franchisee loan
portfolio.
Franchisees should insist on

a First Loss Default
Guarantee by the franchisor
as it would be affected
adversely right from the start
Should come forward to

support promising
entrepreneurs by offering
initial funding or by reducing
the franchising fee
Enhance their knowledge of

innovative business models
which are different from
traditional business models
and build policies and
processes to fund such
business ventures
Need to develop detailed
understanding of the franchise
intellectual property,
associated value and
underlying cash flow while
evaluating franchisee business
Provide greater reassurance to the

lending institutions by offering
services such as due-diligence of
the franchisee business plans
Increase awareness of innovative
asset-light business models
amongst lending institutions
Provide a common platform for the
interaction of franchisors,
franchisees and lending
institutions
Contents
Franchising - Pushing India Ahead
01
Current market landscape for franchising in India
05
Case studies in the Indian Franchising Space
15
International Franchising Scenario
27
Franchise Industry Survey
37
Franchising Regulatory Scenario
47
Business Models in Franchising
53
Employment potential in the Franchising Industry
61
Financing Franchising Business
63
Franchising Success: Role of the government
69
Conclusion
75
Appendix
79
Acknowledgement
83
01
Franchising Industry in India
Franchising
Pushing India ahead
02
Franchising
Pushing India ahead
International Scenario
With a potential to push the Indian
such as KFC, Dominos etc have
economy forward, franchising has
Franchising, though as a concept is
already set up franchisee outlets in
been playing a significant role in
western, is not limited to the
the country to tap this potential.
generating new employment (both
developed nations only. It has
Franchising accounts for almost 10-
in terms of numbers and job
spread its mark to developing
25 percent of the GDP of most of
quality), provide revenue options for
countries like India, Brazil, and China
the OECD (Organization for
the government in the form of
etc. Even the African nations, over
Economic Cooperation and
taxes, duties etc. Along with its
the last few decades have started
Development) countries.1
contribution to the country's gross
tasting the flavors of franchising.
domestic product (GDP), it has also
Nigeria is one such country which is
helped many national and
attracting a lot of attention in the
international brands to spread their
Franchising space given the huge
presence in the country.
consumer class. Foreign brands
Contribution of Franchising to GDP and Employment (2012)
A brief look at the chart indicates
12.0%
GDP and employment of various
10.0%
countries. While US stands

relatively high on generating
employment through the franchising
mode, Australia has been able to
generate significant income for the
Franchise Sales/ GDP (%)
the contribution franchising made to
131 Australia
8.0%
Brazil
103
6.0%
2.0%
country through the franchising
769 USA
Malaysia
8
4.0%
India
78 Germany
13.4
20 UK
0.0%
route. Close to 10% of Australian
0.0%
GDP is contributed by Franchising in
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
People employed by franchising sector as a % of total workforce
Australia.

Note: Bubble size represents size of franchising sector in USD Bn in 2012 except for UK where the numbers are for 2011
The following table illustrates the growth of franchising in a few countries

Country
Franchisors
in 2012
Growth in the
last 5 years
(CAGR)
Franchisee
Establishments
in 2012
Growth in the
last 5 years
(CAGR)
Franchisees /
Franchisor Ratio
(2012)
USA
~3500
n.a
~7,50,000
-0.6%
~213
Australia
~1200
~4.2%
~73,000
2.8%
~62
Brazil
2426
~15.2%
~100,000
9%
~41
UK
929
~2.8%
~40,000
2.1%
~43
China
5000
~7.4%
300,000-350,000
22.4%
~24
Malaysia
550
~5.5%
~13,000
7.6%
~69
Germany
960
~1.1%
~66,000
3.4%
~66
1 Report on Microfranchises as a Solution to World Poverty sourced from website http://marriottschool.byu.edu".

"http://www.smartbrief.com/03/06/13/growing-nigerian-middle-class-spurs-franchise-expansion"
02
03
Though US has seen a major
Franchisee to Franchisor Ratio
closure of establishments during
213
USA
2008-2011 when they decreased

from 7.74 Mn establishments in
Germany
69
2008 to 7.36 Mn establishments in

66
China
2011. However the country is seeing

a reversal of the trend and has
62
Australia
grown by 1.5% in 2012 and

43
UK
expected to grow by 1.4% in 2013.2
41
Brazil
Brazil and China have seen relatively

higher growth both in new brands
Malaysia
24
resorting to franchising as a
0.0
business model for expansion as
100.0
150.0
Franchisee / Franchisor Ratio
50.0
200.0
250.0
well as new franchisees.

US leads other countries when it
relative maturity of the concept and
every franchisee also enables
comes to number of Franchisees for
widespread acceptability of
company to leverage economies of
every Franchisor (Brand) operating in
franchising as a business model. A
scale and scope.
the country. This suggests the
higher number of franchisees for
United States of America

Employment through Franchising
Franchising Growth In USA
Sales (in $ Billion)
850
0.1
800
4.9%
4.9%
750
3.7%
3.1%
700
2008
2009
-0.05
2010
Sales ( in $ Billion)
2011
0.50%
8.10
7.80
2012
-0.26%
7.50
2013
1.93%
2.00%
2007
Franchising Growth (Y-O-Y)
GDP Growth Rate (Y-O-Y)
2008
2009
0.02
0
-2.86%
7.65
-1.8%
0.04
2.14%
8.25
7.95
-3.2%
2007
4.3% 0.05
3.8% 3.5%
2.2%
650
600
4.9%
8.40
-0.02
2010
2011
2012
2013
-0.04
Direct Employment by Franchising Sector

Franchise Employment Growth Rate
Source: The Franchise Business Economic Outlook report:2012 prepared by IHS Global Insight for The International Franchise Association Educational Foundation
USA Leader in the world of franchising with around 84 of the top 100 franchised brands globally, has
seen a continuous growth as is evident in the following figure. Except for the recession years of 2008
- 09, franchising growth has exceeded the GDP growth rate. Employment generated by the
franchising sector also has been growing over the last 4 years in the US suggesting the immense
potential for the sector to contribute to job creation.
Source: http://www.tradingeconomics.com/unitedstates/gdp,
Report on The Franchise Business Economic Outlook:2012 by International Franchise Association
2 "The Franchise Business

Economic Outlook: 2012 prepared by IHS Global Insight" and "http://www.franchise.org/Franchise-News-Detail.aspx?id=58916"
Brazil
Employment in the Franchising sector
120
100
80
60
40
20
-
13.2% 11.0% 15.6%

3.2%
2005
4.0%
2006
5.7%
2007
19.5%
5.1%
2008
20.4%
17%
14.7%
7.5%
2009
2010
16.2%
2.7%
-0.3%
2011
1.00
30.0%
0.9%
2012
20.0%
10.0%
in million
Franchising Growth in Brazil
0.0%
0.80
0.59
0.65
0.72
0.84
0.94
0.40
0.20
-
-10.o%
0.56
0.60 0.53
0.77
0.063 0.065 0.072 0.080 0.086 0.093 0.1
0.061
2005 2006 2007 2008 2009 2010

Brazillian GDP Growth Rate (Y-O-Y)
2011 2012
Direct Employment by Franchising Sector (in million)

Number of unit franchises (franchisees) (in million)
Source: Brazilian Franchise Association
Source: Brazilian Franchise Association
Brazil has seen a tremendous growth in franchising over the last decade with a CAGR of around 16%
from 2005 to 2012. The total turnover of the franchising sector in 2012 stood at $103 Billion, which is
around 4.16% of the Brazilian GDP in 2012 ($2476 Billion). The double digit growth of franchising far
exceeds the GDP growth rate as can be seen in the figure which is a proof of popularity and
acceptance of franchising in this country.
Source: http://www.tradingeconomics.com/brazil/gdp
United Kingdom
Employment in the Franchising sector
Franchising Growth in UK
in $ Billion
20.0
15.7
16.4
17.9
15.0
18.9
20.4
0.0%
17.3
-10.0%
5.0
-20.0%
-30.0%
2006
2007
2008
Franchise Sales (in $ Billion)
2009
2010
6.00
10.0%
10.0
2005
7.00
20.0%
2011
GDP Growth Rate (Y-O-Y)
5.00
In Lakhs
18.9
25.0
4.00
3.65
4.31
4.80
4.67
5.94
5.21
4.65
3.00
2.00
1.00
-
0.33
0.34
2005
2006
0.36
2007
0.366
2008
0.365
0.386
2009
2010
0.4
2011
Number of unit franchises (franchisees)

Total Employment by Franchising Sector
Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)
Franchise sales in the United Kingdom have seen a continuous rise over the last couple of years.
According to the British Franchise Association, the total sales from the franchising sector stood at
$20.4 Billion in 2011, up from around USD 19 Billion in 2010. The growth of the UK's franchising
sector, except in 2005 and 2008, exceeds the country's GDP growth rate. With a growth rate of
around 8% in 2011, franchising has helped the country increase revenue for the government as well
as creates more jobs for the public. With an employment potential of close to 6 lakhsin 2011, this
sector holds a lot of promise for the UK economy.
Source: http://www.thebfa.org/about-franchising/franchising-industry-research (Website of British Franchise Association)"
As corroborated by the above analysis, there is a large scope for franchising to

contribute to India's economic growth while generating employment (both direct and
indirect). Franchising as a business model also allows efficient flow of capital from the
unorganized segment into organized business. Such a model is well suited for an
emerging economy like India where there is wide spread distribution of capital.
04
05
Current market
landscape for
franchising in India
Current market landscape

for franchising in India
Since liberalization, the Indian
Consequently, retail and service
Today India is home to more than
economy has witnessed steady
sectors are expected to play a major
3000 brands which adopt the
evolution. Consumerism has risen
role in this consumption boom. The
franchising model. Bata, one of the
on account of a growing young
macro statistics reveal that
leading footwear companies, was
population, high disposable income
agriculture is no longer the chief
among the first franchisors in India.
and growing urbanization.
contributor to the Indian economy.
Other pioneers of Indian franchising
Structural shift in
Indian economy
42%
59%
24%
27%
44%
17%
1991? 92
Agriculture
2012? 13
Industry
Services
Source: Centre for Monitoring Indian Economy (CMIE),

Ministry of Statistics and Programming
Implementation (MOSPI)
The country is gradually moving
were NIIT, Apollo Hospitals and
towards being a manufacturing and
Titan Watches. In addition, today
service-based economy in last the
several leading global franchise
two decades.
companies, such as Dominos,
This growth has also given impetus
McDonald's, Yum Brands, Baskin
to a huge entrepreneurial appetite.
Robbins and Subway, have already
Over the last decade, franchising
established a presence in India. The
has surfaced as one of the most
franchise industry is expected to
prolific and feasible ways of
continue to benefit greatly from
expanding businesses in India.
government support across various
Several industry verticals such as
sectors through various measures
food and beverage, education,
including allowing foreign direct
fashion, tourism and hospitality are
investments (FDI) in single brand
leveraging their growth by
and multi-brand retail.
franchising their products under

various formats.
Understanding franchising
Trade name franchising, where
Franchising is perhaps the most
period, with or without assured
widely used way of business
financial returns to the franchisor.
the franchisee uses the trademark
expansion method adopted by both
The Black's Law Dictionary defines
/ business name of the franchisor
international and domestic players.
a franchise as a license from the
in order to sell its own products or
While Indian law does not officially
owner of a trademark or trade name
services
define franchising, the term
permitting another to sell a product
indicates a way of doing business
or service under that name or
Business format franchising, a
involving the use of a person
mark.
combination of the other two
('franchisee'), pursuant to a license,
There are three distinct types of
types of franchising, using the
of another person's ('franchisor')
franchising:
franchisor's trademark/ business
business model, name, image and

business identity along with his/her
name in order to distribute the

Product distribution franchising,
confidential know-how to exploit
involving a co-operation for the
his/her intangible assets in a
distribution of goods, mostly in
particular territory for a specified
the retail business
franchisor's goods or services.
06
07
The economic significance of Franchising market in India

Franchising contributes to the
2008, as risk-averse Indian
economic growth of a nation in
entrepreneurs consider it as the
multiple ways such as job creation,
most viable option to tap the
access to necessary goods and
nation's vast consumer market.
services and expansion of a

country's tax base. The concept of
KPMG in India estimates suggest
franchising in India has been
that the Franchising business in
growing at an impressive rate since
India was worth USD 13.4 billion in
2012 and is expected to witness

CAGR of 30 percent over the next 5
years. This amounts to about 1.4
percent of the country's GDP in
2012.
Estimated franchising industry

market potential (2012-2017)
60
210
168
180
150
40
120
30
50.4
45
20
10
90
60
No. of outlets ('000)
Value (US$ billion)
50
Franchise revenues growth - 30.2%

No. of franchise outlets growth - 30%
30
13.4
0
2012
2017 (projected)
Source: KPMG India Analysis

Key assumption: KPMG in India has considered the sectors
of Retail, Food Service, Health & Wellness, Education,
Consumer Services and other niche areas while estimating
the franchising potential in India.
KPMG in India expects both demand and supply side factors to contribute to this growth.
Demand side factors
Supply side factors
Increasing consumption and willingness to spend
Increasing set of opportunity-driven competent entrepreneurs
Increasing purchasing power of the middle class.
Increasing awareness of Franchising as a business

opportunity and its relative low risk profile
Growing preference for branded and quality products among

consumers
Government initiatives such as the liberalization of FDI in

retail which has allowed foreign brands to enter India
Increased global exposure and growing aspirations to adopt

western culture and use international brands.
No. of outlets
Franchise: Sector watch

The franchise business in India is
increasingly getting popular among
domestic and international players
across various sectors. Several
major industries credit successful
franchisees for their rapid progress.
The key industries that possess high
prospects for the successful
franchise opportunities in India are
following:
Retail franchising
Food and beverages
Health, beauty and wellness
Consumer services
Education and training
The individual growth and potential
of these industries are driving the
growth of the overall franchise
sector in India.
Education and training: Owing to

demographics, education is one of
the most sought-after sectors by
franchisors. The formal education
sector includes preschools, K-12,
Higher Education, and vocational
services. Within education,
following are the attractive subsectors that have a potential for
expansion through franchising:
a. Vocational training: As per the
Planning Commission, in 2011, only
about 2 percent of the existing
workforce in India was skilled. The
corresponding numbers for Korea,
Germany and Japan are 96 percent,
75 percent, and 80 percent,
respectively. Another report by the
same agency states that India
needs to create 10-15 million jobs
per year over the next decade to
provide gainful employment to
Indian youth. By 2020, India needs
to create employment for about 140
million skilled workers.
Confederation of Indian Industry
(CII) also has launched a Skills
Development Initiative, which is
aligned, to the National Skills
Development Agenda to skill 500
million people by 2022.Therefore,
there is a huge scope of growth in
4
5
6
2012
2017
(Estimated) (Projected)
US $51
billion
US $13.4
billion
Food & beverages
Food & beverages

Health & Wellness
32%
23%
13%
Consumer Services
(others)
2%
3%
4%
Education
Apparel
5%
1%
3%
3%
4%
Furniture & fittings

Retail (others)
5%
2012
~19,000
~8,600
~26,300
~1,000
~3,800
3%
6%
Services (others)
Education
~8,100
~29,500
8%
Apparel
~2,800
~6,200
Pharmacy
~3,000
~15,000
Jewelry
~1,500
~8,300
Food and
~330
~1,600
6%
Food and grocery retail
~5,200
Consumer
25%
Jewelry
~17,700
Financial services
Courier services
21%
Pharmacy
~27,000
11%
Financial services
Courier services
~5,700
Health & Wellness ~2,750
1%
3%
4%
grocery retail
Furniture & fittings ~1,250
~2,700
6%
Retail (others)
~4,400
~11,200
9%
TOTAL
~45,000
~168,000
2017 (Projected)
the sector and hence investments in

franchising in vocational education.
IT training (vocational programs)
constitutes the largest size of the
education industry through
franchising. The total franchise
revenues from this segment in 2017
are expected to become 2.5 times
of that in 2012. KPMG estimates a
franchising potential of 8,500
outlets by 2017 in this segment
Pre-schools: India has large
population of about 158.8 million
children in the age group of 06
years (~5 million since 2001).4
Currently, existing pre-school
franchise businesses cater to only
about one tenth of the total children
in this range.5 The segment has high
potential for franchising
opportunities in tier 2 and 3 cities,
which lack quality education
services and facilities.
Our estimates suggest that
revenues from franchisee preschools are expected to reach
almost USD 94 million from a
current value of USD 16 million. It is
estimated that a total of 21000
franchisee establishments may be
required by 2017 to meet
the growing demand for pre-schools
Source: KPMG India Estimates
in the country from a current base

of around 5000 (2012).
2017Franchise
projections
Revenues
in US$
million
No. of
outlets
Pre-schools
94
21000
IT training
(Vocational
education)
2700
8500
Others*
86
NA
*Note: Others include the segments such as trainings in

multi-media and animation Source: KPMG estimates
Franchise revenues and

outlets growth projections
~4X
growth
US $ 710
Million
US $ 2900
Million
26%
71%
9%
89%
2012
Pre-school
Others
2017 (Projected)
IT Training
(Vocational education)
Food service sector: The food

service industry in India is estimated
to be worth USD 48 billion in 2012,
and expected to grow at 13 percent
CAGR over the next 5 years.6
Major highlights of the Census 2011, The Economic Times, accessed on 23rd April, 2013
http://www.smallenterpriseindia.com/index.php?option=com_content&view=article&id=1030:potential-sectors-for-franchising-in-2013&catid=79:top-stories&Itemid=112, accessed on 23 April, 2013
KPMG Estimates
08
09
Franchising in new concepts

such as Quick service
restaurants (QSR), Caf/bars and
fine & casual dine is expected to
see a rapid jump. Our estimates
suggest an opportunity to the
tune of USD 1.5 billion, USD 1.4
billion and USD 1.2 billion for
franchising by 2017, in each of
the three segments respectively.
Growth projections of the franchise penetration in key segments of the food service industry over 2012-17
Food & Beverages Sub-categories
Share in
Food service
franchising
revenues (2012)
Estimated additional
revenues from
Franchising during
2012-17 (USD million)
Share in Food
service franchising
outlets (2012)
Estimated potential
additional outlets during
2012-17 (Nos.)
Quick service restaurants
37%
~ 1,290
24%
~ 4,800
Fine and casual dining
35%
~1,140
13%
~2,700
Caf/Bars, Pubs
25%
~1,000
52%
~11,000
Confectionary
2%
~100
3%
~600
Kiosks / Street stalls
1%
~170
8%
~2,200
~USD 4.4 billion
5700
~27000
Total
USD 731 million
Source: KPMG India Estimates
Health, beauty and wellness

sector: The market size of the
overall beauty and wellness industry
in India (organized and unorganized
put together) is estimated to be
USD 4.5 billion in 2012. It is
expected to grow at nearly 20-25
percent annually. The key industry
segments include Salons (60
percent of total market), Fitness and
Slimming (25 percent) and Spa
(includes alternate therapy with 16
percent industry share).
The key drivers behind this
exponential growth include more
awareness toward hygeine and
saloons. However, the same is
wholesome lifestyle coupled with a
expected to change given the
surge in retail business in India.
expanding base and inclusion of
The sector is going mainstream
innovative wellness themes such as
through franchised based business
stress conditioning spas and
models. Since the sector requires
specialized segments such as Tai
high capital investment for growth,
Chi and power yoga. Consultation,
players in this segment are
diagnostic services, health
increasingly relying on franchising to
checkups and pharmacy are also
scale up businesses and extend
some high potential and profitable
reach to Tier 2 and 3 cities.
franchise options in the healthcare

sector.
The sector is largely unorganized;

the organized share is primarily
limited to grooming spas and
Our estimates suggest that franchising is expected to grow by almost 6 to 7 times the current value by year 2017
both in value and volume terms. Franchising in this sector is expected to contribute around USD 3.2 billion in
revenues by 2017 coming from about 17000 franchisee units.
Retail sector: The retail industry
billion) may be required by 2017 to
landscape in India is changing
meet the growing demand in the
rapidly on the back of factors such
retail sector from a current base of
as favorable demographic profile,
13000 (valued at USD 10.6 billion).
rising disposable income levels and

the industry appetite to cater to this
emerging consumption boom. The
organized retail (including Food &
Grocery) is estimated to be USD 24
billion in 2012, largely concentrated
Indian retail scenario 2017 (projected)

