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An Overview Of The Franchise Industry In India And Its Growth In Recent Years

An Overview Of The Franchise Industry In India And Its Growth In Recent Years

By Startup Authority

The growth of India’s GDP has been significant over the years and there are several reasons for it for such a significant growth at $3.75 trillion. This is because India is a country where the middle class is rising and as well as the India franchise business in the country.

The growth of the franchise industry in India has been immense and has been showing enormous growth every year. Currently, it is being expected that within the next couple of years the India franchise business will be touching USD 140-150 billion. 

Currently, the Indian franchise industry is reported to have a value of Rs 800 billion and is expected to continue its gigantic growth every year with a growth rate of 30 to 35 percent per annum. At present, India stands second when it comes to the second largest franchise market globally and five years from now the value would be easily touching USD 140-150 billion as it was revealed in a report titled, Francast White Paper on Franchise Forecast 2023-24.

Adapting to Local Tastes: A Key to Franchise Success in India

Understanding local culture and tastes of products is vital to a franchise's success. For example, a large percentage of Indians is vegetarian and therefore it becomes difficult for several fast food American brands to introduce their beef, pork, chicken recipes in the country thus creating a lot of boundaries to conduct its business. 

Several brands that are operating their business in India like McDonald’s, Dominos, Pizza Hut, KFC and many more have developed special Indian menus to cater to the Indian palette. Big franchises are even unable to operate their business in India because they face major challenges in communication. Language barrier becomes one of the reasons for the downfall of a business which is why operating business in remote areas becomes a major challenge. 

Franchise agreements must be per Indian contract law and include all necessary  clauses on both parties rights and obligations. The franchise industry faces challenges in intellectual property protection, franchise agreements, advertising and marketing rules, employment legislation, and tax and accounting requirements. There are several legal frameworks that need to be in accordance with the Indian rules and regulations guidelines like the Indian Contract Act of 1872. 

The Indian Contract Act of 1872 allows execution of contracts without a formal writing but this may not be an efficient way to formalize an agreement of a franchise. International franchises making their agreement with small or medium-sized businesses always prefer agreement in writing. Furthermore, the high taxation on royalties paid for the use of intellectual property may make the franchisor decide to hold back from growing in India. 

The regulatory environment becomes more complex when we talk about labor law compliance. This is because apart from adhering to hundreds of compliances, businesses in India have to keep track of numerous filings in a given year and they would even have to follow the labor law compliance standards that has been bestowed by both the central government and as well as local government regulators. Additionally, labor laws are constantly changing which only adds more difficulty to running a business in the country. 

Taxation regulation in the country is still very weak as there are major issues that companies face while filing their returns. For example, there is still a lack of clarity on GST provisions. Categorisation of goods and services in numerous cases are still very unclear. Franchises/businesses would need to file multiple returns. A minimum of 37 returns filing in most cases. 

Supply Chain Management 

Supply chain management needs to be properly managed and efficient for the success of a franchise business. Supply chain is greatly impacted by globalization and is dynamic in nature which constantly involves the flow of information, products, and money transfer between different parties.

Today’s franchise industry we can see the importance of supply chain, they are given top priority for seamless supply chain and logistics activities. There are several challenges that are faced by the franchise business in India are some of them are as the following. 

Sourcing quality raw materials 

Sourcing quality raw materials for businesses in India is a difficult issue because franchise business owners have to keep the quality of raw materials in check so that it does not hamper the overall quality of the end product. Franchise businesses could lose their goodwill if customers feel that the end product is of low quality. 

Businesses would have to go through multiple suppliers at each stage so it becomes quite difficult for franchise businesses to source quality raw materials. The cost is also a factor that businesses would have to look at because if the supply for a particular raw material is less then the cost could rise high. 

Efficient Logistics: Overcoming Hurdles in a Crowded Market

Logistics is one of the most difficult things to manage in a crowded country like India. Almost every business requires good maintenance of logistics so that business is smooth on a daily basis. Businesses often find it difficult to find professional and well-behaved drivers. Container shipping demand is growing which is ultimately increasing the freight costs. 

To ensure efficient logistics it is important for franchise businesses to look for the best logistic option. For example, trains could be used to transport raw materials and certain products at a lower cost than any other form of transportation. This is only to reduce the cost of businesses and it may not guarantee efficient logistics until and unless one plans to use their own logistics services. 

Maintaining inventory levels in a fragmented and diverse market 

Inventory is considered to be excess cost in terms of holding the investor, managing the damages, stocking the products in the warehouse, and visibility of the products  whenever needed. Ensure you have a proper warehouse space to store the goods. Effective technology should be available in terms of handling inbound and outbound activities. 

