In India, the franchise business model is quite popular since many individuals believe that operating a business is preferable to owning one. Do you share my opinion? Do you want to discover if it is indeed a good idea? Please allow us to explain franchising to you.
The Franchising Idea
Franchising, which originated in European nations and has now developed into a successful business strategy, can be defined as operating an existing firm rather than creating one from scratch.
An established brand, known as the “franchisor,” grants freedom to an independent business owner, known as the “franchisee,” to use its business model, branding, and other intellectual property to run the business in exchange for paying the franchisor an initial franchise fee and monthly royalties. The term “franchise” is derived from the French word “franchir,” which means “free.”
Simply put, a franchisee business model is receiving a business blueprint that you must follow without purchasing anything or making any modifications. Franchising involves giving the complete business to someone while you still own it, in contrast to distributorship, when a company grants the right to sell a product in a certain market. Some well-known franchisees exist in India, including Amul, McDonald’s, Patanjali, and FirstCry.
The Facts and Statistics of the Indian Franchise Business Model
India has developed into a hotspot for franchising thanks to the millennial generation’s shifting lifestyle preferences. India is already the second-largest franchise market in the world after the US, and it is expected to reach INR 938 billion by 2024 thanks to an exceptional growth rate of 30 to 35 percent per year.
Its contribution to the Indian economy stands for around 2% of the country’s GDP, with over 4,600 active franchisors running close to 200,000 outlets in a variety of industries, including food, retail, healthcare, beauty and wellness, footwear, apparel, and technology-driven company.
Franchise Types and Franchise Ownership
Several sorts of franchise businesses exist, and each can be chosen if it appears appropriate to them.
1. OPERATIONAL FRANCHISE
Franchises that grant franchisees exclusive rights to market or sell the franchisor’s goods are the type that has been around the longest. It is a franchise that focuses on particular products, and the franchisee is only allowed to sell those items under the franchisor’s brand after paying a fee for the right to do so.
2. FRANCHISE IN FRANCHISING
A business model where the franchisee is authorized legally to produce and sell goods using the franchisor’s brand name and trademark. Nonetheless, the franchisor must be paid the franchise fee as well as a set sum for each unit sold
3. FORMAT FOR BUSINESS FRANCHISE
In this case, the franchisee just needs to pay the franchisor a royalty fee and is given access to all of the resources needed to operate a business, including the necessary training, raw materials, and even the clientele they will need in the future.
4. FINANCIAL FRANCHISE
Large capital investments are necessary for large-scale enterprises like hotels, supermarkets, etc., where the franchisee and franchisor both invest and even engage their own staff to run the company. Together, they produce a return on investment as well as a capital gain when the business is closed.
5. CAREER FRANCHISE
It is a low-investment franchise (typically home-based) where a franchisee can run a business by themselves or with a small staff (under 5) and only be required to pay a franchise fee and very little beginning costs, such as equipment, electricity, and basic materials.
6. TRANSFORMATION FRANCHISE
The process of turning your firm into a franchise unit is known as hybrid franchising, and the advantages include getting the right to use the parent company’s trademarks, marketing and advertising strategies, training programs, and client service standards.
7. PRINCIPAL FRANCHISE
In this category, the franchisee (master franchisee) is granted the authority to manage the brand’s franchising operations (such as designating sub-franchisees) within a predetermined geographic area where there is no rivalry, interference, or distraction from other players marketing the same brand’s goods, ultimately resulting in a more accessible and better ROI for them.
When it comes to franchise ownership, a franchisee has two options: a Single-Unit Franchisee, who owns a single business branch, or a Multi-Unit Franchisee, who decides to create many branches under the same franchisor.
Now that you know what a franchise is and the different types of franchises there are, let’s examine the different franchise business models and how they function.
There are several franchise business models in India.