US $ 926 billion
by retail franchisors in the Apparel,

Consumer Durables and Food
Indian retail scenario 2012
US $445 billion
Groceries space with around 80

percent share. However, India drives
Organized retail
US $24 billion
only about 2.5 percent of total retail

sales (organized and unorganized)
Franchise retail market

US $10.6 billion
through franchise formats, as
Organized retail
US $ 79 billion
Franchise retail market

US $36 billion
against nearly 50 percent in the US,

indicating huge potential for the
Indian retail industry
market in future. KPMG estimates

that over 43000 franchisee
establishments (valued at USD 36
Projected state of retail franchise industry in India in 2017
Apparel
US $10.5 billion,
~6,200
ure s
nit ing ,
Fur nish llion
ur bi
& f $5,3 00
7
US ~2,
Jewelry
grocery
Boo
Food & billion, US $2.9
k
,
.6
Sta s, Mus
billion,
les US $1 600
tion ic
b
a
1
~
r
U
~8,200
S $ ery
Du s
er onic
mil 578
m
l
r
e
u
l
~4, ion,
ns ect bi on,
000
Co El Mo billi
& 11 0
$ ,30
US ~7
Projected franchise
penetration in Indian
retail industry 2017
Figures indicate franchising revenues and franchisee outlets respectively

Pharmacy
US $4 billion,~15,000
Recent FDI reforms in single brand and multibrand retail are likely to lure more global
retailers to participate in India. Existing retail
majors are under pressure to consolidate and
increase their franchise network reach.
Meanwhile, several multinationals such as
IKEA, Wal-Mart are looking to establish their
brands in India. Franchising is expected to
continue to be one of the most popular
business formats among organized retailers to
tap the emerging consumption boom,
specifically in the tier 2, tier 3 and smaller
cities.
However recent clarifications issued by the
Indian government on FDI regulations in multibrand retail allowing foreign retailers to only
open company owned company operated
outlets could be a big blow to growth in Retail
franchising in India.
10
11
Consumer services: The Consumer

services industry basically deals
with customer-centric services,
which means understanding new
consumer trends and requirements;
and generating products and
services accordingly. Innovation
remains the key to service the
industry for the franchisors;
however relatively lower
investments and moderate domain
knowledge suffice the business
need.
KPMG in India estimates that a total
of around 50,000 franchisee
establishments (contributing USD
~4 billion) may be required by 2017
to meet the growing demand in the

services sector. Currently it is
estimated that franchising in
services sector contributes to
almost USD 1 billion of revenues
from around 15,000 outlets.
With rapid growth in consumerism
in India and growing brand
awareness among customers, the
consumer services sector is poised
to leap in the future. The key
consumer services in India include
travel services, financial services,
cleaning, and real-estate and
transaction services. These
segments give immense franchise
Services industry state in India
US$ million
Matrimony
4500
Travel
3000
36%
CAGR
1500
0
3922
Courier
834
2012
2017 (projected)
Innovation driven consumer

services companies/ brands are also
resorting to Franchising as the route
to growth.
Franchise penetration in the key service sectors

Dry cleaning
6000
opportunities for new and existing

players. Need for closer presence to
end customer is driving brands/
companies to open new outlets in
multiple locations/ catchment
regions. Franchising is seen as a
viable way to expand without
compromising on service standards
and quality. Customers can expect
similar service levels at any outlet.
Financial
Services
Organized market - ~12%

Franchise penetration in organized market - ~20%
34
2
2017 (projected)
185
25
2012
140
55
1,572
365
1,991
387
Industry size in US$ billion
Following are the few case studies highlighting 'innovation' as one of the key success factors
in franchising in the consumer services sector in India:
Segments
'Innovation' is the key
Franchise spread till 2012
Car cleaning and

grooming segment
3M Car Care recently launched 'germi-clean

treatment in metros, for the car owners who
generally eat and spend most of their time inside
their cars. This treatment ensures 99 percent
decline in the microbial and bacterial growth on
the mats or the upholstery of their cars.
3M operates seventeen franchisees of

its car-care centers in India.
Laundry services
Village Laundry Services (VLS) operates under the

trade name 'Chamak' and offers affordable and
high quality washing, drying, and ironing
services. VLS has got funding from Procter &
Gamble and Calvert (a US-based fund). Both
these companies aim to build a completely newservice concept (high-quality, affordable,
Laundromats) and to help low-income individuals
get sustainable livelihoods.
The company operates through 20

franchise stores in southern India.
Source: Source: http://www.dnaindia.com/money/1748194/report-bright-as-a-new-car, accessed on 28 May 2013; http://articles.economictimes.indiatimes.com/2009-12-11/news/27652895_1_

vls-washing-clothes-clayton-christensen, accessed on 28 May 2013.
Other niche sectors: The franchise
KPMG in India estimates a steady
industry in India is growing rapidly in
growth in the franchise penetration
multiple sectors. Despite strong
in aforesaid sectors.
penetration in the retail, food
Overall, the franchising industry in
service, healthcare, education and
India is expected to witness an
services sectors, franchise
above average growth rate over
operations have gained momentum
2012?17 across sectors. The growth
in some niche sectors.
would be fuelled by rising income
Entertainment, agriculture, real-
and expenditure levels of the young
estate, telecom, gaming, media,
population along with the recent FDI
entertainment and personalized
policy changes, economic and
services such as home cleaning are
socio-cultural developments.
among emerging niche sectors.
12
13
Franchising Opportunity
Attractiveness
While there is huge potential for
from 2 to 3 years, there is a higher
franchising to grow in the Retail,
degree of risk of failure. This
Consumer Services and Education
predominantly stems from the fact
space in India, Food Service sector
that these sectors are driven by
and Health & Wellness sectors
experience of end consumer and
present a great opportunity from a
any gaps in providing the expected
profitability perspective. While
level of experience could result in
payback periods for successful
loss of customer.
franchisees in these sectors range
Investment VS ROI / sq ft - Volume based plot

100
Jewellery
Fitness and
Slimming
90
80
FSR
Investment (in INR lakhs)
70
Cafe/Bar
60
50
Spa
Furniture and Furnishing
Salon
40
Pre-schools
30
20
QSR
Consumer Durables,
Food & Grocery
Pharmacy
IT Training
Apparel
Books, Music and Stationery
10
Travel Services
Financial Services
(500)
500
-10
1000
1500
2000
2500
ROI / sq ft (in INR)
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013, India Retail Report 2013,
Euromonitor Reports, Netscribes Report, Published Newspaper Articles, KPMG in India analysis

While market potential is huge in the retail sector, KPMG in India

estimates that franchising opportunity would be relatively high in
Consumer Services, Food Service, Education and Health &
Wellness sectors. Cumulatively these sectors have a potential to
add 1 lac franchisees in the next 5 years.
Franchising growth from 2012 - 2017 (e)

X%
12
Represents the CAGR growth from 2012 - 2017
Apparel 2017

10
8
Franchisee Market Size (US $ billion)
7.6%
10.4%
6
Apparel 2012
F&B 2017

Jewellery 2017
10%
Education 2017
6.5%
2 2017
Food & Grocery
20%
17%
Food & Grocery 2012 Jewellery 2012
0
-10
0
10
20
26%
Education 2012
F&B 2012
23.5%
30
40
50
60
70
80
Franchisee Penetration (%)

-2
ROI / sq. ft. VS Average sq. ft.

1900.00
Travel Services
Avg sq ft
1800.00
1700.00
Apparel
1600.00
FSR
Cafe/Bar
Furniture
and Furnishing
Food and
Grocery
Spa
IT Training
QSR
Salon
1500.00
Consumer Durables
Fitness and Slimming

Bubbles size represent
revenue per sq. ft.
INR 8,000 per sq. ft.)
1400.00
(500)
1300.00 -
500
1000
1500
2000
2500
ROI / sq ft (in INR)

However market potential in absolute terms is highest for sectors with-in retail. Revenue per
square feet of area in this sector could range anywhere between INR 20000 to INR 50000.
14
15
Case studies in the

Indian franchising space
Case studies in the

Indian franchising space
Despite the challenges the country
presents, there have been many
successful case studies of
franchising in India. From
franchisors such as Aptech and NIIT
which have pioneered the
franchising model in India to new
age franchisors such as

Makemytrip.com and VLCC who are
adopting innovating expansion
models with-in franchising, majority
of the brands/ companies are
adopting the franchising model to
expand and provide a consistent and
quality experience to its end

customers. Many international
brands such as McDonald's,
Dominos, KFC, Subway, Booster
Juice have entered the country
through the franchising route.
16
17
Siyarams
Siyarams performance
Siyaram Silk Mills (Siyaram)
Start of operations
Apparel retail
1000
925
856
2006 (franchise)
800
Key brands
Siyaram's, J. Hampstead,
Mistair, MSD and Oxemberg
Franchise units
120 (as of May 2013)
Presence across cities
Turnover (INR million)
9251
Net profit (INR million)
567
796
648
(INR 10 million)
Area of operations
590
600
400
200
0
FY8
FY9
FY10
FY11
Sales Turnover
FY12
Source:Moneycontrol.com
Key investment considerations
Siyaram has signed 27 franchise

agreements from April-May 2013.
It aims to sign 90 such agreements
until FY14.
Siyaram seeks to increase its

franchise outlets to 500 by FY17 and
sales from franchise outlets to 20 percent
(from 10 percent in 2012).
Area requirements
800 - 1,000 square feet
Investment
INR 2.5 - 2.8 million
Break-even period
2 - 3 years
Expected ROI
15 - 16 percent
Other requirements
Stores should be in high streets

or popular shopping destination.
Agreement validity
5 years
Tailoring success for franchisees
Accelerated growth
in smaller cities
Leveraging local
expertise
Siyaram has extensive presence in

larger cities and is actively
targeting smaller cities for
expansion. It has plans to reach all
Tier II and III cities. Franchising
model presents Siyaram with a
low cost avenue to expand
presence across India, especially
beyond metros.
The apparel business requires

extensive knowledge of local
tastes and preferences, which
vary widely across India. The
franchise model has helped
Siyaram leverage local expertise
that franchisees would bring to
the table.
Siyarams strong brand awareness

and connect with consumers act as
key enablers of growth.
Therefore, franchisees must have

a good understanding of local
tastes and preferences.
360 degree support

to franchisees
Prior experience in the textile
industry is not a must for
becoming a franchisee, as the
company helps franchisees in
setting up operations.
Siyaram supports franchisees in
various areas, including
marketing, advertising, software,
store layout, inventory
management and billing.
It also assists franchisees by
providing soft loans.
Source: Moneycontrol website, Siyaram website, The Economic Times, KPMG Analysis
Lakme Salon
Lakmes performance
Lakme Salon (Lakme)
Area of operations
Beauty and wellness
Start of operations
2000 (franchise)
Key brands
Lakme Salon, Lakme Ivana
No of outlets
135
40
307 (FY11)
How lakme grooms franchisees for success

Association with
industry experts
Association with industry experts is important to stay abreast
with latest trends. Lakmes association with experts such as
Paul Mitchell and Lucie Doughty has helped it train stylists and
introduce global trends across franchisee centers.
Ensuring customer
loyalty
Lakmes loyalty programs ensure repeat walk-ins, which
accounts for about 80 percent of customers.
Training and support
175 - Salons
2013
12 - Salons
2000
Lakme realizes that the success of a salon largely depends on

the staffs skills. Therefore, to train its stylists, Lakme has
launched a beauty academy. Lakme has also tied-up with the
beauty training company Pivot Point.
An initiation training is conducted before a franchisee starts
operations. Refresher training are carried out throughout the
year to keep the staff updated.
Source: Images retail, Lakme website
Lakme is expanding through the franchising route and

135 out of its 175 salons are operated by franchisees.
Thirty percent of the total franchisees own multiple

salons. This reflects their brand loyalty to Lakme.
Hindustan Unilever proactively ties up with unbranded
players (with a minimum scale of operations) instead
of setting up operations from scratch (in addition to
the normal franchise route).
Area requirements
800 - 1,200 square feet
Investment
INR3 - 5 million
Break-even period
2.5 - 3 years
Expected ROI
More than 18 percent
Other requirements
Lakme seeks partners who are

interested in the business, have
a proven business track record
and are committed to local
marketing.
Agreement validity
5 years
Apart from training, Lakme also extends managerial support

to franchisees. It also helps them select sites, negotiate
rents, understand standard operating procedures and design
salons.
International product portfolio
and range of services
Lakme is an established brand and a leading player in the
beauty industry. This drives demand for Lakme products and
services among consumers and strengthens its premium
positioning.
A constantly evolving service portfolio to suit consumer needs is
a key USP of Lakme salons. The portfolio includes advanced facial
services, new bridal looks, hair spas and other luxury treatments.
Lakme has also launched its unisex salon format - Lakme Ivana
that provides greater investment options to franchisees.
Source: Images Retail (October 2012 edition), Hindu Business Line, Lakme Salon website, Reevolv Research Report (Financials), KPMG Analysis
18
19
VLCC
VLCCs performance
How VLCC shapes success amongst franchisees
VLCC
Training and support
Area of operations
Beauty and wellness
Start of operations
2007 (franchise)
Key brands
VLCC Salon (VS),

VLCC Centre (VC)
No of outlets
56 (as of August 2012)
4760 (FY12)
260 (FY12)
VLCC provides free startup training to franchisee staff in

areas such as products, services, operations and client
handling.
VLCC also supports them in other areas such as selecting
sites, developing projects, recruiting staff, launching centers,
procuring equipment and marketing.
VLCC maintains a stringent system of quality control through
its team of dieticians, beauticians and operations experts,
who visit franchisee centers regularly to conduct checks and
audits.
500
Area requirements
1,700 - 1,800 square feet (VC)

900 - 1,000 square feet (VS)
Investment
INR4.1 - 4.4 million (VC)

900 - 1,000 square feet (VS)
Break-even period
16 - 18 months (VS)
Royalty
14 percent of sales
(payable monthly)
Expected ROI
40 percent in the initial 4 - 5

years, improves thereon
(INR 10 million)
400
300
200
100
0
FY11
FY12
Streamlined franchisee
approval process
Sales Turnover
Source: ICRA
Filling out application forms

Quick expansion of network is a key reason
for adoption of franchising route by VLCC.
Reviewing application forms

Reviewing financial capability
As of August 2012, 25 percent of VLCCs 160 slimming, beauty

and fitness centers were franchisee run.
VLCC plans to setup 300 wellness centers by 2015.
Interviewing franchisees
Understanding their conviction and business
The selection procedure is quite streamlined and plays an important role in
the selection of franchisees. It involves gauging franchisees understanding of
As of August 2012, 12 out of 51 VLCC Beauty

and Nutrition Institutes were operated by franchisees.
the business and their conviction to ensure that VLCCs brand value is maintained.
Approving franchisees
Signing agreements
VLCC is present in countries such as UAE, Nepal,

Sri Lanka and Bangladesh. It is exploring new franchise
opportunities in Pakistan, Sri Lanka and Bangladesh.
Awarding licenses
Source: Company website
Source: Images Retail (October 2012 edition), Hindu Business Line, ICRA (Financials), VLCC website, KPMG Analysis
Aptech
Aptechs performance
Aptech
Area of operations
Computer education
Start of operations
1990 (franchise)
Key brands
Arena Animation, Aptech

Hardware and Network
Academy, Aptech Aviation
and Hospitality Academy
1186
909.5 (FY12)
182 (FY12)
94.15
(INR 10 million)
90.95
FY12
Operating Profit
Aptech started operations in 1986 but its first franchisee

center opened in 1990.
It has also established mechanisms to control and monitor

franchisees. These include conducting financial audits, closely
controlling course material and training instructors regularly.
Aptech imparts professional training through a range of

brands such as Aptech Computer Education and Arena
Animation. It provides several options to prospective
franchisees to choose from, depending on local demands,
investment potential and partners interests.
0
FY11
To ensure quality service delivery, Aptech put the processes

and systems for service delivery were in place before adopting
the franchising model.
Flexibility to choose from

among a wide range of brands
50
Sales Turnover
Formalizing systems
to support scalability
Aptech centers serve as models for franchise centers and

help them adopt established processes.
No of outlets
100
Why Aptech clicks with partners
Reported Net Profit
This has been a critical factor for Aptechs growth within

India as well as in 40 countries.
Source: Moneycontrol.com
Aptechs fast expanding franchisee network

has helped it establish the brand in five continents.
It is one of the few franchisers that has over 20 years of
experience of starting and operating more than 1,100
franchise centers globally, growing from 754 centers in
April 2010.
Area requirements
1200 - 2000 square feet
Investment
INR1.5 - 2.2 million depending

on city tier
ROI
18 - 23 percent
Break-even period
12 - 18 months
Other requirements
Management of day to day

operations and marketing
Aptech courses in city.
Country
Model
Vietnam
Master franchisee
Nepal
Master franchisee and individual center
Indonesia
Master franchisee
China
Joint venture
Sudan
Master franchisee
Bangladesh
Subsidiary
Aptech updates courses and trains instructors regularly to

meet the requirements of the dynamic IT industry.
Concerted efforts to get

the business running
Franchisees are supported in many areas including formulating
business plans, selecting sites, designing centers, selecting
equipment and staff sand imparting technical training.
Strong selection process
For a competent and consistent service delivery, Aptech follows
a strict recruitment process that requires franchisees to adhere
to about 40 parameters, including investment potential, area,
location and passion for education.
Different business models

for global expansion
Due to various legal and regulatory issues in different countries,
Aptech has adapted its existing franchise model (where all
centers are independently owned) to expand abroad through:
Master franchise model where all centers are owned by Aptech
Joint ventures and wholly owned subsidiaries
Source: Moneycontrol website, Aptech website, Building social capital with Aptechs Vidya (USAID publication), KPMG Analysis
20
21
Makemytrip.com
Makemytrips performance
Makemytrip.com (MMT)
Start of operations
2009 (franchise)
Key brands
Makemytrip.com
No of outlets
51 (2012)
196.6 (FY12)
8.9 (FY12)
500000
20000
000 US $
Online travel portal
000 US $
Segment
FY 11
FY 12
The number of franchise outlets have

grown from 0 in 2009 to 51 in 2012.
30-35 percent of MMTs holiday
packages are sold through offline
outlets, majority of which are
franchise outlets (72 percent of the
outlets in 2012).
MMT is looking for overseas

expansion in regions such as south
east Asia through growing number of
franchisees in India.
Sales turnover
Adjusted operating profit
Adjusted net profit
Understanding MMTs flight to success

Successfully
targeting the clickaverse consumer
Strategy for
geographic
expansion
MMTs franchise partners are a part of MMTs

hybrid expansion model to help serve those
consumers who are more comfortable planning
holidays offline. These are typically consumers
looking for personal interaction and would not have
ideally opted for the online option.
Franchising has given MMT access to key Indian

markets such as Ahmadabad, Kolkata and
Bangalore.
As on May 2013, MMT is looking to expand further
in cities such as Mangalore, Gandhidham, Kohlapur
and Patiala through the franchising route.