For example, McDonald’s operating their restaurant business in India must keep in mind keeping both vegetarian options as well as non-vegetarian options in their menus. This ultimately results in the business increasing their inventory. 

Competition in the Indian Franchise Market: Strategies for Success

In a country like India where as the population is growing there is an increase in demand for products and services as well. Therefore, competition and entry of potential new business in the country is taking place at a rapid pace. There is strong competition that every business has to face in every industry today. If a franchise for a fast food restaurant company wants to operate its business in India then it will be facing major competition with major Indian brands as well as from local vendors as well.

Therefore, cost in marketing and advertising becomes a major concern for international businesses. Sustaining in the market becomes tougher if businesses are unable to innovate and bring in new or something catchy product or services. 

Competition is even high when it comes to marketing and advertising campaigns. Every franchise tries to offer something new and advertise effectively by paying a hefty amount of money. Franchises need to gain an advantage over their competitors by making the most of public feedback data using competitive Competitive Intelligence Solution.

In this feedback data the key benefits that include this are your competitors ratings, reviews, customer sentiment, and response rates. With this information at your disposal, you will be better able to identify emerging trends and plan your advertising campaigns. All these will help in capturing new markets and as well as sustain the growth of your business. 

Pricing Strategies for Indian Consumers: Balancing Cost and Value

Opening a franchise business in India means you will be dealing with diverse cultures, different level income people, religion, taste and preferences. Here are some of the challenges that  are faced by some of the franchises in pricing their products and services. 

Fear of Setting Wrong price 

Most franchises set the wrong price at the right location or wrong price at the wrong location. In a country like India proper and thorough market study needs to be conducted before setting the right price depending on the location where the business has been opened.

This is the area where business owners need to do their homework because when customers find something very pricy they do not buy and that is where you as a franchise cannot cover your costs. On the other hand, if the price is set too low potential buyers will think that the product is cheap. So, the price of the product should be set according to the Indian consumers’ taste and preference, income, and many such things. 

Understanding and Adapting to Changing Consumer Behavior

You can easily compare the pricing strategy of your competitors in the market or the nearest substitutes of your products and services. This will give you an idea about the correct pricing for your product and services. The pricing strategy should not be too high or too low as compared with its substitutes.

In a country like India there are local vendors who can provide most of the fast food items at a lower cost and keeping that in mind you need to set the pricing of your products. You can set promotional offers with the predetermined price to attract more customers. 

Consumer Behavior And Preferences 

As the customer behavior constantly changes, businesses or franchises face an ongoing challenge to keep up with the audiences. Personalization and need fulfillment are very important to the success of any product and services sold by that particular franchise. In a diversified country like India businesses would have to always keep themselves updated with the changing consumer behavior and preferences. 

For example, the smartphone industry has been changing the way of using mobile phones. With the introduction of 5g connectivity in India people will be shifting to a 5G handset instead of buying a new 4G mobile phone. This is the consumer behavior that all businesses and franchises need to keep a track of if they want to succeed in their business. 

Talent Acquisition and Motivation: Key to Franchise Success

There may be numerous challenges that a business may face if they want to operate in a country like India but on the other hand, facing a new challenge will open a new door of strategy to overcome them. It is important for businesses and franchises to take necessary and immediate steps to make sure that they do not just lose their customers but also make decent profit at the end of the day. 

For cultural and regional diversity challenges, supply chain management challenges, competition in the market, price sensitivity challenges can be overcomed by a business with the help of innovation and by using technology.

For example, if you are getting into the fast food restaurant business you can develop an application to order customizable food for the customers where both vegan and nonvegetarians can order the food of their choice and that too customized. For supply chain management you can use proper AI tools or simply using an application you can manage your inventory, keep a track of it, and maintain other work. 

For cutting down competition businesses would have to work on bringing new products and services. Customers will not be utilizing your product or services if there is nothing new that you can offer. For example, Jio took down their competitors in the Indian market by offering free high-speed data with unlimited calling. This initiative by Jio changed the industry in India because the majority of the customers began shifting from other telecommunication service providers to Jio. 

Talent acquisition is one of the things for overcoming major challenges. Hiring the best manpower to do crucial and complex work will ultimately help your business. You can take a series of tests to check the capability of your employees and this way you will be getting the best manpower for your business. You also need to keep them motivated by paying them well enough. 

Conclusion: Thriving in India's Dynamic Franchise Landscape

When there is a will there is always a way. You can easily come up with lots of strategic solutions in the franchise industry. The franchise industry is growing every year for nothing because franchises always find a solution for all types of problems.

You would not have to spend a hefty amount of money but simply thinking of innovative solutions will ultimately help the franchise industry in India to overcome the majority of the challenges. When it comes to legal challenges you can seek consultations and pre-plan your decisions early and make decisions and implement your actions according to the rules and regulations of India.