Several franchises run differently from one another. The choice is one that the franchisor and the franchisee make together, and there are several distinct kinds of operating models:
1. (FOCO) FRANCHISE-OWNED COMPANY OPERATED
The business model is whereby the franchisee invests in the building and other additional capital expenses while the franchisor handles operations and overhead costs and pays the franchisee a certain percentage or share of the profits.
2. (FOFO) FRANCHISE-OWNED FRANCHISES OPERATED
the business model where a franchisee owns and runs the business, but the franchisor retains control and sets the store’s menu and prices. In exchange for a non-refundable fee, the franchisee is permitted to use the brand name and cover all operating expenses (franchise fee).
3. (COCO) COMPANY-OWNED AND COMPANY-OPERATED
While its staff manages the franchise, the franchisor itself finances and owns everything related to the franchisee store unit, its operations, and other costs.
4. (COFO) COMPANY-OWNED, FRANCHISE-OPERATED
While most businesses (franchisors) investing in expanding their business operations prefer to manage it on their own, it is an uncommon model where the company invests in the franchise business but the franchisee operates it in accordance with the franchisor’s instructions.
What Are the Principles of a Franchise Business Model?
Each franchise business model has a distinct basic functioning depending on the type of franchisee-franchisor partnership agreement, the state, the nature of the firm, and the franchisor’s policies. Having said that, the following is a typical franchising process:
STEP 1 – COLLECT BACKGROUND INFORMATION
If you want to reach the sky, preparation is key. Any business must conduct research as its initial step. Consider the nature of the company and, after doing a lot of studies, decide which franchise model you’d like to adopt and which will be beneficial for you. Create a list of the advantages of owning a franchise, then look for a franchisor who aligns with your objectives, financial capabilities, and business expectations. To avoid any issues later, thoroughly research any legal issues with the franchisor and the location where the franchisee will be located.
STEP 2 – MEET YOUR FRANCHISOR
Set up a face-to-face meeting with a few possible franchisors after doing your research and whittling down your selection to understand more about the company, how it operates, and the advantages it offers before deciding which one to go with. Don’t forget to extract as much information as you can about the company, such as how long it has been operating, its growth strategy, risk considerations, etc.
STEP 3 – NEGOTIATE
Don’t be embarrassed by negotiating; it’s typical to practice in business. Even if the franchisor satisfies your fundamental objectives, there is nothing wrong with negotiating the partnership conditions; nonetheless, in order to do so effectively, you must be well-prepared and possess outstanding negotiation skills.
STEP 4 – ENTER INTO AN AGREEMENT
The final step is the most important one since it signals that both sides have agreed to the terms put forth. The Indian Contract Act of 1982, The Competition Act of 2002, The Income Tax Act of 1961, The Trademarks Act of 1999, The Patent Act of 1970, The Design Act of 2000, The Copyright Act of 1957, The Consumer Protection Act of 1986, The Indian Labour Laws, and other laws are all incorporated into a franchise agreement even though there is no specific franchising law in India. Only an experienced corporate lawyer can do this for you.
The franchise agreement must, without a doubt, include the following components, which you may confirm with a legal professional before signing it off since it will serve as the cornerstone of the franchisor-franchisee relationship.
- Information about the franchisor and the franchisee
- hiring a franchisee and obtaining a license
- Location of a franchise
- Construction and upkeep of the franchisee location
- Franchisees may make use of trademarks or proprietary markings.
- Licenses or authorizations that the franchisee is required to get or may utilize
- Standards of operation and quality
- Training and support from the franchisor, if applicable
- Taking into account giving franchisee
- Whether there is a franchisee license charge
- Any marketing support provided by the franchisor
- Products or services that franchisees may offer
- Franchisee responsibilities
- Franchisee obligations
- Franchise Agreement’s duration and terms
- Termination and renewal of the franchise agreement
In conclusion
Despite the fact that franchising appears to be simple because you don’t have to start a business from scratch and because it offers many advantages like a higher chance of success, independence, lower risk, low operating costs, rapid expansion, brand recognition, etc., there are still a lot of legal considerations that must be made to prevent future complications or disputes.