Area requirements
500700 square feet
Investment
INR11.5 million
Break-even period
11.5 years
Royalty
INR0.41 million depending on

city tier.
Other requirements
Preferably located on main road

or high street.
Agreement validity
3 years
Focus on quality
Service quality is one of the most important factors that differentiates MMTs franchise partners with key
competitors such as offline travel agents.
This is enabled through franchisee training which includes:
Standard training on products and destination guides.
Close involvement if MMTs service delivery team with the franchisee.
Periodical trainings before peak holiday season.
Consistency in service quality is maintained through regular audits at the franchise outlets.
Associating with
the right partners
Focus on recruiting the right set of partners is the key to success of a franchising model. This becomes even more
important in a specialized service sector like travel. Few important criteria for MMTs franchisee appointment
include:
Passion for travel industry.
Proven business track record and management skills.
Ability to invest the necessary capital.
Other support
To enhance demand, MMT supports its franchise partners through:

Designing stores optimally
Managing store launch and creating awareness in the area.
Carrying out local promotional activities such as road shows and mall events.
Source: Huffington post, Cspnet website, News Articles, KPMG Analysis
DTDC
DTDCs performance
DTDC
Courier and cargo
Start of operations
1990 (franchise)
Key brands
DTDC
Franchise units
More than 5800
4250 (Fy12)
500
Close to 6,000 franchise partners growing

in number at 5-10 percent per annum, form
the backbone of DTDCs success.
424
307.5
(INR 10 million
Area of operations
239.5
DTDC has presence across 12 countries

with 300 offices in countries such as the
UK, the US, Australia and Singapore
driven by growth in franchisees. It is
looking to expand network into countries
such as Pakistan, Indonesia, Malaysia
and Thailand.
220
193
0
FY 8
FY 9
FY 10
FY 11
FY 12
Sales turnover
200 (Fy12)
How DTDC delivers success

Low-cost entrepreneurship model
Area
75300 square feet
DTDCs USP is the low-cost franchise opportunity it offers prospective

partners. Its franchise model is focused on enhancing geographical reach
through partnerships with small businessmen across India.
The investment requirement is INR75,000-100,000*
In addition, DTDC tries to ensure that its partners start getting cash inflows
from the first month itself.
Educational qualifications is not a barrier to partnership as in other sectors
like education.
Investment
Category A: INR150,000
Category B: INR100,000
Category C: INR 50,000
(A Metros; B,C Smaller
cities)
Break-even period
49 months
Tapping growth opportunities
Expected ROI
More than 20 percent
DTDCs international expansion aims to create logistics channels with

countries which are Indias top trade partners or are home to large Indian
diaspora. The resultant two-way traffic is intended to benefit the domestic
partners as well.
DTDC has also realized the potential of upcoming growth opportunities
such as e-commerce and is actively pursuing the same. It has created a
specialist entity DotZot to cater to e-tailers by actively promoting
premium services such as 24 hour delivery to drive business growth.
Other requirements
Premises should be ground

floor.
Staff
24 depending on category
Leveraging local expertise

DTDCs franchising model sits well with its area of operation, since it utilizes
the expertise and knowledge of local partners. This has resulted in:
Timely delivery of parcels
Credible service
Reduced costs for DTDC
Super franchise:
Carries out additional responsibilities
such as business development and
client servicing. Typically represent a
district within a region.
Robust structure to complement access

Master franchise: Handles the reporting of
one or more of single units and typically
represent an area within the city.
DTDC has established a robust pan-India presence through a mix

of different franchise types:
Super/master/single franchise: Deal with day to day logistics
operations.
Corporate franchise: Consist of experienced industry individuals who
promote DTDC product and services. This format requires office space for
operations.
Single units: Cover a small territory or a pin

code. These constitute 95 percent of network
and 75 percent of revenues.
Source: Moneycontrol website, DTDC website, The Economic Times, Business Today Magazine, KPMG Analysis
22
23
Jumbo King
Jumbo kings performance
Jumbo King (JK)
Food retailing
Start of operations
2004 (franchise)
Key brands
Jumbo King
No of outlets
50
58.5 (FY11)
8
INR 10 million
Area of operations
The number of franchise outlets has grown

from 45 (in October 2012) to over 50 (as of
May 2013).
5.85
4.83
The company plans to grow to 200 stores

by 2015 and is focusing on the master
franchising model to establish presence
in cities such as Bangalore, Aurangabad,
Nagpur, Bhopal and Surat.
4
2
0
FY 10
FY 11
Revenues
Recipe for success

Location
JK targets prime
locations
with high footfalls, such as
railways stations for setting up
outlets. JKs franchisee relation
team offers support in site election
and rent/price negotiation to
ensure best locations at optimum
costs. JK also supports a joint
ownership model where multiple
individuals can open a franchise
outlet. This also helps in
overcoming the cost constraint
typically associated with
owning/renting
prime locations.
Standardizing
quality
The USP of Jumbo King
is hygienic food, and with
pan-India presence it is important
that consistency in food quality is
maintained across outlets.
To ensure consistency, Jumbo
King has outsourced all
manufacturing so that there is no
difference in quality of food
offered.

Area requirements
300 square feet (Single

franchise)
Investment
INR1.2 million (Single

franchise)
Staff requirement
About 7
Other requirements
Shop should be in prime

location with high footfalls as
the format is of on-the-go
service.
Core factor Jumbo Kings master franchise model
Jumbo Kings Master

Franchisee (MF) model
1
Innovative royalty system

After expanding through single-unit franchises in areas such as Mumbai, Jumbo King, in 2008,
decided to focus on master franchising rather than single-unit franchising. A master franchisee
is required invest in a minimum of 5 single-unit outlets (directly under his control).
A key reason for opting for MFs is the business stability that larger players can offer compared
to smaller players.
The small outlet size also permits franchisees to diversify investment (by investing in multiple
outlets) and minimize risk unlike other QSR formats where franchisee invests in a single outlet.
Increasing ownership of partners
Jumbo King follows a more decentralized franchisee model, unlike most other players in the
sector. A master franchisee can get the right to sub-license Jumbo King in his area and expand
his presence. A master franchisee also contributes to Jumbo Kings regional marketing program
and localization of the menu.
MF required for a city with

population over one million.
2
30 stores to be opened in five
years, 5 store stores to be
retained remaining can be
sub-franchised.
3
MF should be able to support
10-30 stores in the city.
4
MF to act as companys sole
representative for the region.
Source: Hindu Business Line, ISI Company Profile (Financials), Jumbo Kong website, KPMG Analysis
Archies
Archies performance
Archies
Start of operations
Key brands
Retailer (cards and

gifting)
1992 (franchise)
Archies, Hallmark,
Paper Rose
200
100
More than 350

(franchise)
More than 100 cities
2018.6 (FY12)
95 (Fy12)
Archies plans to add about

25 franchisees to its network
each year.
188
156
150
50
No of outlets
202
250
(INR 10 million
Area of operations
139
118
FY 8
FY 9
FY 10 FY 11
Sales turnover
Archies has more than 350

franchisee stores in more
than 100 cities.
FY 12
Archies revenue has

doubled from INR1.17 billion in
FY08 to INR2 billion in FY12
driven by growth in the
franchise business.
How archies unwrapped success with its franchise model

360 degree support

The franchisee is given support in all possible areas relevant to setting up of
a store location assessment, advertising, training, store launch, IT support ,
setting up supply chain, etc.
Targeting the right size and location

Location is important for retailers belonging to a niche segment such as
gifting. Archies franchisees have been critical to growth of the company
because of their ability to overcome problems typically associated with
acquiring the right property needed for a store.
To provide greater options to franchisees, Archies operates through two
formats with different store size and investment requirements Archies
Gallery (requiring a minimum of 500 square feet) and Paper Rose (requiring
a minimum of 300 square feet).
Hand-holding franchisees during incubation phase
Area requirements
Minimum 500 square feet, with

minimum 15 feet frontage
(Archies)
Minimum 300 square feet, with
minimum 10 feet frontage
(Paper Rose)
Investment
INR1.4 million (Archies)

INR0.9-1 million (Paper Rose)
Break-even period
3 years
Expected ROI
3040 percent on MRP
Staff requirement
34
Other requirements
Prime location in the city/mall
Agreement validity
3 years
Archies invests a lot of time and effort to support the franchisees during
the incubation period, especially since the franchisee may not have huge
experience in a niche segment such as retailing.
About 45 days spent to develop shop layout and interiors.
Visits to best Archies stores to understand best practices
Experienced employees assist in operations during initial days.
Exclusive offerings to drive business growth
Archies has exclusive tie-ups with global players such as Cow Parade, Russ
Barrie, Keel Toys, Carte Blanche and Paper Island which provides its
franchisees with a unique product range to support business growth.
Source: Moneycontrol website, Archies website, KPMG Analysis
24
25
NIIT
NIITS performance
NIIT
Computer education
Start of operations
1986 (franchise)
Key brands
NIIT
No of outlets
More than 1000 (as

of April 2012)
7381.3 (FY12)
Net profit (INR million
962.5 (FY12)
(INR 10 million)
Area of operations
800
600
400
200
FY 8
FY 9
Sales Turnover
FY 10
Operating Profit
FY 11
FY 12
Reported Net Profit

Franchise presence of about 1000 education centers across
40 nations.
NIIT provides computer-based learning to over 15000
government schools through the franchise model.
NIIT has laid down processes to ensure quality

standards are adhered to, and all partners are
required to be certified in these processes.
Specific norms regarding space, furniture,
lighting, etc. have been laid down in detail.
Partners go through a number of trainings in
areas such as technology, marketing and
leadership.
NIIT has established standardized teaching
methods to deliver a consistent level of quality
across centers globally.
NIITs association with leading technology
vendors such as IBM and Wipro also enables
standardized service delivery.
Area requirements
15003000 square feet
Investment
INR1.52 million
Break-even period
12 years
Expected ROI
Other requirements
Need to carefully consider

which offerings to go for. These
include NIIT Yuva, NIIT Imperia,
etc.
Agreement validity
3 years
Low break-even period of 1-2

years* coupled with service and
marketing support from NIIT
encourages partners to open
multiple centers.
Snowballing
growth
Service
quality
Customizing
offerings
The driving force behind NIITs success is the wide range of

need-driven offerings. Franchise partners have played an
important role in helping NIIT adapt its curriculum, delivery,
marketing and communication to suit local tastes.
Cautious
recruitment
Marketing
support
The franchisee selection ratio for NIIT is

typically 1:10. Few important selection criteria
include:
1-3 years of experience preferably in middle
management
Knowledge of regional market
First time entrepreneur who can devote 50-60
percent of their time to the business.
Capability to invest about 50-60 percent of the
project cost.
Following a cautious approach, NIIT slowed
down its recruitment process during the
slowdown period of 2009-10 despite high
franchisee interest.
NIIT supports franchisee growth through marketing at

national level. Given its vast presence in smaller towns,
NIIT also provides region-specific marketing/advertising
support to partners at a charge.
NIIT provides partners with brochures and promotional
material.
Source: Moneycontrol website, NIIT website, KPMG Analysis
Sankalp
Sankalps performance
Sankalp Recreation Pvt Ltd (Sankalp)

Area of operations
Restaurants
Launch of operations
2003 (franchise)
Key brands
Sankalp (south India),

Saffaron (barbeque),
Sams Pizza (others) (India
+ broad)
In fine dining; and
Sankalp Express & (25) in
QSR
135 restaurants, six of
which are abroad (as on
June 2013)
No of outlets
Presence
More than 30 cities
INR72.9 million (FY10)
Sankalp plans to expand to 500

restaurants by 2018 through its
franchise model (QSR 200,
remaining 300).
Area
About 250 square feet (QSR) and about 2,000 square feet
(fine dine/casual dine)
Investment
About INR100,000150,000 (QSR) and about

INR600,000700,000 (fine dine/casual dine). This excludes
property costs.
Average revenue
INR150,000 per month (QSR) and INR1 million per month

(fine dine/casual dine)
Break even period
Within 2 years
Expected ROI
About 2030 percent EBITDA
Franchise fee
10 percent of sales (after the impact of capital cost)
Royalty
Rentals 10 percent of sales (510 percent)*
Staff
About 23 for QSR and about 20 (45 skilled and 15

unskilled) for other formats
Agreement period
5 years
It also plans to launch outlets in

cities such as Bhuj and Ontario to
strengthen the brand outside India.
Though Gujarat remains Sankalps

traditional stronghold, it has already
expanded to other India states such
as UP and Haryana.
A bite of success
360-degree support to franchisees
Sankalp supports its franchisees in selecting sites and accessing their potential, designing outlets layouts and selecting equipment.
Sankalp deploys its team at new outlets during the initial stages to minimize operational issues.
Additionally, it provides training support for the staff in its head office in Ahmadabad.
A dedicated support team at each franchisee provides ad-hoc support on several areas such as quality, operations and cost.
Strict control on quality
To ensure high service quality, important in the food service industry, Sankalps audit team conducts monthly checks on standard recipe and
portion sizes.
To ensure food tastes the same across outlets, an export oriented unit is supplies raw materials to all franchisees.
Sankalp ensures that franchisees are aware of these processes before starting operations.
Franchise model
Sankalp follows a franchisee owned, franchisee operated Master Franchisee model according to which territories are allocated to
franchisees for development.
Master franchisees are an important part of the organization and participate in the companys strategy and policy meetings.
Note: *refers to the figures quoted by Sankalp representative to KPMG

Source: Sankalponline website, KPMG Analysis
26
27
International
Franchising Scenario
International Franchising
Scenario
Global Franchising Brands
The following section lists a set of global franchising case studies.
28
29
Subway
Subways performance
Subway
Investment
Initial franchise fee of US$ 15,000 and minimum

total investment of US$78,600*. This can go up to
US$ 260,350**
Subway
Royalty
8 percent of gross sales
No of outlets
39,402 outlets (as on June 2013)
Advertising
4.5 percent of gross sales
Presence
102 countries (as on June 2013)
Equipment
lease
US$2.7 per month per US$100
Turnover
US$18.1 billion (2012)
Other
requirements
Franchisees should display entrepreneurial spirit

and commitment toward the success of the
business. Subway also expects active
management from franchisees.
Agreement
period
20 years
Area of operations
1974 (franchise)
Key brands
Franchisees form the

backbone of Subways
network, as all Subway
restaurants are individually
owned and operated by
independent franchisees.
Subway plans to open

1,000 outlets in India by
2017 and 5,000 by 2022.
Currently, there are 260
outlets in the country.
A bite of success
Innovative location strategy
Training and assistance
Besides traditional store formats, Subway franchisees can also opt

for non-traditional locations such as satellite towns, school lunch
programs, airport terminals, theme parks and national parks.
The non-traditional formats have been driving Subways growth.
These include automobile showrooms, appliance stores, ferry
terminal and churches. In 2011, Subway had about 8,000
restaurants in such locations.
Usually, franchisee decide store locations and operations.
However, in some cases (such as new markets with low brand
awareness) the decision is taken jointly.
1
Prospective franchisee
conducts research
with
existing franchisees
2
Finds the desired
location with
Subways field
developers
3
Contacts Subways
real estate
department for site
approval
Subway has a comprehensive training and assessment program to

impart skills among franchisees.
All franchisees are required to successfully complete Subways
Worldwide Training Program.
Franchisees are not mandated to supervise outlets operations.
However, there is a separate Person-in-Charge program for
supervisors.
Subway also provides equipment leasing support to restaurants in
the US subject to certain conditions. It has also tied-up with several
franchisee financing companies.
4
Subways proprietary
mapping system
analyzes the sites
potential
5
Subway negotiates the lease with the
owner and sublets the space. This
allows it to introduce new franchisees
if the existing one underperforms.
A franchisee-driven setup process

Subway does not discloses the return on investment; it expects prospective franchisees to invest after learning about cost
control, sales volumes, food and labour costs from the existing franchisees.
Subway also encourages franchisees to interact with consumers to get feedback on outlets.
It also relies on the existing franchisees to motivate new partners.
Submitting
application forms
Meeting the local

development agent
Reviewing the
disclosure document
Conducting
local research
Securing a location
and building the store
Attending a training
Signing the agreement
Securing financing
Note: *refers to the figures quoted in the Subway global website, **refers to figures quoted in the Franchisedirect website
Source: Franchisedirect website, Subway global website, Wall Street Journal, Forbes, Nreionline.com, KPMG Analysis
Hertz
Hertz performance
Hertz
Area of operations
Car rental
1925 (franchise)
Key brands
Hertz
No of outlets
Over 9,000 locations
Presence
145 countries
Turnover
US$9 billion (FY12)
8,100 locations
2008
2013
Hertz is a global car rental company that is

present in 81 airports in Europe. It is the largest
airport car-rental company in the US which
operates from over 1,900 locations.
The revenue of Hertz Global Holdings (HGH)

increased by 8.7 percent during FY1112 to reach
US$9 billion.
HGHs net income increased by 38 percent

during FY1112 to reach US$243 million.

Investment
US$0.34 million*
Franchise fee
US$25,00055,000
Royalty
10 percent of gross revenue subject to a

minimum amount
Other requirements
Minimum net worth of US$500,000 and

liquid capital of US$150,000
Agreement period
5 years
Driving success through franchising

Transitioning from the corporate to
franchisee markets for rapid growth
In 2011, Hertz increased growth by focusing more on the
franchising model in some key US market to rapidly expand its
airport and off-airport network.
To expand in key markets, Hertz has entered into franchise
agreements with players such as Penske Automotive in
Indiana and the Emil Frey Group in Switzerland.
Scale and brand name foster franchisee growth
Other support
Comprehensive training, which include an initial (setup oriented)
36-week-long training, online training, webinars and refresher
training.
Support for roadside assistance.
A dedicated global sales force operates in various formats such
as radio, TV, print, hotel partners, airports and the internet.
A 75 year old company, Hertz is a well-known brand in the car

rental industry which gives it good leverage to attract franchise
partners.
The large scale of Hertzs operations helps it in fleet
procurement through the Hertz Fleet Remarketing department,
which is leveraged by franchisees to get vehicles in the form of
discounts.
Hertz also provides franchisees access to various booking
channels such as GDS, Amadeus, Galileo, Sabre and the Hertz
Reservation System.
Note: *refers to figures quoted in the Franchisedirect website

Source: Franchisedirect website, Hertzs global website, PRNewswire website, Yahoo finance website, KPMG Analysis
30
31
Ripleys
Ripleys performance
Ripleys
Area of operations
Entertainment
Key brands
Odditorium.
Other brands include the Guinness
World Records Museum, Louis Tussauds
Wax Museum, Ripleys Moving
Theaters, Ripleys Mirror Mazes, Ripleys
Haunted Adventures
No of outlets
Over 90 attractions
Presence
10 countries
With a 90-year-old brand

heritage, Ripley operates the
worlds largest chain of walkthrough attractions.
Over the past 25 years, the

number of attractions has grown
from 12 in four countries to over
90 in 10 countries.

Odditorium
Guinness World Record
Area
10,00020,000 square feet
2,000 square meters
Investment
US$0.36 million
US$815 million
Site development
fee
US$75,000
US$100,000
Royalty
15 percent of gross sales subject to a minimum limit
Other requirements
The site should be located in high visibility areas with high

tourist footfalls
Breaking new records

Unique and wide
variety of product offering
Procurement and
other support
Innovative concepts
to drive footfalls
Franchisees have the luxury to choose from a

wide range of brands. For example, they have
the freedom to either invest in an Odditorium,
which typically requires 929 1858 square
meters space, or in a Guinness World Record
Challenge, which requires about 2,000 square
meters space. The former follows the format of
a museum and the latter is an innovative
format which offers all guests the opportunity
to break an existing Guinness World Record.
Additionally, brand Ripleys is about 90 years
old and commands strong brand equity, which
makes it popular among consumers. Other
media, such as books and TV series, have
expanded Ripleys presence to70 countries.
The company has been designing and
building museums since 1950s. This gives it an
unmatched expertise in this niche
entertainment segment.
Ripleys supports franchisees in

procuring exclusive artifacts and
exhibits by providing loans. A typical
Ripleys museum has over 300
exhibits/artifacts, which cost about
US$750,000.
It also supports franchisees in
selecting sites, designing the layout of
attraction, recruiting staff, advertising
and administrating the attraction.
Ripleys innovative concepts have helped it

re-invent entertainment offerings and
maintain novelty, which drive footfalls. For
example:
In February 2013, Ripleys celebrated the
World Swallowers Day in Ripleys
Odditoriums by organizing swordswallowing events.
The worlds tallest man, Sultan Kosen,
attended the launch of Guinness World
Records in Hong Kong in year.
The 20th anniversary celebrations of
Ripleys Orlando Odditorium (Oddtoberfest)
included a show by Lizardman and several
unique carnival games - all free of cost.
Ripley's organized the Gimme Five food
drive to combat hunger and encourages the
donation of five food items for the discounted
entry.
Source: Ripleys website, News Articles, KPMG Analysis
7 - Eleven
7-elevens performance
7-Eleven
Area of operations
Convenience stores
Start of operations
1964 (franchise)
Key brands
7-Eleven
No of outlets
50,254 (as of March 2013)
Presence
16 countries
Turnover
JPY9 trillion (end of May 2012)
Achievement of key milestones

Over 50,000
stores
Over 30,000
stores
Over 20,000
stores
The company is focused on

growth through the franchising
route. Out of 6790 stores in in the
US, 5,800 are franchisee
operated.
7-Eleven opened 4,600 and

5,000 new stores in 2011 and
2012 respectively.
2000
2006
2013
Source: Corporate website (accomplishments section)
Two-fold franchising model

Investment
US$34,7501,121,000*
Franchise fee
US$10,0001,000,000 (depending on store

type)
Royalty
Royalty is based on gross profit
Agreement period
10 years
Traditional model
Conversion model
The franchisor acquires the

land, building and equipment
and provides a fully equipped
store to franchisees.
The company also adopts or

converts independent
convenience stores to its
franchise network partners.
The company offers the singleunit route for new

entrepreneurs and multi-store
opportunity for entrepreneurs
with established business
backgrounds.
This program is meant for

independent entrepreneurs
interested in leveraging the 7Eleven brand name and
systems.
Assisting franchisee markets for rapid growth

7-Eleven provides significant support to get franchisee
operations up and running. 7-Eleven takes care of several
operational issues, which include:
Scoping and buying the real estate
Handling the zoning approval process
Bearing the ongoing costs of - rent, real estate taxes, utilities,
certain building maintenance and equipment replacement
Innovative royalty system
US
Operates under the ownership of 7-Eleven

Inc. and 3 licensees (controlling 429
locations). The company has boosted the
franchisee network by converting several
company-operated and independent stores
to franchisee run stores.
Hong Kong and

Southern China
Operates under the ownership of Dairy Farm

Management Services, which has acquired
the license to open 7-Eleven stores. Hong
Kong and Macau have amongst the highest
7-Eleven store densities globally.
Singapore
Operates under the ownership of Dairy Farm

Management Services, franchised under a
licensing agreement with 7-Eleven Inc.
Another agreement with Shell was signed
by 7-Eleven in 2006 for petrol station
outlets.
Malaysia
Owned and operated by 7-Eleven Malaysia

Sdn. Bhd., a part of Berjaya Group Berhad.
Japan
Japan is a key market and has over 15,000

7-Eleven outlets, operating under the
ownership of 7-Eleven itself.
7-Eleven has an innovative royalty system, which is based on

gross profit rather than sales. This system intrinsically links
franchisers growth to the profit making ability of its franchisees.
Process automation using technology

7-Eleven promotes the use of technology to enable profitable
operations of the store. Examples of technologies include payroll
processing, invoice payments, taxes, store audits, monthly
financial statements and inventory management.
.
Model and strategy
Country
Note: *refers to the figure quoted in the Franchisedirect website

Source: Franchise.7Eleven website, Franchisedirect website, Huffington post, Cspnet website, News Articles, KPMG Analysis
32
33
Curves
Curves performance
Curves*
Area of operations
Women fitness centre
1995 (franchise)
Key brands
Curves
No of outlets
Presence
Over 50 countries
Turnover
US$20 billion (from the US alone)
Curves, the largest fitness franchise in the world

with 10,000 locations. Curves Clubs are present in
over 50 countries, including the US, Canada,
Europe, The Caribbean, Mexico, Australia, New
Zealand, South Africa and Japan.

50 locations
1995
2012
Investment
US$0.0370.45 million
Franchise fee
US$29,900
Royalty
5 percent of gross revenue subject to a

minimum amount
Other requirements
3 percent of gross revenues as advertising

fee; US$5,000 transfer fees and US$200
per month as monitoring fees
Agreement period
5 years, renewable
Financial requirements
Net worth US$75,000 and cash

US$50,000
Driving success through franchising

Assisting franchisee
markets for rapid growth
Since 2011, Curves increased
growth by focusing more on the
franchising model in some key US
market to rapidly expand its network
and close down loss making units.
Curves also assist in financing
operations of its franchisees. Such
assistance limits up to 50 percent of
the initial franchise fee for a period
not exceeding 24 months.
Other support
Scale and brand name

foster franchisee growth
Comprehensive training camps,

which include special training filled
with information from experts at
locations around the US & Canada.
A 30 year old company, Curves is a

well-known brand in the women
fitness industry which gives it good
leverage to attract franchise partners.
Area Directors and Corporate Help

Staff: These area directors act as the
franchisees direct link with the
corporate office. Franchisees get help
in managing any issues that arise
while operating your club.
The large scale of Curves

operations helps it in getting various
franchise requests from various
countries.
Initially, Curves organize 2-5 days

training to all the franchisees under
the guidance of a designated
manager.
The franchisee offer thirty minute

fitness and weight reduction
instruction to the general public as an
independently owned and operated
entity using Curves system of
operations, logos and trademarks.
Note: *refers to figures quoted in the Franchisedirect website

Source: Franchisedirect website, Curves global website, The Economic Times website, KPMG Analysis
Inbound Franchising - International Franchisors in India

India's has rapidly emerged as an attractive target market for international brands, as is evident from the number of
launches in the last few years.
Major International players already in India
Name
Industry
Partner/franchisee in India
Business model
Baskin Robbins
Food service
Graviss foods
Master Franchise model
Domino's
Jubilant foodwrks
KFC
Yum Restaurant India
Jockey International
Apparel
Page Industries
Maple Bear
Education
Modi Group
C&J Clarks International
Footwear
Future Group
FRETTE
Home furnishing
Regency Retail Private Limited
Multi-unit franchise model
TGIF
Food service
Bistro Hospitality
Joint venture Franchising
Starbucks
Food service
Tata Group
Joint venture Franchising mode
California Pizza Kitchen
Food service
JSM Corporation
Howards Storage
Retail
Skanda Retail
Source: Published Reports, Franchising Association of India
The following international brands have either recently entered or have announced plans of entering India
in the near future.
Food & Beverages
Consumer Services
Lifestyle/ Healthcare/ Beauty
Retail
Muffin Break
P
P
Starbucks
P
Dunkin Donuts
P
Winkworth
P
Yoforia
P
Yogen Fruz
P
C & J Clarks
P
BG Cleaning
P
Willy Winkies
P
Pollo Tropical
P
Spring air
P
Di Bella Coffee
P
Armani Junior
P
Mad over Donuts
P
Panaria
P
Lipsy
P
Pink Berry
P
Triangle
P
Marc Cain
P
Sbarro
P
Luxeyard
P
Roberto cavalli
Sources:
Spring Air Mattress: http://www.business-standard.com/article/press-releases/spring-air-announcesits-rs-500-cr-investment-into-the-indian-market-112042500073_1.html
C & J Clarkes: http://articles.economictimes.indiatimes.com/2012-12-18/news/35890963_1_ceomelissa-potter-clarks-future-footwear-joint-venture
BG Cleaning: http://www.bg-cleaning.co.in/
Willy Winkies: http://www.willywinkies.com/franchise.html
Armani Junior:
http://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P
ublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056
04BBF8C610DE6E852BDDE
Panaria: http://www.thehindubusinessline.com/companies/panaria-group-asian-granito-enter-into-jtventure/article3734222.ece
Triangle: http://articles.economictimes.indiatimes.com/2012-07-25/news/32848685_1_indian-luxurymarket-french-market-production-lines
Luxeyard :
http://www.indusbusinessjournal.com/ME2/dirmod.asp?sid=&nm=Archive&type=Publishing&mod=P
ublications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=ED633C51056
04BBF8C610DE6E852BDDE
Lipsy : http://www.financialexpress.com/news/uks-fashion-brand-lipsy-partners-with-bmi-to-enterindia/1001648
Marc Cain : http://www.business-standard.com/article/companies/german-luxury-brand-marc-cain-toopen-5-more-stores-in-fy13-112050100101_1.html
Roberto Cavalli: http://articles.economictimes.indiatimes.com/2012-02-17/news/31071299_1_italianfashion-brand-roberto-cavalli-luxury-retail-space
Muffin Break:
http://muffinbreak.com.au/images/press/MB%20Media%20Release_MB%20Continues%20Internatio
nal%20Expansion.pdf
Starbucks : http://timesofindia.indiatimes.com/business/india-business/Starbucks-to-open-outlets-inmore-Indian-cities/articleshow/19431213.cms
Dunkin Donuts: http://www.business-standard.com/article/companies/dunkin-donuts-enters-india112050900069_1.html
Winkworth: http://www.estateagenttoday.co.uk/news_features/Winkworth-launches-into-Indiaproperty-market
Yoforia: http://yoforia.in/franchise
Yogen Fruz: http://articles.economictimes.indiatimes.com/2012-08-20/news/33287822_1_yogen-fruzfirst-store-first-outlet
Pollo Tropical:http://pollotropical.com/press-releases/pollo-tropical-expands-india-opening-restaurantwestern-hemisphere/
Di Bella Coffee:http://www.dnaindia.com/money/1620084/report-after-starbucks-australias-di-bellaplans-coffee-chain
Mad over donuts:http://www.thehindubusinessline.com/companies/mad-over-donuts-bakes-plans-toscale-up-biz/article4784907.ece
Pink Berry:http://www.business-standard.com/article/companies/pinkberry-to-vie-with-india-scocoberry-112050900067_1.html
Sbarro:http://www.newsday.com/business/inside-long-island-business-1.811933/sbarro-plans-35franchise-locations-in-india-1.5582769
34
35
Indias growing but fragmented
laws should be transparent and
to establish and expand business in
market can seem chaotic and
easy to comply with.
India.
international franchisors consider
India is not one market: Entering a
Bribe and corruption: International
the following factors as challenges
new market becomes more
franchisors remain threatened with
difficult to deal with. The
while entering into India:
complicated in case if India, where
the bribe and corruption cases in
consumers hailing from diverse
India. Due to no legislation around
Transparent Legislative
cultural backgrounds. Several
anti-bribe in India, as in the US; it
framework: Due to no rules or laws
culture, language and socio-
not only discourages the expansion
promulgated in India to address the
economic diversities make it a set
strategies of many brands but also
functioning of franchisors and
of multiple markets. It becomes a
impacts the Indias credibility in
franchisees, international players
challenge for an International
international market.
perceive a higher risk to business
franchisor to understand all
continuity. They expect prevailing
diversified tastes and preferences,
Outbound Franchising - Indian brands going Global

While there is surely an active interest in India by international brands, there is immense potential for Indian brands
to go global. Not only can Indian brands look at leveraging the Indian Diaspora present across the world but also use
this as an opportunity to spread Brand India.
Indian Brands
Sector
Global presence through franchising route
Saravana Bhavan
Food Services
United States, Canada, Singapore, West Asia, United Kingdom, China
Khana Khazana
Food Services
Dubai
Sankalp
Food Services
Australia, Canada, UK, USA, UAE
Caf Coffee day
Food Services
Pakistan, Austria (Vienna)
Malabar Gold
Retail
Gulf region, Singapore, Malaysia, UK
Gitanjali
Retail
USA, Japan, Dubai
Shahnaz Husain
Health & Wellness
Australia, UK, Middle East
VLCC
Health & Wellness
UK, Middle East, Singapore, Malaysia
Karvy
Consumer Services
Dubai, New York
Eurokids
Education
Gulf region
Shemrock
Education
Nepal
Indian cuisine gaining world-wide
While Indian Diaspora is widespread
countries where franchising industry

is well regulated.
acceptance is prompting Food
in the USA and Middle east
Service brands to expand globally
countries, there is scope for Indian
through the franchising route.
companies to go beyond these

countries and can particularly target
Source:
http://articles.economictimes.indiatimes.com/2012-11-03/news/34892146_1_restaurant-chain-saravana-bhavan-hospitality-sector
http://www.way2franchise.com/resource/article/__cafe_coffee_day_takes_over_cafe_emporio
http://www.franchise-plus.com/Fullstory.asp?news_id=6824&cat_id=3
http://investors.gitanjaligroup.com/phoenix.zhtml?c=196729&p=irol-faq_pf
http://www.shahnaz.in/company.asp
vlccjobs.com/futureplans.htm?
www.karvyfinance.com/aboutus/aboutus.aspx?
http://www.thehindubusinessline.com/industry-and-economy/info-tech/educomp-solutions-sheds-entire-stake-in-eurokids/article4551004.ece
http://www.shemrock.com/branches.php
Country
Number of Indians (in lakhs)
As a % of total overseas population
USA
23
10
Malaysia
20.5
Saudi Arabia
18
UAE
17.5
Srilanka
16
UK
15
South Africa
12.2
Canada
10
Mauritius
8.8
Oman
7.2
Singapore
6.7
Nepal
Kuwait
5.8
Qatar
Australia
4.5
Bahrain
3.5
Total
180
82
Total Indian Overseas population = 2.2 crores

Source: Ministry of Human Resource Development release: Population of NRI - Country wise, June 2012 report
However it is critical for Indian brands going global to note the differences in local
competition, demographics, price points, pay structures, labor laws etc before
taking a strategic decision. Industry associations such as Franchising Association
of India and other such bodies could leverage their relationships with global
franchising councils in assisting such companies for a soft landing into other
countries.
36
37
Franchise
industry survey
Franchise industry
survey
KPMG in India carried out a survey
of Franchisors and Franchisees to
solicit their perspectives on outlook
for growth and how overall
dynamics between Franchisor and
Franchisee community is shaping
up. The results of the survey have
been broadly categorized under the
following heads
Growth drivers for Franchising in

India
Franchise Operating Models
Franchisee Satisfaction
Franchisee Support &
Challenges in Franchising
Conflict Management
Growth drivers of franchising in India

India, with its large population has
always been a consumption story
and will continue to remain so for
the years to come. Burgeoning
consumer class with an increasing
appetite for consumption is
considered as the biggest growth
driver, both by franchisors and
franchisees. Increase in
entrepreneurial drive coupled with
risk taking abilities has steered a
number of people, especially those
with no-specific business
background, take a plunge into
franchising based business models.
Franchising as a business model has
achieved stability over the course of
time, giving new entrepreneurs
increased confidence on the
these, availability of investments

and increased investment capability
has also been a key factor driving
the growth of the industry,
especially when investment support
from franchisors is minimal.
franchisees are not very

comfortable with.
It is often the uniqueness of the
concept and value of the brand of
the franchisor business that attracts
franchisees to invest in them. While
promises on investment returns
made by franchisors are another key
parameter that attracts the
franchisee, their ability to
understand and operate the
business dominates the decision
making process. Franchisors also
believe that providing a well-defined
operating structure enables
franchisees to learn quickly and
implement the same.
Businessmen predominantly choose

franchising route as it helps
increase the scale of operations
while reducing the time to market.
This also aids in brand building
process through value creation.
Franchising imparts uniformity of
product / service offering thereby
leading to increased standards and
quality. This is mainly the reason for
franchisors not willing to customize
their offerings for various
franchisees, an aspect which most
success of their ventures. Besides
Franchisor View - Growth Drivers of Franchising in India

Both franchisors and
franchisees opine that the
consumption story coupled
with the increasing
entrepreneurial spirit of
Indians is the prime factors
leading to the growth of
Franchising in India.
Franchisees in addition feel
that availability of robust
concepts and investment
availability is also driving
franchising growth in India
High disposable Incomes
High ROI
Availability of robust concepts
Investment Availability
Entrepreneurial Spirit
10
Huge consumer class
8
0
10
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013
38
39
Franchisee View - Growth Drivers

5
Availability of Robust Concepts

Investment Availability
10
Entrepreneurial Spirit
Exposure to global media,
fashion trends
8
3
Growing Preference for branded and

quality products amongst consumers
Huge consumer class
5
0 1 2 3 4 5 6 7 8 9 10 11 12
Franchising Operating Model

While many brands and companies would view franchising as a key operating model
for expansion from a scale and time perspective, they also believe franchising model
allows them keep the brand relevant to their target consumers and result in better
profitability for the system (franchisor and franchisee community) as a whole.
Franchisors Reasons for Franchising

There are many reasons for business persons to
Talent acquisition
Capital Constraints
Higher RoCE for the franchisor
consider franchising as a business model. Predominant

of the reasons are related to capacity expansion, scale
building and brand building, in a shorter span of time.

9
Quicker time to market
While there are other choices, scale building and brand
Value creation
Higher profitability
building and Faster Time to Market emerge as dominant
Uniformity in Quality
choices with 26 percent, 16 percent and 17 percent
Scale building
responses.
13
Brand Building
7
5
15
10
Franchisee View - Reasons for Franchising Option

While Franchisors believe franchising as a good option
Higher profitability
Better ROI
Good learning experience
to grow, many entrepreneurs are opting for the

franchising route primarily due to it offering a safe and
Higher growth and

expansion opportunity
Investor friendly
easy way of establishing business and offering higher

than market levels of profitability. Franchising is also
seen as a less-riskier option given that the business
Lesser risk than a new start up
concept has already been pre-tested in the market and
the entrepreneurs get to see the results of the
Franchising is a safe, best and

easiest way to start a business
11
0
10
franchisors as well as other franchisees.
12
Customization of Franchise Proposals

However while Franchisors believe in the concept of
No
franchising, most franchisors are not willing to alter the
terms and conditions of their proposal, in order to

3
Yes minor changes

Yes major changes
protect the brand value.
2
0
Business Differentiators
Increasing growth in franchising is also reflected in the
Ease of operations
Brand/Support
increasing competition within the industry, with a

constant stream of new franchisees starting their
businesses. Increasing competition intensifies the need
Standardised processes
ROI
to develop unique selling proposition that can

differentiate one brand from the other
Business concept turns out to be the biggest
Business concept
7
0
differentiator in business for 37 % of the respondents; it

8
was closely followed by return on investment and

standardized processes at 26 % each.
Business Models in Franchising

While majority of franchisors adopt the Franchisee
Owned and Franchisee Operated model for expansion,
Joint Venture
few franchisors have also mentioned the need for coFranchise Owned Company
Operated (FoCo)
existence of Company Owned Franchisee Operated
models. This was particularly necessary in high streets
Company Owned Franchise

Operated (CoFo)
of metro cities where the rentals negatively impact the
business viability for the franchisee. Also there are

Franchise Owned Franchise
Operated (FoFo)
10
0
10
cases where franchisors want to have a few large

format flagship stores. In both these cases, franchisors
preferred investing initially.
40
41
Franchisee Satisfaction
Out of the 20 franchisees surveyed, were either
satisfied or satisfied to a certain extent with franchisor
Franchisee View
Preference for additional franchisees
business, both in terms of operations and financial

returns. Amongst the 50% franchisees who were
Yes 23%
satisfied to a certain extent, the biggest cause of

concern was the inadequate operational support. But
they still continue with the franchisor, mainly, due to
No 54%
the financial returns obtained. There were also around

May be
23%
14% of the franchisees who were entirely unhappy

with the financial returns and operational support
provided.
Franchisee View
Is Franchisor Business upto your expectations
In terms of franchisee interest for undertaking additional

franchisees, almost half of those interviewed were not
willing to take up additional franchisees with the existing
No 14%
franchisors. This is primarily due to friction in the

relationship between franchisors and franchisees on
Yes 36%
various aspects, especially in financial revenue sharing

aspects in comparison to the nature of operational
To an extent
50%
support provided. Such a situation is more relevant in

the services franchising business where franchisor
support is seen as critical. Most of the franchisees who
were willing to undertake further franchisees were in
product franchising business.
Franchisee Support & Relationship Management

Collaboration between franchisor and franchisees is critical to success of franchising
businesses. There are several avenues for collaboration between franchisors and
franchisees such as project set up, marketing, employee training, operational
management, revenue management, cost management and risk management.
Franchisee View
Initial Expectations from Franchisor
Franchisee View
Areas of Franchisor Support
Marketing and PR support
Bulk Buying Support
12
Support in equipment procurement
Marketing Support
Employee Recruitment Support
5
9
13
4
10
6
3
Human Resource Support
Initial set up support

2
Operational Support
Training support
10
12
14
Project Support
12
0
10
12
14
Project Start-Up Support is the first area of
find it difficult to hire good candidates and retain them.
collaboration between franchisor and franchisee. Most
While the expectations from franchisees on this front
franchisors are involved in demographic analysis of the
are not as high as others, franchisors could surely
location, site evaluation, survey and approval, facility
improve their support in this critical area given the
planning and architectural design of the store and store
current shortage of skilled manpower in India.
opening (retail clients). Franchisees also acknowledge

the importance of franchisor contribution in getting the
Operational Support is an apparent area of
basics of the project right.
collaboration whereby the franchisor provides defined

guidelines for operations, employee management,
Marketing Support Functions such as advertising and
product/service pricing guidelines, trouble-shooting
promotions, regional and local publicity and event
support, supply chain and procurement support.
based promotion schemes have been the most
Immediately after signing of the franchising agreement,
important support provided to franchisors. Such
operating guidelines are shared with the franchisees.
activities build the brand, increase credibility of the
Large brands deploy dedicated teams to respond to
offering and ensure increased product awareness
operational requirements of franchisees but the case is
amongst the target clientele. Majority of the franchisors
not the same with smaller and regional brands. Few
have indicated marketing function as the key support
franchisees, while appreciating the good intentions of
provided for the franchisees, which is also recognized
support from franchisors, are disappointed with the
by most franchisees. This is specifically true in the case
pace of response for operational challenges.
of national level brands and large regional brands. Few

of the regional brands expect the franchisees to
Franchisee View
Pre & Post Launch Support
separately share cost of regional/local marketing.

However, amongst smaller brands, marketing support
has been usually restricted to advertisements with
nothing specific being done for local publicity.
Franchisees of local brands have also indicated the
Post Launch
Support is
better than
Pre Launch
Support
9%
Post Launch
Supportis as
good as Pre
Launch Support
18%
diminishing of marketing support once the

store/product has been launched.
Post Launch
Support is not
as good as Pre
Launch Support
73%
Employee Training and Development is taken as a

focus area amongst national brands, especially those in
services franchising. Well planned employee
development program encompassing well-defined
73 percent of the franchisees interviewed opined that
processes for recruitment and selection, continuous
the support provided by franchisors diminishes once
training and up gradation of skills to the technical,
the initial project set up activity is completed.
operational, sales teams adds to the success of
Franchisees are often left to take care of the
franchisee operations. Of the key challenges that new
businesses entirely by themselves, with minimal
franchisees face, hiring and training of employees is the
support from franchisors. But by then, most
key. The challenge is particularly severe at retail
franchisees learn the ropes of the trade and are, hence,
concepts, where front-line employees are the face of
able to manage their business. Despite this,
the brand, dealing directly with each customer every
franchisees still seek greater involvement of the
day. While most franchisors have well-defined training
franchisors in return for the revenues shared.
programs, a large number of franchisees particularly
42
43
Financial Returns Management

Financial returns management comprises of managing
Franchisors, concerned about the under reporting o
revenues and costs at the franchisees to ensure high
sales and other theft activities at the franchisee stores,
profitability.
undertake periodic audits to obtain evidence of under

reporting, unauthorized transfer, unauthorized
Revenue Management is a mutually critical area of
distribution and supply channels. Having a mutually
collaboration, which is often ignored by most
trust oriented business model subjected to disciplined
franchisors, both big and small. Franchisee growth is
audit process, would lead to better revenue
not only important for the franchisee but also for the
management for the franchisors.
franchisor. However, besides high level marketing

support, most franchisors fail to recognize the need to
Cost Management is another emerging area which
monitor and train the franchisees to manage business
franchisors are focusing on keeping a tab on the overall
growth, or at least so is what the franchisees believe.
costs incurred by the franchisees, thus assuring them
Most franchisees opine that franchisors are only
the returns. However, very few brands, especially those
interested in the revenue share, irrespective of the
at national level, are interested in undertaking cost
overall financial performance of the franchisees. This is
management of franchisees to improve their
predominantly the reason why several franchisees,
profitability. This is primarily because franchisors usually
despite achieving promised financial returns, are not
get a share of the revenues and not of the profits and
willing to consider expanding with the same franchisor.
hence, the low interest level. High store rentals at
However, some of the leading national brands are
franchisor approved locations coupled with increasing
making conscious efforts in augmenting the franchisee
cost of hiring and retaining employees eat into the
revenues and are handholding the businesses till
margins of franchisees.
stability is achieved.
Areas of Collaboration
The relationship between a Franchisor and Franchise is
Risk management
dynamic and composite. Most of the franchisors opined
Cost management
that they support their Franchisees in more than one
ways. While most common form of support is in

Revenue Management
Employee Training
marketing and brand promotion, help is also extended in

areas of employee training and management of risk,
10
cost and revenues.

Marketing & Promotions
13
5
15
10
Franchisee motivation
In terms of the common practices followed by
Share sales data and success of
other franchisees
Offer shareholding in company

to star performers
franchisors, most franchisors are practicing a host of

collaborative efforts with franchisees except offering
shareholding in the company to high performers.
Involve franchisees in new

product development
Invite franchisees to strategy

& policy making meetings
Give option to franchisee to

become master franchisee
5
0
Key challenges in Franchising

Both franchisors and franchisees face certain
payments by franchisees in such a scenario where
challenges before and during operations. From the
business viability is being threatened. The survey also
survey it is clearly evident that rentals are impacting
indicated that one of the key reasons for attrition in the
profitability of franchisees and overall business viability.
franchising space is due to falling profits.
Franchisors too are concerned about consistent royalty
Franchisor View - Franchisee Challenges in Operations

The biggest of the franchisee challenges in operations
Capital Constraints
are related to real estate. Setting up businesses in the
Retaining employees
desired locations and paying high rentals is on the top of
the challenges. Besides these, deploying the right talent
Recruitment of right talent
and funding the business operations are also other

challenges faced by the franchisees
Rentals
7
Location
0
10
Franchisee View - Operational Challenges of Franchisees

While location and rentals are biggest problems faced
Ongoing Market Support
by franchisees, recruitment of right employee &
Appraisal system followed

by the franchisor
retaining them is also suggested as a key concern by
Capital Constraints
franchisees.
8
Retaining employees
Recruitment of right talent
Rentals High real estate prices
Location
7
0
10
Operational Challenges in Franchising

There are various challenges in franchising operations
Recruitment of skilled
employees by
Franchisees
such as aspects related to day to day operations
(inventory keeping, employee recruitment etc).
Payment related concerns
However, the biggest concern amongst the franchisors

is related to payment of revenue shares as agreed in the
Maintaining stock
at agreed levels
Getting the Franchisee to

maintain brand & quality
standards at agreed levels
initial phase of the business. Sometimes, few

franchisees tend to under-report the revenues which
might lead to loss for the franchisors.

3
44
45
Reasons for Franchisee Attrition

Attrition was found to be fairly common in the franchise
Personal problems
Dissatisfaction in relationship
business with the major reason being falling profits for

the business.
Falling profits
6
0
Conflict Management
There are several causes of friction between the
franchisors and franchisees, which if not addressed in
the beginning, could cause a rift between them which
might eventually lead to severance of relationship.
While most franchisors are aware of the problems with
franchisees, matters become worse, when then turn
blind eye to the problems.
Some of the key areas of conflict between
franchisors and franchisees include:
?
Low expenditure on regional marketing and
advertising
Franchisors need to evolve amicable strategies to

address various risks that could emerge during the
course of business relationship. Such strategies are
essential in the long run for the sustenance of the
franchisor-franchisee network. Several of the national
brands have developed a proactive, positive and a
disciplined culture that rewards franchisees in a fair
manner. Greater communicative collaboration between
franchisors and regulators will improve the perception
of equity in franchising relationships and promote
superior perception of trust in franchising as a business
model.
?
Additional marketing fee for regional publicity,
despite a high revenue share allocation

?
Transcending geographical exclusivity or reducing
radius of coverage
?
Lack of empathy by franchisor employees handling
franchisees
?
Poor training of franchisees and inadequate
handholding during initial stages of operation

?
Financial pressures leading to short term decision
making by franchisors
?
Not considering franchisees as the critical part of the
franchisee ecosystem
?
Lack of effective communication system with one
sided communication to franchisees

?
Lack of on-par treatment with franchisees leading
to decisions being thrust on them

?
Lack of professional approach to franchisee
relationship management
?
Rumor mongering amongst franchisees
?
Non-sharing of financial stakes in the franchisor
organization, especially when going public
46
47
Franchising
Regulatory
Scenario
Franchising Regulatory
Scenario
International scenario for franchising regulations
Every country follows different
disclosure laws, relationship laws
regulatory models for the
and competition, infringement and
franchising industry, which are
registration laws, as depicted in the
guided by varying domestic factors.
following figure.
Therefore, there are various sets of
EU (competition
law)
Within EU:
Belgium
Estonia
France
Lithuania
Italy
Romania
Spain
Sweden
Mongolia
Kazakhstan
Kyrgyzstan
China
Japan
Macau
South Korea
Taiwan
Vietnam
Saudi Arabia (Commercial agency law)
Brazil
Canada
Mexico
United States
Federal
State laws
South Africa
Venezuela
(Competition law)
Albania
Belarus
Georgia
Moldova
Russia
Ukraine
Australia
Indonesia
Malaysia
Very high degree of control through laws and government interventions
Disclosure Law
Relationship Law
Disclosure and relationship law
Other
Source: International Franchising Association, KPMG India analysis
Undoubtedly, this lends more
The franchising laws in other
hybrid franchise model, which
credibility to the franchise business
markets such as Australia, Brazil and
includes a dedicated law for
in every country. The US is
Malaysia, are also similar to those in
franchising and a protectionist trade
considered to be a highly regulated
the US. The few differences among
policy that gives the government

complete control over foreign trade.
The UK, on the other hand, does not
market, as it regulates franchise
them are a result of situational
operations at federal and state
modifications in the various aspects
levels. The focus is to curb potential
based on domestic factors, which
have any dedicated legislation for
are unique to each country.
the franchising industry. However, it
A combination of disclosure and
under existing general laws
relationship laws make Malaysia and
governing business operations.
infringement in franchising. These

include pre-contractual disclosure,
in-term relationship between
franchisors and franchisees and
consumer protection laws.
regulates franchise operations
Australia highly regulated markets.

Malaysia has a comprehensive
48
49
A comparison of franchising regulations in selected countries with high degree of control through laws and
legislations:
Australia
Brazil
Law
governing
Franchising
Franchising Code of Conduct, under the Trade Practices Act

1975 Additionally. Other laws relating to fair trading and
business operations are also applicable
The Brazilian Franchise Law (Law No. 8955 of December 15,

1994)
Disclosure
norms
Mandatory - Franchisors must provide a copy of the

Franchising Code of Conduct (the Code) and a disclosure
document to prospective franchisees prior to a franchise
sale, renewal, or extension.
Pre-contractual disclosure is mandatory to submit.
Relationship
laws
A 7-day cooling off period is given to the franchisee once

the franchise agreement has been signed.
None
The Code has specific provisions regarding breach,

termination, mediation, and transfers of the franchise.
Registration
laws
Dispute
resolution
None
Registration of the agreement (translated into Portuguese) with

the Brazilian Patent and Trademark office (INPI) and Central
Bank is required.
The Code establishes a dispute resolution scheme for

parties to a franchise agreement.
Not specified separately
However, in case a satisfactory outcome is not reached, the

Office of the Franchising Mediation Adviser (OFMA) provides
a mediation service, to ensure timely address to all disputes.
A breach of the Franchising Code is a breach of the
Competition and Consumer Act 2010 (CCA).
Intellectual
property and
infringement
issues
Governance
Mechanism
Trademarks, know-how and trade secrets are all protected by

following laws:
Patents Act 1990
Patents Regulations 1991
Trade Marks Act 1995 except Part 13, administered by
Australian Customs Service (ACS)
Trade Marks Regulations 1995
Designs Act 2003 - this came into force on 17 June 2004
Plant Breeder's Rights Act 1994
sfsfbsfbsfbsefbsfb
Brazil adopts the first to file system, a trademark is protected

only after registration at the INPI. Any trademark has to be
registered in order to be valid and enforceable. Further, the
National Institute of Industrial Property (INPI) requires that the
franchised trademarks have been at least filed with the INPI, in
order to enable the parties to record a franchise agreement in
Brazil.
Failure by the franchisor to supply Franchising Disclosure

Document (FDD) in time renders the agreement voidable. It
penalizes the franchisor with the refund of all amounts paid by
franchisee in connection with the franchise, plus recovery of
damages.
MALAYSIA
US
Franchise (Amendment) Act 2012
The Federal Trade Commission (FTC) Franchise Rule and

state specific laws.
Mandatory to submit by the Franchisor
At the federal level, pre-sale disclosure is required.

At the state level, there are 15 states that have laws
requiring pre-sale disclosure.
A 7 working days of cooling off period after the agreement has been
signed, has been given to franchisees.
At the federal level, no relationship law is applicable to franchise

relations. However more than 15 states regulate some aspects of the
franchise relations (e.g., termination, renewal).
Minimum term for franchise agreement is five years. Compensation to

franchisee if franchisor refuses to renew, while no termination of the
agreement except for good cause.
In pursuant to the Act, registration is also compulsory for companies /
businesses registered with the Prime Minister's Department or the
former KPuN (Ministry) prior to the introduction of the Franchise
(Amendment) Act 2012.
Types of Registration
Definition
Section 6
- Franchisor (Local)
- Master Franchisees (Local)
Registration for a Franchisor before offering

to sell its franchise to any party
Section 54
- Foreign Franchisor (Local)
Registration for a Foreigners Intending to sell

its franchise in Malaysia or to any Malaysian
Citizen
Section 55 - Franchisees to
Foreign Franchisor (Local)
Registration for Franchisees of a foreign

Franchisors
No disclosure document is required to be filed or registered under federal

act. However, different states need the documents to be thoroughly
reviewed and registered at the state levels.
Conducting the same business ('cloning' the business): Act requires

the franchisee and its employees to comply with their non-competition
covenants during the term of the franchise agreement and for a period
of two years after the expiration or termination of the franchise
agreement. A non-competition would otherwise be considered void
under the Malaysian Contracts Act 1950 is regarded as enforceable
under the Franchise Act.
Franchisor must disclose in the FDD whether the franchisor owns rights
in, or licenses to, patents or copyrights that are material to the franchise.
Section 20 of the Act prohibits the franchisor to discriminate its

franchisees in matters i.e. the franchise fees, royalties, supply of
goods and services, rentals, and advertising services Violation of the
Act does not give rise to a private right of action.
Most common types of violations of franchise laws

Offering or selling an unregistered franchise
Failing to provide a The Uniform Franchise Offering Circular (UFOC) on
time
Making misrepresentations to franchisee prospects
Improperly terminating or not renewing a franchise
In addition to these powers afforded by the Franchise Act, all or any of

the powers relating to police investigation in sizeable cases pursuant
to the Malaysian Criminal Procedure Code shall also apply
The violation of state laws typically treated under the statutes as either a
fraudulent and deceptive trade practice. It causes money damages
(including punitive damages and attorney's fees), or cancellation of the
franchise agreement and reimbursement of all fees paid to the
franchisor.
50
51
Franchising legal framework in India

The entry of international brands in
India is guided by foreign exchange
laws which include the Foreign
Exchange Management Act (FEMA),
1999, which was replaced by the
Following are the key laws governing the franchising

operations in India:
The Indian Contract Act, 1872: To govern all aspects of
Foreign Exchange Regulation Act
franchise contracts such as offer, acceptance, validity, breach

and termination and act as an ultimate point of reference to
determine the rights and obligations of the various parties of a
franchise agreement.
(FERA), 1973, in June 2000 and

several other important laws and
regulations. At times, adhering to
multiple laws creates challenges for
Competition laws: All restrictive terms and regulations in
global franchisors.
pursuant to the franchising operations in India fall under the

purview of the Monopolies and Restrictive Trade Practices Act,
1969 (MRTP Act). It restricts unfair and restrictive trade
practices in the franchising industry. Further, the Competition
Act, 2002, promotes healthy competition among all the players
in the industry. The act governs practices such as resale price
maintenance, tie-in products arrangement and the
consequences of mismatching registration requirements.
The lack of effective disclosure norms

which is otherwise present in
countries such as the US, Malaysia,
Australia, Indonesia and Japan
proves to be disadvantageous for
prospective franchisees and
franchisors, as they are not obligated
to make all the required disclosures.
Intellectual property laws: The Trademarks Act, 1999, the
Designs Act, 2000, the Patents Act, 1970, and the Copyright
Act 1957, govern the Intellectual Property Rights (IPRs) in India.
These include trademarks, patents, registered designs and
technical assistance required for franchising agreements.
Moreover, both parties are never

certain of their rights and duties due
to the absence of legal documents.
All this underlines the need to
formulate comprehensive rules and
Consumer protection laws: These laws protect consumers
against the inconvenience caused due to defective goods and

unsatisfactory service. The Consumer Protection Act, 1986,
encourages Indian consumers to file complaints with the
consumer forums for any defects/deficiencies in the goods or
services supplied by the trader/franchisor. However, in such
cases, whether consumers have recourse to franchisors,
franchisees or both depends on the degree of control they have
on the business.
laws to check infringement.
Source: Reserve Bank of India (RBI) website
Additionally, the following statutes and laws also apply to

franchise operations in India:
Foreign Exchange Management Act 1999 (FEMA)

Labour laws
Income Tax Act 1961
Provincial Insolvency Act 1920
All rules issued by the RBI
Source: Published reports, discussions with legal experts
FDI in Multi-brand Retail

India has recently made
stores and will have to own and
amendments to its FDI policy
operate the stores (CoCo Model) in
allowing up to 100 percent FDI in
India. This change is expected to
single brand retail and up to 51
have a major impact on foreign
percent FDI in multi-brand retail.
multi-brand retailers such as
However a recent clarification
Carrefour, 7-Eleven etc which
issued by Department of Industrial
predominantly operate on a
Policy and Promotion (DIPP)
franchise model for global
suggests that foreign retailers may
expansion.
not be allowed to franchise their

Source: http://thefirm.moneycontrol.com/story_page.php?autono=905844 - 2nd paragraph
Foreign Retail
Chain
Format
Predominant Global Expansion

model
Circle K
Convenience Store
FoFo
7-Eleven
Convenience Store
FoFo
Ikea
Furniture & Furnishing Store
FoFo
Howards
Storage Solutions
FoFo
Source:
1. Discussion with Howard's
2. 7-Eleven ->http://www.nec.com/en/case/7-eleven/
3. Ikea - http://inter.ikea.com/en/divisions/franchise/
4. Circle K - http://www.franchise-circlek.com/site/faqs
Conclusion:
India has become an attractive
instances of deceit and
destination for business
infringement.
A detailed study of countries such
investments due to the rapid growth

of consumerism, globalization and
as Australia, Brazil, Malaysia and the
liberalization. However, unlike
US demonstrates the importance of
several countries, India lacks a
rules and regulations to regulate
comprehensive policy to govern
franchising operations. Every
franchising operations. This
country has formulated these rules
weakens foreign players' confidence
keeping in mind domestic factors
in the country and often leads to
and requirements.
52
53
Business Models
in Franchising
Business Models
in Franchising
Firms that have created an easily
Some of the original pioneers of
supporting franchisees within the
replicable business model, often
Franchising such as Mcdonald's had
area. The Master franchisee is
choose franchising as their
begun their Franchising operations
typically expected to own and
preferred route to expand their
with this model. Today many brands
operate some of their own outlets
operations and scale their brand.
offer this model including Talwalkars
and is usually set certain sales and
However within the realm of
HiFi, Lakme and VLCC in India.1
growth targets. The franchisees
franchising models that differ
Area Development:
sub-franchisees, enter into a tri-
significantly in terms of operation,
In the Area development model,
partite agreement with the Master
control and legal scope. This section
Area developers are granted
franchisee and the main franchisor.
details these models and compares
exclusive rights for a broad
Typically, the Master franchisee will
their relative attractiveness. Further,
geographical location to own and
command royalties from the sub-
by accounting for certain unique
operate their own franchise outlets
franchisees and will pay a
success factors within a sector, this
and develop further franchisees for
percentage of these royalties to the
section attempts to recommend
the franchisor. Typically, area
franchisor. Further, the Master
certain models for each sector.
developers are set certain targets in
franchisee is expected to provide
Franchising, there are several
within this area, often referred to as
terms of number of outlets within
ongoing support to the sub-
Direct Franchising:
the region. Most are often obligated
franchisees. The Master franchisee
Direct or unit franchising is the
to own and operate an outlet of
route is typically used by foreign
classic form of franchising. In the
their own. In most Area
brands to enter international
Direct franchising model, the
development models, the franchisor
markets as they seldom have the
franchisor enters into an agreement
still enters into a two-party
regional knowledge and cultural
with the franchisee allowing for one
agreement with the franchisee and
acumen to successfully carry out
franchised-outlet to be open by the
is still expected to provide ongoing
business and franchising operations.
franchisee that is typically protected
support to the franchisee thus
Typically the Master Franchisee is
by guarantee of exclusivity for a
offering a good degree of control to
granted at a National Level. But
certain geographical area. In most
the franchisor. However the
given Indias size, cultural diversity
cases the franchisee will not be
franchisor will likely share a
and economic stratification a hybrid
obligated to achieve certain sales or
percentage of the royalties with the
model between an Area Developer
growth targets. The franchisor is
Area developer. Many companies
and a National Master Franchisee
usually expected to provide ongoing
offer this type of franchise model
such as a Regional Master
product and marketing support to
within their home country including
Franchisee, covering smaller areas
the franchisee. In return the
brands such as Maui Tacos and
like West India or Karnataka and
franchisor typically commands a
Salad Creations.
percentage of profits as royalties in
Andhra Pradesh, merits serious

consideration in a country like India.
addition to the initial franchising fee.
Master Franchising:
The direct franchising model offers
Under the Master franchising
a significant amount of control for
model, the franchisor appoints a
the franchisor and entails a two-
Master franchisee for a broad
party contractual agreement
geographical area with the
between franchisor and franchisee.
responsibility of opening and
In India, International brands such

as Golds Gym and Hard Rock Caf
and domestic brands such as
Jumbo King and Chocolate Room
have pursued this route.
54
55
Below is a table that compares the relative degrees of attractiveness of each model.
Factor/Degree of Attractiveness
No-franchising
Direct
Regional Master
Area
National Master
Resources For Operation

Time To Market
Profitability
Ease Of Contracting
Control
Resources Deployed For Localisation
Overall Attractiveness
Low Attractiveness
Low-Medium Attractiveness
Medium Attractiveness
Medium - High Attractiveness
Very Attractive
In addition to the franchise models
which they build the trust to acquire
cases where Franchisors acquire
listed above, there exist various
rights for an area. Similarly, National
back the direct franchising rights of
hybrids and conversions between
Master Franchisees are given
an area upon certain criteria, such
the models. For example, Area
country-wide rights only upon
as cultural acumen or numbers of
developers often start with the
showcasing success as a Regional
outlets, being met.
Direct franchising model upon
Master Franchisee. There have been
Sector amenity to franchise models

This section explores the
optimum balance between quality
presence. With the franchisor
amenability of certain sectors to
control and sensitivity to local
preferring control over logistics,
certain franchise models. From the
tastes. In such a scenario a well-
bargaining power with the
franchisor's perspective,
appointed Regional Master
franchisee and a quick Time to
prioritization among factors such as
franchisee with detailed local
market, an Area developer is ideal in

these circumstances.
Quality control, Process
knowledge and business acumen
Standardization, Inventory costs and
would be ideal. It bridges the
Time to Market are likely to change
cultural gap that exists between the
Education sector - Franchising
depending on the chosen sector
franchisor and the market while
within the education sector is
and this is then likely to have an
ensuring standardized process and
characterized by the need to
impact on the choice of the
customized distribution avenues
maintain excellent relationships with
franchise model.
without the resources usually
the franchisee. Constant feedback
expended in overseeing several
from the franchisee will help
individual outlets.
improve the product while constant
Food & Beverage sector The

critical success factor of a brand
within the F&B sector is the brand's
support from the franchisor is

Retail sector Within the retail
paramount. Localization is limited to
ability to standardize a unique
sector, distribution/supply chain is of
National sphere and thus in these
experience across several outlets
utmost importance given the level
circumstances, a National Master
while localizing its tastes and
of competition. In addition, securing
Franchisee is preferred, especially
products. Simultaneously, food
franchisee loyalty is crucial and thus
for an International brand, as this
safety and quality standards are
relationship management and
layered approach ensures minimum
critical as well as an efficient supply-
franchisee profitability is critical.
resource expenditure for oversight
chain that usually carries the brand's

unique produce. There is an
Further, Time to market and scale

are important as they build on brand
while ensuring a effective delivery
quality service experience is
mechanism for any product
essential in the Beauty, health and
franchisees.
Below is a table that summarizes
upgrades.
wellness segment. Many of the
the choice of franchising model for
business within this segment
an industry. As mentioned before
Service sector Customer
employ machinery, often patented,
several hybrids exist within these
experience is paramount within the
to service their customers. In these
models and firms often switch or
service industry. This coupled with
scenarios, the franchisor is keen to
convert between models as their
tight quality controls are critical
avoid the upfront Inventory and
own expertise within a market
success factors. Control over
holding costs to efficiently support
increases over time. Further the size
franchisees is an important factor
and service a large network of
of an Area developer/ Regional
and in this scenario, direct
potential franchisees and thus a
Master Franchisee's geographical
franchising is expected to yield the
Regional Master Franchisee is often
area is determined by the specific
most favorable results.
employed as they are able to
business and the goals of the
effectively deploy quality control
franchisor.
Beauty, Health and Wellness
mechanisms within the area while
Similar to the general service sector,
catering to the inventory needs of
Direct
Area
Regional Master
Food and Beverage
National Master
Standardized Experience, Localized Tastes, Quality
Retail
Success Factors
control and Supply chain efficiency

Supply chain efficiency, Relationship Management,
Franchisee Loyalty, Time to Market

Education
Service
Quality control and Standardized Experience
Wellness and Health
Relationship management and Product upgradation
Standardized Experience, inventory Management and

Quality control
Key operating business models for franchising

A business model describes the
Franchise owned outlets: This
Company owned stores: This
rationale of how an organization
business model involves
business model involves company's
creates, delivers, and captures value
franchisees own investment for
own investment for setting up the
(economic, social, cultural, or other
setting up the store. It shifts the risk
store. The outlets involve higher
forms of value)8. There are different
of investment of the company to
capital, and relatively slower
kinds of business operating models
the franchise holder. Franchise
business growth for the business.
globally across various industries of
operator, is generally aware about
However, with no middle-men
which franchising is a key business
the local market dynamics, hence
involvements, company tends to
model, for those who aim to
strategically plans operations such
generate higher RoI and avoid
facilitate rapid expansion in short
as purchase, recruitment,
instances of theft and shop-lifting
time by using limited resources and
marketing, distribution and end-
etc.
minimizing risks.
Any company can operate through
operate better than the company
the following business models:
consumer services. It tends to

and delivers faster growth to the
business.
Analyzing the Business Model Concept A Comprehensive Classification of Literature, T. Burkhart, J. Krumeich, D. Werth, and P. Loos
56
57
A detail study of existing business models related to franchising in India:
Pros
Company owned company

operated (CoCo)
Company owned franchise operated

(CoFo) and Franchise owned company
operated (FoCo)
Franchise owned franchise

operated (FoFo)
Company has complete

control over business
operations.
In both these operating models, a company

invests in a franchisee but not necessarily
monetarily.
Complete onus of supply

chain management due to no
middle-men involvement,
leads to less wastages and
shrinkages.
Minimal investment from a franchisor and

significant interest from a franchisee ensures
impressive growth.
All operational rights and

responsibilities lies with the
franchisee, hence the
franchisor (company) can
invest more time on the
strategy development of the
business.
The company gains better

understanding on the regional
growth dynamics which could
help in long term
sustainability and scalability
of business.
Cons
Maximum time is spent on

the thorough compliance with
operations manual on a dayto-day basis.
Understanding the regional
culture and diversities may
delay break-even for the
business.
A franchisor might invest along with a

franchisee or support him in the financial
profitability of the business.
Faster business growth in terms of increased
market share, while maintaining control
over stores.
Here, a franchisee makes the

investment. As a result,
he/she is self-motivated and
does everything possible to
ensure the success of his/her
business.
It is possible to grow
exponentially, as multiple
outlets provide economies of
scale and increase margins
The franchisor-franchisee relationship could

be critical.
The franchisor-franchisee
relationship could be critical.
The onus of supply chain gets split among

franchisor and franchisee, leading to higher
chances of wastages and shrinkage.
The onus of supply chain gets

split among franchisor and
franchisee, leads to higher
chances of wastages and
shrinkage.
Business gains scale at a

relatively slower pace.
Training and managing
manpower in such stores
remains a big challenge.
Key
sectors
Applicable to all the

industries.
F&B, Health and wellness
Retail industry- apparels

specially, consumer services
such as courier business.
Source: KPMG in India analysis
Franchising - Route to Growth in Tier 2 & Tier 3 locations

Tier 2 and 3 growth and potential
Over the last couple of decades the
Given current GDP growth
the challenges of accessing these
Indian growth story has been
forecasts, Indian disposable
markets are being served by the
phenomenal, uplifting millions out of
incomes will triple by 2025 with the
informal/unorganized economy and
poverty, significantly increasing the
middle class accounting for 41% of
this presents a huge opportunity for
size of the middle class and bringing
the population (~ 583 Mn.
the franchising industry.
opportunity and aspiration to India's
people).This middle class will begin
smaller towns and cities, frequently
to move beyond Tier 1 cities and
Tiers 2 and 3 cities together account
labeled as Tier 2 and Tier 3.
spread into Tier 2, 3, and 4 cities
for 24 percent of India's households
with 45 to 58 percent of middle
and 23 percent of India's disposable
With strong economic growth,

Incomes have risen rapidly across
class consumers residing in Tier 3
income, a whopping 1.7 Lakh Crore
and 4 cities and towns by 2025
Rupees. Interestingly, Tier 3 towns
Indian households leading to the
have almost as many middle-and
creation of a larger middle class and
Through this continued growth
upper-class citizens as Tier 2 cities
an increasing spending per-capita.
India's smaller cities and rural areas
but are smaller in size and thus
Not only have incomes increased
have emerged as increasingly
slightly richer. These figures are only
but the proportion of spending on
attractive markets. Rural households
set to grow and present an
discretionary items as against basic
are collectively the larger share of
immense opportunity for franchising
necessities has also increased.
the consumer base and currently
in Tier 2 and Tier 3 India.
Classification of Towns and Cities in India
Tier 1
Major Cities (8)
tio
la
pu
Po
pu
lat
ion
>4
Mumbai,
M
illi
on
Delhi, Kolkata
on
illi
M
>1
Po
Nagpur, Surat, Agra, Patna,

Rajkot, Jaipur, Lucknow, Bhopal,
Kanpur, Ludhiana, Nasik, Dhanbad
Tier 2
Mainstream Cities (26)
Po
Bhubaneswar, Raipur, Jamshedpur, Vizag,

Mangalore, Goa, Jodhpur, Gwalior, Amritsar,
Faridabad, Gorakhpur, Bhavnagar, etc.
Tier 3
Climbers (33)
Cuttack, Rourkela, Balasore, Bukharo, Shillonn, etc.
Number of Households in Millions Income per Household in 000 of INR
16.3
8.3
10
0
INR ('000)
Millions
20
200
26.5
30
Tier 1
Tier 2
4.9
Tier 3
186
150
129
135
Tier 2
Tier 3
114
100
50
Tier 4
Tier 1
Tier 4
pu
lat
ion
>0
.5
illi
on
Tier 4
Small Towns (5094)
Share of Disposable Income

INR 00 Cr.
INR 00 Cr.
3034
3009
50%
39%
39%
INR 00 Cr.
40%
INR 00 Cr.
1064
30%
670
14%
20%
9%
10%
0%
Tier 1
Tier 2
Tier 3
Tier 4
Source: Census Data, NCAER Economic Survey, KPMG INDIA Analysis
58
59
Below are some of the many reasons that make franchising attractive in Tier 2 and Tier 3 cities:
Disposable incomes
As mentioned in the preceding
discretionary spending is set to
lucrative market with many more
grow, with current proportion of
planning to leverage this growth
paragraph, disposable incomes
spending on basic necessities set to
opportunity
areset to triple by 2025 and the
fall by almost half. Some brands
proportion of incomes spent on
have already made a foray into this
Sector
Brand
Activity
Food and Beverage
Domino's
50% of the current operating stores are in Tier 2 and Tier 3 cities
Retail
Van Heusen
Van Hesun plans to open 40-50 stores in FY14 with 70% in Tier 2 cities
Service
The MobileStore
To adopt a Franchising model to penetrate Tier 2 & 3 cities with 500-600 stores in 3 years
Education
Aptech
Aptech's English Express plans to set up 80-100 centres inthe next 12 months with 80% of the
centres in Tier 2 and Tier 3 cities.
Beauty and Wellness
Shahnaz Husain
About 20% of group sales are from small markets such as Kohlapur, Panchkula and Saharanpur
Source:
Dominoes - Published reports
Van Heusen - Published reports
The Mobile Store - http://www.way2franchise.com/resource/article/the_mobile_store_to_penetrate_india_tier_2_and_3_cities_with_600_franchise_stores_this_year
Aptech - http://www.moneycontrol.com/news/cnbc-tv18-comments/upgrade-your-english-skillsaptech_417573.html
Shahnaz Husain - Published reports
Brand and lifestyle awareness

A rising number of consumers in
Lower costs
Another huge incentive for brands
with a set of processes and brands
India's smaller cities and towns are

acutely aware about international
to pursue franchising in Tier 2 and 3

cities is the lower costs involved.
that have a high chance of success

in these cities. Many franchisees
brands and lifestyle choices and
These cities have much lower
are serial entrepreneurs and
many wish to adopt similar ones.
property prices and lower set up
franchising provides them a chance
With rising advertising and internet
costs when compared to the
to convert their business to the
penetration, consumers increasingly
metros. Further, service-based
organized segment. From a non-
wish to associate themselves with
brands can avail of skilled man-
financial perspective it is often a
successful International and Indian
power at much lower costs. Many
source of pride and prestige in small
brands and this association is often
brands often face little or no
towns to be associated with well-
a source of prestige. Unlike the
competition from the organized
acclaimed successful brands. It is
West where boutique retail stores
sector and thus regular marketing
seen as a mark of respect that an
are often looked upon as the source
and advertising expenditures are
International brand has opted to
of trends in consumers, in India
also lower compared to Tier 1 cities.
partner with a franchisee. Many
established brands face no such

threat. A further source of success
for brands in Tier 2 and 3 cities is
that consumers here are more likely
to stay loyal in comparison to Tier 1
consumer
Prestige and attractiveness

In addition to the inherent
opportunity available to Franchisors
and brands, entrepreneurs in Tier 2
and Tier 3 cities are also
increasingly attracted to franchising
as compared to their peers in Tier 1
Franchisor's often provide them
franchisees in Tier 2 and 3 cities are

also young, affluent persons who
have a point to prove to their
parents and society. This
commitment to succeed from a
franchisee is often very helpful to
the parent brand and franchisor
cities. From a financial perspective
Homogeneity and local connect

Entrepreneurs and franchisees in
Venturing into franchising in Tier 2
Key Challenges
Tier 2 and Tier 3 cities often have a
and 3 cities are not without its
better connect to their markets and
pitfalls. Franchisors must customize
customers as compared to Tier 1
their products/services to suit local
franchisees. Their local knowledge
needs and markets. The tolerance
and consumer understanding can
for initial failure is also much smaller
result in successful franchising
in these scenarios. Franchisees in
operations. Further, markets in Tier
their turn often require education in
2 and 3 cities are often more
terms of business communication.
homogenous than Tier 1 cities. This
This can be a source of disconnect
can make operations and product
between franchisor and franchisee.
planning easier for the franchisee
Many franchisees also lack the
and franchisor.
discipline in following standard
processes and procedures entailed

in franchising . Thus it is essential
that the franchisor thoroughly
understands how to adapt and
sustain franchising and franchising
relationships in the Tier 2 and 3
contexts.
60
61
Employment
potential in the
franchising
industry
Employment potential
in the franchising industry
Projected number of employees required in Franchising by 2017
The franchising industry is
90
expected to employ 1.4 crore
5%
80
people by 2017, which is almost 10
70
Number of employees
percent of the total estimated

workforce in that year. Given such a
large need for skilled resources, it
is absolutely imperative to identify
the skill gaps and work towards
60
50
40
1.5%
20
bridging the same. 1
2.2%
77 lakhs
30
1%
31 lakhs
10
20 lakhs
10 lakhs
0
Retail
Food &
Beverage
Consumer
Services
Education
Percentage of total workforce

Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013, Athena Infonomics, National Skills
Development Corporation (NSDC)
Sector
Estimated
employment potential
Skills requirement
Retail
77 lakhs (5% of total workforce)
Good communication skills due to high customer involvement

Understanding customer behavior and having product knowledge.
For stores is in smaller towns, store personnel with knowledge of vernacular
language is essential.
Food & Beverage
10 lakhs (1% of total workforce)
Good communication skills, ability to handle guests and supervisory skills

Ability to manage F&B inventory and managing the day to day operations
Maintaining high level of hospitality and cleanliness
Ability to take orders from customers in a professional and courteous manner
Consumer Services
31 lakhs (2.2% of total workforce)
Basic understanding of the industry

Knowledge of the respective products they offer
Soft skills such as communication and selling skills
Sector specific skills where required (example: financial services)
Education
20 lakhs (1.5% of total workforce)
Ability to deliver content in a simple and effective manner

Good communication and observation skills to address the problems of students
Ability to use Information and Communication Technology (ICT) and constantly
update oneself with the knowledge of technology
(F&B)
Source: Industry Survey, Franchising Industry in India, KPMG in India, 2013, Athena Infonomics, National Skills Development Corporation (NSDC)
Number of additional indirect jobs expected to be created by 2017

In addition to the direct employment,
indirect employment as well. It is
estimated that indirect employment is
expected to create an additional 1.8 million
jobs by 2017 across the key franchising
sectors. Services oriented franchisees
including Food service sectors are
expected to generate maximum indirect
employment.
10
9
Number of additional indirect
jobs created (in lakhs)
franchising is expected to create push for
9.1 lakhs
8
7
6
5.7 lakhs
5
4
3.6 lakhs
3
2
1
0
Retail
Food &
Beverage
Consumer
Services
Source: KPMG Analysis based on Report by FRANdata titled Small Business Lending Matrix and Analysis (May
2009)
62
03
63
Financing
franchising
business
Financing franchising
business
Most franchisors look for the financial capability of the
Almost all franchisees surveyed for this report have self
prospective franchisees before awarding them the
funded the initial investment required for the business
business contract. However, several of the
with most of them also tapping into their family/friends
aspiring franchisees are hindered from undertaking the
network for help. In cases where franchisees were able
business due to financial constraints. The ease of
to source funds through 3rd party lenders, they were
obtaining loans for franchising business is very low in
able to do so on their personal merit and not on
comparison to other industries. This is contrary to the
business merit as recognised by the lender. In cases
reality where in franchising business, business concept
where franchisees sourced funds from banks and other
is pre-tested and proven and chances for failure is
financial institutions, it was predominantly for capital
lower than a start-up SME.
asset/equipment purchase, which was mortgaged with

the bank during the loan period. This clearly indicates
Franchisee View - Funding Options
the lack of financing options for the franchisees, who

entirely depend on their personal capability in sourcing
Angel Funding
funds.
Franchisor Funding
Under the existing RBI norms, the limits for investment
Bank Loans
3rd Party Lenders
in plant and machinery/equipment for manufacturing/
service enterprise, as notified by the Ministry of Micro
Family and Friends Help
Small and Medium Enterprises is as given below. Most
Self Finance
0
10
12
13
franchisees who obtain franchising loans are covered
14
under the same classification as that of SMEs.
Number of respondents
Franchisee View - Financial Support from Franchisor

Yes, 7%
Manufacturing sector
Enterprises
Investment in plant and machinery
Micro Enterprises
Do not exceed INR 25 lakh
Small Enterprises
More than INR 25 lakh but does not exceed

INR 5 crore
Service Sector
Enterprises
Investment in equipment
Micro Enterprises
Do not exceed INR 25 lakh
Small Enterprises
More than INR 25 lakh but does not exceed
No, 93%
INR 5 crore
Source: Reserve Bank of India
http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0
64
65
While addressing a banking conclave, RBI Deputy
enterprises with investment in plant and machinery
Governor KC Chakrabarty, said that as much as 92.7
above INR 5 lakh and up to INR 25 lakh, and micro
percent of small and medium enterprises (SMEs) are
(service) enterprises with investment in equipment
self financed. He censured the financial institutions for
above INR 2 lakh and up to INR 10 lakh.
showing laxity in financing SMEs in the country. Most

of the SMEs require working capital funding which they
find very difficult to source from formal financial
Deployment of Gross Bank Credit to Industry

(As of 22nd Mar 2013)
Micro & Small
Industries 13%
institutions. Significant share (~40 percent) of the

credit earmarked under priority sector, is focussed
Medium
Scale
Industries 5%
towards units having investments in plant and

machinery up to INR 5 lakh and micro (service)
enterprises having investment in equipment up to INR
2 lakh, which is well below the requirements of an
Large Scale
Industries 82%
average franchisee. Only ~ 20 percent of the total

advances to micro and small enterprises sector have
been targeted towards Micro (manufacturing)
Besides the above, INR 2842 billion has been disbursed to manufacturing
under priority sector lending during the same period
Deployment of Gross Bank Credit to Services

(As of 22nd Mar 2013)
Statement
2%
Computer Software
1%
Transport Operators
6%
A key factor which makes Franchising ecosystem
Shipping 1%
different is in the services franchising sector where
Professional
Services 4%
Other Services
21%
there is an absence of asset base on which a collateral

can be taken to provide a loan. However, financiers do
Trade
19%
Non-Banking Financial
Companies (NBFCs)
18%
believe that there is potential in the Franchising sector
Wholesale Trade
(other than food
procurement)10%
Commercial
Real Estate 9%
Retail Trade
9%
lending. Franchisees need funding during different

stages of operations such as the start-up, growth and
global expansion phase. Financial institutions are more
welcoming in offering support during the growth and
Besides the above, INR 2779 billion has been disbursed to services under
priority sector lending during the same period
expansion phase of operations over the start-up phase.
Description
Funding Aspects
Level of Difficulty in
sourcing external funds
Startup Phase
Growth Phase
Expansion Phase
Franchisee is ready with the business

plan and is in the contract signing
phase with the franchisor (or has
signed the contract by making part
payment of initial franchise fee)
Franchisee is already running the

business with steady financial base
and wants to expand operations
(employee hiring, technology
deployment, increased market
coverage involving increasing asset
base etc)
Franchisee, having established the base

domestically, is looking to expand into
international markets
For start-up franchisees, provision of

unsecured loans is available only up
to a certain extent loan against
security/collateral
As per the nature of requirement,

finance is provided. The provision of
loans is usually available for
purchase of fixed assets, against
security
Project financing Facility - Provision of

term loans structured to finance the
project over a tenure Structured loans
provided by the financial institutions
participating in the expansion process,
while sharing risk
Very difficult
Easy
Moderately Easy

10
http://www.indianexpress.com/news/rbi-pulls-up-banks-for-laxity-in-sme-finance/907975/
Most lenders do not treat
Industries Development Bank of
franchisees as a separate customer
India (SIDBI) and an Memorandum
relatives/friends to
fund the ventures. This situation
segment and usually cover them
of Understanding (MoU) has been
needs to undergo a sea change to
under the ambit of the broader SME
signed with Franchising Association
augment the funding requirements

in the booming franchising industry.
sector classification. Banks such as
of India, in this regard. The above
State Bank of India and HDFC Bank
situation is amply reflected in the
have started treating Franchisees as
low penetration (less than 10
There are several differences
a separate segment only during
percent) of bank loan funding
between a typical franchisee fund
recent times. A separate
amongst franchisee investors, with
request and an SME fund request
most of them using personal
which makes the former a better
finances or borrowings from
candidate for support.
mechanism for franchising ecosystem has been planned by Small
Parameter
SME entrepreneur
Franchisee entrepreneur
Business Concept
Traditional Business Concepts
Both Innovative and Traditional Business Concepts
Business Viability
While the business concepts are pre-existing, an SME

entrepreneur starts his business from scratch, with no formal
support from other industrial players (they are mostly his
competitors)
Be it innovative or traditional concepts, the franchisee

entrepreneur gets support from the franchisor
throughout business operations
Probability of success
Equal chances for success and failure
Higher chances of success given that the franchisor has

already tested the market and then launched expansion
through franchising
Financial Security
Usually the collaterals provided by SME Entrepreneur
Collaterals/Guarantee provided both by franchisor and

franchisees
Lending institutions focus on the
locations are less attractive, in part
in building a robust business plan
credit worthiness of the franchisor,
because they lack proof that they
which can be shared with the
before assessing that of the
can do well in all types of areas or
lending institutions.
franchisees. Lending institutions
economic climates. Hence,
focus is on the parent brand value,
franchisees need to put in extra
financial performance of the
diligence in identifying the right
franchisor, robustness of the
franchise system to be a part of.
business concept, level of comfort

the franchisor is willing to offer to
Financial institutions also tend to
the lending institution besides
reject funding requests from
evaluating the franchisee for his
franchisees due to non-clarity of the
own merits. Financial institutions
business concept and non-
evaluate franchisees on the
practicality of the business
business viability and expected
assumptions, such as inflated
returns from business, brand and
revenues or shrunken costs.
financial strength of franchisor and
Financial institutions show greater
lastly the financial strength of the
keenness in funding for business
franchisee owner. Bankers prefer
expansion of franchisees rather than
businesses with brand names and
during the initial investment phase.
long track records of consistent
This stage requires significant
cash flow. Ventures with few
involvement from the franchisors

who should support the franchisees
Key aspects lending

institutions look for in
franchisee funding
Prior banking relationship with

franchisors
Credit worthiness of the
franchisors
Robustness / clarity of the
business concept
Viability of the proposed
business plan
Level of comfort franchisor is
willing to provide
Credit worthiness of the
franchisees
66
67
A tripartite arrangement with the
are looking for. Such arrangements
also seek additional assurances
Franchisor, Franchisee and the
will ensure complete sharing of
from the Franchisor such as first
lending institution is the
information and support thorough
loss guarantee, change of
collaborative arrangement most
due diligence of the franchisee
franchisee or location in cases of
lending organizations such as SIDBI
business plan. Lending institutions
non-performance etc.
The SIDBI FAI collaboration

Details
Month of
incorporation
January 2013
Validity
For a period of 2 years

from the date of
signing the MoU and
extendable by
consent.
Small Industries Development Bank

of India (SIDBI):
Corporation set up under the Act of
parliament, it is the principal financial
institution for the promotion, financing
and development of Indias Micro, Small
and Medium Enterprise (MSME) sector.
It is also involved in the coordination of
functions of other bodies engaged in
similar activities.

(FAI):
Nodal Agency for the Indian franchise
sector which represents franchisees,
franchisors and service providers
belonging to the sector. Its key
objectives include establishing
international best practices in the
sector, disseminating information to key
stakeholders and educating government
about key sector issues.
Key enablers for this collaboration:

?
SIDBIs assistance flowing to eligible franchisees under the mentorship and guidance
of Franchising Association of India (FAI)
?
A good track record of the franchising in terms of success rate and a growing number
of win-win arrangements between franchisors and franchisees
?
Increasing inclination towards entrepreneurship, spurring new entrepreneurs to
increasingly look at franchising as an option
Key features of the collaboration and areas of cooperation

Cooperation on
entrepreneurship
to create enabling
environment for
development of
MSMEs
Collaboration on
avenues related to
entrepreneurship
such as policy
advocacy, structuring
of new risk capital
and other direct
credit products.
Franchising
Association of India
(FAI) to disseminate
information and create
awareness
Franchising
Association of
India (FAI) to
screen the
members initially
?
Under the agreement,
?
Screening of
Franchising Association
of India (FAI) would lay
the groundwork for
creating a conducive
business environment.
?
This would include
organizing meetings,
workshops and other
such events for
dissemination of
information about
SIDBIs schemes.
?
Franchising Association
of India (FAI) would
work to provide
visibility and
recognition to SIDBI
through above events,
websites, newsletters
and other promotional
material.
enterprises for
extension of
financial support is
expected to be
conducted by
Franchising
Association of
India (FAI).
?
The proposals are
referred to SIDBI
for assistance
under schemes
such as the Direct
Credit Scheme to
MSMEs and the
Risk Capital
Assistance
Scheme.
SIDBI reserves the

final mandate for
assistance
?
SIDBI would
conduct another
round of
assistance
eligibility based on
its established
criterion.
?
SIDBIs decision
regarding
extension of
assistance is final
and binding on all
parties.
Franchising
Association of
India (FAI) to
mentor
Franchisees
Post approval and
dissemination of
financial support
from SIDBI,
Franchising
Association of India
(FAI) comes into the
picture by assisting
and mentoring the
Franchisees
Source: Franchising Association of India
In rare occasions, even franchisors
programmes which can be of use to
and leasing support for their
are willing to financially support
potential franchisees.
franchisees with third-party lenders.
promising franchisees by providing
In such instances, franchisors also
initial funding or can considerably
Globally, the franchising industry is
reduce the initial franchise fee.
witnessing increasing use of non-
funding, while considered an
Regarding this MRK Menon, Aero
traditional funding methods.
expensive option in comparison to
Sports states, I want to provide
Franchisors are increasingly
others, is also being actively
employment to 1000 people so that

they can earn a good living. For this
adopting direct financing route by
considered by both franchisors and
accepting promissory notes for part
franchisees to fund their ventures.
I am ready to meet the aspirants
or all of the initial franchise fees
Such funding requires equity
halfway. If franchisees are able to
owed. Initial franchise fee is one of
participation as part of the overall
provide the basic franchise fee, our
the heavy investments that
offering. Angel investors look for
company would provide them with

much leverage also.
franchisees incur. By lowering the

initial burden, franchisors can
Financial institutions also provide
direct financing also involves
non-monetary support in the form of
extensive lending if the franchisor is
consultancy services, technology
financially strong. Franchisors are
assistances and training
also using indirect financing means
support franchisees. Sometimes,
undersign a guarantee. Angel
advisory role which can be of

advantage to the new franchisees.
Options for equipment leasing
reduces the need for locking up
capital which can be used in other
components of the business
Enhancing Funding Ecosystem in Franchising

Franchisor
Franchisee
Lending
Institutions
Franchising Industry
Associations
Provide increased support in

explaining the business
concept and business plan to
banks when franchisee is
availing loan
Needs to prepare a robust

business plan document
describing the business
concept, business viability,
risk mitigation strategy
Build and offer innovative

financial products suited to the
needs of franchisors
Could spearhead formation of

collective and mutual credit
guarantee consortia comprising of
franchisors, franchisees, lending
institutions and government
Should consider providing first

loss default guarantee to the
lending institutions to bear
losses up to a certain specified
limit, say the first 5-10% of
loss on a franchisee loan
portfolio.
Franchisees should insist on

a First Loss Default
Guarantee by the franchisor
as it would be affected
adversely right from the start
Should come forward to

support promising
entrepreneurs by offering
initial funding or by reducing
the franchising fee
Enhance their knowledge of

innovative business models
which are different from
traditional business models
and build policies and
processes to fund such
business ventures
Need to develop detailed
understanding of the franchise
intellectual property,
associated value and
underlying cash flow while
evaluating franchisee business
Provide greater reassurance to the

lending institutions by offering
services such as due-diligence of
the franchisee business plans
Increase awareness of innovative
asset-light business models
amongst lending institutions
Provide a common platform for the
interaction of Franchisors,
franchisees and lending
institutions
Edible Arrangements, a US firm, has a separate capital firm, Direct Capital. This financing company
provides packages to the franchisors and franchisees for the following:
to open franchise outlets at new locations
to upgrade existing stores
to buy/lease new equipments for new franchisees
The Company also guarantees and services the loans to support operations at franchised stores.
68
69
Franchising
success:
Role of the government
Franchising success:
Role of the government
Different economists have
The absence of a regulatory
government)11 and also relaxed
expressed different views on the
framework and formal franchise
Foreign Direct Investment (FDI)
role of a government in any society.
laws in India could deter potential
norms in single brand and multi-
One school of thought, represented
franchisees from investing.
brand retailing, many industry
by John Maynard Keynes and John
Countries such as Singapore and
stakeholders believe that the degree
Kenneth Galbraith, states that an
the US, which offer attractive
of government support must be far
activist government is essential for
franchise opportunities due to
greater than what it is currently.
the efficient growth of an economy.
substantial government support, are
However, another point of view was
examples of how a government can
As a first step India could look at
developed by twentieth century
facilitate and promote franchising in
some of the leading practices for
economists Frederick von Hayek
a country.
Franchise regulations in other

countries and initiate dialogue with
and Milton Friedman. They argued

that an activist government is the
While India has liberalized franchise
Indian Franchising community to
key cause of economic instability
royalty/fee payments since 2011
understand their needs and
and inefficiencies in the private
(Foreign franchisors can now charge
concerns.
sector.
a lump-sum fee and royalty without

any maximum limit for transfer of
However, all economists agree that
technology and royalty for use of
government support is critical for
trademark/brand name on the
the operational efficiency in a
automatic route without any prior
private market.
approval from the Indian
Figure 1: Country rankings for doing franchise business, 2012

India
Singapore
Malaysia
Brazil
US
UK
Expected 2013 GDP growth
Market size (customers)
Legal concerns for

international brands
Ease of setting up a
new business
Political risk (stability)
1.8
1.6
2.4
1.8
1.6
1.6
Overall country ranking
Country ranking : 1 is good, 2.5 is fair, 4 is worst

Sources : 'The Economist';EIU;Heritage Foundation; World Bank
11
http://www.millercanfield.com/publications-articles-240.html, accessed on 7 June 2013
70
71
Case study: Singapore

government support boosts sector growth
Since 1985, the Singapore Government has been
SPRING is a statutory board under the Ministry of Trade
actively promoting franchising as a means of
and Industry (Singapore). It offers financial assistance
internationalizing domestic small companies. Eligible
to local SMEs to foster the franchise business
companies can leverage various schemes related to
environment, facilitate the growth of industries, and
franchise consulting, the registration of trademarks,
enhance innovation and enterprise capabilities
market surveys and participation in overseas
domestically. Similarly, IE Singapore facilitates the
exhibitions.
overseas growth of domestic companies and promotes

international trade.
The lead government agencies that promote franchise

development in Singapore are:
Standards, Productivity and Innovation Board
(SPRING), Singapore
International Enterprise (IE) Singapore
SPRING
IE Singapore
provides financial assistance to local entrepreneurs
facilitates franchise opportunities outside the country
SPRING: offers and interventions
External economic opportunities:
Several financial incentivesin the form of cash/voucher to defray

expenses, tax incentives (PIC scheme)* and grants (CDG)** support
enterprising competitiveness, increase productivity and improve human
resource management practices for local small enterprises in
Singapore. The country supports the industry in working capital, trade
finance and equipment finance activities through government - backed
loans and schemes such as the Local Enterprise Finance Scheme (LEFS),
the Loan Insurance scheme (LIS) and the Micro Loan Program (MLP).
IE Singapore is a government agency, under the Ministry of Trade

(Singapore), which facilitates the overseas growth of domestic
companies and promotes international trade.
*Productivity & Innovation Credit (PIC) scheme provides 400 percent tax deduction of up to
US$0.4 million or 60 percent cash grant up to US$100,000 expenses in productivity
improvements and innovation.
** Capability Development Grant (CDG) supports up to 70 percent of the cost of productivity
improvements and capability development , which results in greater enterprise competitiveness
and business growth.
Globally Competitive Companies (GCCs):

These companies facilitate international trade opportunities for
potential domestic players. GCCs compete in about 35 countries in
various industries. They contribute to Singapores economic buoyancy,
cultivate global business leaders domestically and strengthen the
countrys overall brand value.
Source: http://www.iesingapore.gov.sg/wps/portal and www.spring.gov.sg/
Case study: Brazil

government support boosts sector growth
Brazil is the 7th largest economy in
Despite the presence of this
The following diagram exhibits the
the world, where all the franchise
comprehensive law for franchising
various aspects of the franchising,
operations are regulated by 'The
in the country, the government also
which are directly governed by
Brazilian Franchise Law (Law No.
proactively interferes in the
some government agencies in
8955 of December 15, 1994)'.
country's franchise transactions.
Brazil:
Competition laws
Disclosure laws
Dispute resolution
The National Institute of Industrial
The competition laws are governed by
The conflicts and disputes in franchise
Property (INPI) is a goverment entity,
the Brazilian Competition System
transactions are obliged to follow the
responsible for multiple aspects related
(SBDC). This system comprises the
Brazilian Code of Civil Procedure (Law
to franchise agreements such as
Administrative Economic Defence
No. 5,869/1973). This law is common for
industrial property rights, issuance of
Council (CADE), an independent agency
all kinds of conflicts in the country,
letters patent, certification of licensing
linked to the Ministry of Justice; and the
irrespective of the relation to the
agreements involving industrial property
Economic Policy Bureau (SEAE), a
franchise transactions.
rights, and registration of domestic and
government entity reporting to the
cross-border franchise agreements.
Ministry of Finance.
Source: http://www.franchise.org//uploadedFiles/F2013%20Brazil.pdf, accessed on 10 June 2013.
Learning from International franchising regulatory scenario for the GoI:

US
UK
Malaysia
Brazil
KPMG Comments
Specific franchising
Law
Franchising focused rules & regulations are expected to

send a positive message to both Indian and global
franchising community about the seriousness of Indian
government in promoting franchising as a mainstream
sector that can contribute to overall GDP growth and
employment generation.
Pre-contractual
disclosure norms
This is important to protect franchisee rights as well as

will ensure only serious players look at franchising.
Control on royalty
payments and
franchisee fees
Free market pricing should be encouraged while making

sure that royalty and fee payments lie within industry
standards.
Conflicts resolution
It is critical to have a transparent dispute resolution

mechanism and an independent body to address
conflicts that may arise between a franchisor &
franchisee
Intellectual property
protection
It is important to protect intellectual property rights of

all the franchisors to discourage counterfeiting brands.
72
73
India could take a cue based on key areas of support identified by

International Franchise Association in the context of Franchising.
Identified federal legislative areas where government attention and support is required:
The GoI needs to benchmark its

priority to promote franchise
industry in India against the
legislative priorities of the
International Franchise
Association (IFA).
Franchise relationship legislation
Private equity taxation
Capital access
Restaurant nutrition labeling
Depreciation reform
Tax reform
Business activity taxes
Small business loan program
Labor issues
Veterans policy
Lawsuit abuse reform
Source: International Franchise Association (IFA) http://www.franchise.org/IndustrySecondary.aspx?id=10070
Expected role of the government in addressing the industry's key challenges:
Absence of a strong
legal framework
Identified key issues and challenges faced

by the industry
Expected support from the government
The absence of a dedicated regulatory framework

and formal franchise laws sometimes acts as a
mind block for a business investor or a prospective
franchisee looking to invest in a new
franchise system.
Evaluate the need and urgency to formulate franchising

specific laws including pre-disclosure norms, effective
dispute resolution and governance mechanism.
However, such laws should not be restrictive in nature
Single window clearance for international franchisors
Need for financial

assistance
No specific financial assistance programs or

schemes for franchise market, except for the SME
sector.
Government could look at setting up funding programs to

encourage adoption of franchising business model by
entrepreneurs
Government could also look at providing guarantees to bank
loans for certain identified sectors with-in franchising
Counter guarantee collective mutual credit guarantee
schemes
Regional diversity
A balanced and well-informed strategy is required

for smooth franchise operations in a
diverse country such as India.
Provide data/information to franchisors, especially on

demographics, as well as growth rates and trends in various
industries/regions.
74
75
Conclusion
Conclusion
In the absence of any specific law
agencies in addition to the
for franchising, it becomes critical
benefits available for SME's.
regulations to operate franchise
for all the industry players in India to
Financial institutions should also
business in India.
collaborate and support the industry
come up with innovative financial
to ensure the country's franchising
products to support franchisee
potential is leveraged to its fullest.
ecosystem.
The following are some areas where

the industry stakeholders could help
leverage the availability of the
country's entrepreneurs and the
country's ability to cater to the
prevailing consumption boom:
Government and financial
institutions:
The government should play a key
role in supporting all the franchise
industry stakeholders including
franchisors, franchisees, financial
institutions, banks and industry
associations.
Frame policies which liberalize
Indian foreign trade policies to
encourage more foreign
franchisors in the country. Set up
regulations around the precontractual disclosures and
streamline the process of entry of
franchisors.
Streamline approvals for the
prospective franchisees by
Support industry associations

such as Franchising Association of
India in setting up franchise
incubation centres for domestic
retailers aspiring to operate in
India through the franchise model.
Franchisor and franchisee:
Franchisor should evaluate setting
up financing programs to help the
potential franchisees. This
concept of financing franchising
by franchisor has not yet emerged
in India.
Franchisor should collaborate and
support franchisee throughout the
business life cycle; specifically the
start-up support, operational
support, financing support and
initial infrastructural support.
Franchisors should share long
term business goals with their
franchisees
Franchisors and Franchisees
allowing single window
should discuss in detail growth
clearance / approvals. Also look at
opportunities and expectations on
protecting rights of franchisees by
returns from franchise business
Comply with all laws and
Industry associations:
Industry associations such as
should act as a common platform to
serve and promote all the franchise
industry operations in India.
Proactively engage with
government, financial institutions
and other industry stakeholders
on policy matters that may need
to be addressed to drive growth of
franchising industry in India.
Support government bodies and
financial institutions to improve
laws and promote franchising.
Actively persuade industrygovernment partnerships to adopt
global best practices in
franchising. This is expected to
enhance overall competitiveness
of the sector.
Partner with Franchisors and/ or
Franchising industry associations
to assist in screening of potential
franchisees for extension of
financial support.
setting up a strong dispute

resolution mechanism in the
country.
Support public agencies and
financial institutions to improve
laws and promote franchising.
Set up a central fund to support
innovative franchise models in
India. Encourage banks and
financial institutions to increase
financial incentives for the
franchisors, franchisees and
concerned associations and
76
77
Support from key industry stakeholders: Critical success factor for franchise industry in India
Franchisor
Comply with all laws
and codes regulating
franchising in India
Set up financing
programs to
financially help the
potential franchisees
Franchisors should
share long term
business goals with
their franchisees
Financial Institutions
Industry Associations
Ease FDI norms to

allow retailers to
adopt franchise
models of entry
Develop innovative
financial products to
support franchisee
ecosystem
Set up a central fund

to support innovative
franchise models
Enhance their
knowledge of
innovative business
models which are
different from
traditional business
models and build
policies and
processes to fund
such business
ventures
Provide a common
platform for the
interaction of
Franchisors,
franchisees,
government and
lending institutions
Government
Allow single window

clearances for
franchisees and
protect their rights
Support public
agencies and
financial institutions
to improve laws and
promote franchising
Franchisee
Active involvement
into the business and
should adopt fair
business practices
Insist on complete
disclosure by
franchisors
Actively persuade
industry-government
partnerships to adopt
global best practices
in franchising. This is
expected to enhance
overall
competitiveness of the
sector.
Partner with
Franchisors and/ or
Franchising industry
associations to assist
in screening of
potential franchisees
for extension of
financial support.
78
79
Appendix
Franchisee Data
Sector wise
Retail
Sector
Investment
(in INR
lakhs)
Area
required
(sq. ft)
Revenue/
sq. ft/month
(in INR)
Royalty
(% of
sales)
Franchisee
Fee
(INR lakhs)
Return on
Investment
(%)
Paybackperiod
(years)
Franchise
Term
(years)
Apparel
15 20
1200 1800
3500 4500
10 - 15
1 -2
25
Consumer
Durables
23 26
1000 1500
3000 3500
NA
NA
25
NA
Jewelry
250 350
1000 1500
1000 1300
None
2-3
20
11
Music,
Books &
stationery
12 15
600 800
200 250
NA
NA
40
NA
Furniture
&
Furnishing
40 45
1200 1600
300 400
NA
NA
20
NA
Pharmacy
8 10
400 600
1200 1600
NA
NA
20
NA
Food &
Grocery
20 25
1000 1500
1800 2300
NA
NA
20
NA
Food & Beverages

Sector
Investment
(in INR
lakhs)
Area
required
(sq. ft)
Revenue/
sq. ft/month
(in INR)
Royalty
(% of
sales)
Franchisee
Fee
(INR lakhs)
Return on
Investment
(%)
Paybackperiod
(years)
Franchise
Term
(years)
QSR
30 40
500 1000
1000 1200
68
2.5 5
25
NA
FSR
25 30
1000 1500
1000 1500
68
5 10
20
NA
Caf/bars
30 40
500 1000
500 600
68
5 10
30
NA
Kiosks
10 15
250 300
800 1000
68
12
30
NA
Abbreviations:
QSR Quick Service Restaurants
FSR Full Service Restaurants (Fine & Casual dining)
80
81
Franchisee Data
Sector wise
Health & Wellness
Sector
Investment
(in INR
lakhs)
Area
required
(sq. ft)
Revenue/
sq. ft/month
(in INR)
Royalty
(% of
sales)
Franchisee
Fee
(INR lakhs)
Return on
Investment
(%)
Paybackperiod
(years)
Franchise
Term
(years)
Spa
40 50
1400 1600
500 700
10 - 15
10 20
30
Salon
40 45
1400 1600
1200 1400
NA
NA
35
NA
Fitness &
Slimming
70 80
1500 2000
200 600
68
8 10
30
10
Consumer Services
Sector
Investment
(in INR
lakhs)
Area
required
(sq. ft)
Revenue/
sq. ft/month
(in INR)
Royalty
(% of
sales)
Franchisee
Fee
(INR lakhs)
Return on
Investment
(%)
Paybackperiod
(years)
Franchise
Term
(years)
Travel
5 10
1200 1600
300 500
NA
NA
50
Financial
10 15
500 1000
800 1000
NA
NA
5 15
NA
Education
Sector
Investment
(in INR
lakhs)
Area
required
(sq. ft)
Revenue/
sq. ft/month
(in INR)
Royalty
(% of
sales)
Franchisee
Fee
(INR lakhs)
Return on
Investment
(%)
Paybackperiod
(years)
Franchise
Term
(years)
Preschools
10 15
1200 1600
10 50
10 20
15
16
1.5 2
IT Training
15 20
1200 1600
1200 1700
NA
NA
50
NA
Note:
NA Data not available
82
83
Acknowledgements
Acknowledgements
In order to provide a comprehensive industry view in the study, we have interacted with various representatives
from the Franchising community including Franchisors (both Indian & Foreign), Franchisees, Financial Institutions,
Industry experts and Legal consultants. We would like to thank the various industry participants, whose
invaluable contributions have made this study possible.
The support provided by Franchising Association of India (FAI) has been instrumental in providing us with a
platform to base our industry discussions. We would like to thank the team at Franchising Association of India
for assisting us during the course of this study.
We have interacted with the representatives of the following companies/ brands and would like to thank each
of them for providing valuable inputs on the franchising sector.
AIMS
Amul
Aptech
Arena
Arun Ice Creams
Brainworks
California Burrito
Contours
Donut House
Educomp
Euro Kids
Ferns N Petals
Field Fisher Waterhouse LLP
Four Fountain Spa
Franchise Mind Corporation
Gitanjali
Howards Storage World
Indian Cookery Pvt. Ltd.
Jumbo King
Just Books
Kaati Zone
KBs Fairprice (Future Group)
Lakme
Lexmantis
Liberty Shoes Ltd.
Little Millennium
Marrybrown
Mocha Coffee
Naturals Beauty Salon
Pink Fitness One Group
Pitman
Quiznos
Repro India
Ripleys
SIDBI
SIP Academy Abacus training
Siyarams
South Asian Hospitality
Sparkleminds
Talwalkars
The Chocolate Room
TIME CAT coaching
TTK Prestige
VLCC
Way2wealth
Zee Learning
We would also like to acknowledge the core team from KPMG in India who made this report possible:
Ramesh Srinivas, Anand Ramanathan, Praveen Govindu, Priyanka Balasubramanian, Urvashi Gupta, Puneet
Luthra, Sidharth Gopalan, Prasanna Venkatesan, Nirupam Das, Ankur Garg, Aditya Muralidhar, Priyanka Gupta,
Jiten Ganatra, Subashini Rajagopalan, Sandeep Yadav and Priyanka Agarwal.
84
KPMG in India Contacts
Franchising Association of
India (FAI) Contacts
Pradeep Udhas
Head
Markets
T: +91 22 3090 2040
E: pudhas@kpmg.com
C.Y. Pal
President
T: +91 22 2351 7185
E: info@fai.co.in
Ramesh Srinivas
Head
Consumer Markets
T: +91 80 3065 4300
E: rameshs@kpmg.com
Nilesh Daivadnya
Senior Manager
T: +91 22 2827 2490
E: nilesh.daivadnya@fai.co.in
Anand Ramanathan
Associate Director
Consumer Markets
T: +91 80 3065 4475
E: anandramanathan@kpmg.com
Praveen Govindu
Senior Consultant
Consumer Markets
T: +91 80 3065 4474
E: pgovindu@kpmg.com
kpmg.com/in
The information contained herein is of a general nature and is not intended to address the circumstances of any particular
individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a thorough examination of the particular situation. The views
and opinions expressed herein as a part of the Survey are those of the survey respondents and do not necessarily
represent the views and opinions of KPMG in India.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.
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CONSUMER MARKETS

The World Franchise Council (WFC) is an association of 45 National Franchise

The International Franchise Association is excited to see this

John Reynolds, CFE

According to KPMG India estimates, the franchising industry is expected to

Franchising Market Potential

branded products, global exposure

Franchising as a concept has been

Estimated franchising industry

Contribution of Franchising to GDP and Employment (2012)

Value (US$ billion)

People employed by franchising sector as a % of total workforce

No. of outlets ('000)

Franchise Sales/ GDP (%)

Supply side factors

Increasing consumption and willingness to spend

Increasing set of opportunity-driven competent entrepreneurs

Source: KPMG in India Analysis

Franchising Opportunity: Sector Overview

many successful case studies of franchising in India. From

Estimated Sector wise Franchising growth in India (2012-2017)

Represents the CAGR growth from 2012 - 2017

Franchising Market Size (USD Billion)

Consumer Services 2017

Health & Wellness 2017

Franchise Business Models

While certain operating models within franchising such as

Resources For Operation

Medium - High Attractiveness

Source: KPMG in India Analysis

Attractiveness of India in Global Franchising

or laws promulgated in India to address the functioning of

becomes more complicated in case of India where

threatened with the bribe and corruption cases in India.

Franchise Industry Survey Key Highlights

to their franchisees; however the latter are expecting more

entrepreneurs are opting for the franchising route as it

primarily offers a safe and relatively easy way of

success of franchising. Collaborative efforts between

Specific franchising Law

It is critical to have a transparent dispute resolution mechanism and an independent

It is important to protect intellectual property rights of all the franchisors to

Source: KPMG in India Analysis

Financing the Franchise Business

A comprehensive and collaborative mechanism is once

Enhancing Funding Ecosystem in Franchising

Provide increased support in

Needs to prepare a robust

Build and offer innovative

Could spearhead formation of

Should consider providing first

Franchisees should insist on

Should come forward to

Enhance their knowledge of

Provide greater reassurance to the

Source: KPMG in India Analysis

Franchising - Pushing India Ahead

Current market landscape for franchising in India

Case studies in the Indian Franchising Space

International Franchising Scenario

Franchise Industry Survey

Franchising Regulatory Scenario

Business Models in Franchising