October 16, 2013 1

October 16, 2013 2

Session 1Franchising 101 – Building The Strategy

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Good morning India!Mike AdamsManaging DirectorFranchise Asia Pacific Pty LtdSydney, Australia

• 30yr franchise veteran• Developing brands & people throughout Asia Pacific• CEO/BoD & Asia experience India, SEA & China • Forte for establishing multi-outlet distribution channels• Franchise know-how across multiple industries &

business formats

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Why India – market drivers• BRIC+2 countries = allegedly 40% world’s growth during next decade

• Phenomena driven by “Emerging Middle Class” which has…– Disposable income -> greater freedom of choice– Desire to live like the West– Changing values / eroding class structures

• India = 1.2B pop & narrower band of wealth spread than some• Colonial heritage left infrastructure, bureaucracy & English language• Largest English speaking nation in the world• More western centric business psyche than China• World’s 4th largest economy

• Allegedly 100M middle class 2009 -> projecting 580M by 2025?• India is potentially the largest BRIC market globally?

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What is a franchise?An agreement (license) between two parties, where the…

• Franchisor grants the franchisee a license (system) to market a• Product or service, using• Brand / trademark• Operating methods of a proven business format

• In exchange for a recurring payment (royalty)• For a set period of time (term), and • Provides support to the franchisee for…

• Initial start-up• Ongoing

• It is in effect, “leasing” a business!

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Corporate v. franchise terminology

Franchisor

Master Franchisee

Unit / Sub Franchisee

Head Office

Regional Office

Business Unit / Store

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For franchisor - why franchise?Why franchise my business…

• Leverage resources – access to capital & other resources for growth• Growth via an outsourced sales & distribution channel• ROI – return on investment• Leverage the franchisee’s local market knowledge domestic & contacts• Entrepreneurial management style - more motivated to maximize sales &

profits than salaried staff • Local knowledge an important source of new marketing & product

concepts

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Is my business ‘franchisability’?“Franchisability” of your business depends upon…

• Franchisor credibility • Market / product differentiation • Knowledge transferability • Market adaptability • Proven / successful prototype• Documented systems • Franchise affordability • Franchise ROI • Market conditions & trends• Franchisor capital availability • Stakeholder relationship commitment• Strength of management team

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When to franchise?When & only when, you have developed….

• Market scalability & scope research• Proven & durable business format• Stand-a-lone (clone-able) business• Systematized the business• Documented business processes• Company track record

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Franchisor advantages The franchisor gets easier access to capital for rapid growth The franchisor leverages the franchisee’s knowledge of the

domestic market & regulations Franchisees are far more motivated to maximize sales and

profits than salaried branch managers. Franchisees are an important source of new marketing and

product concepts

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Sourcing franchisees• Greenfield franchisee start-up• Sell company outlets• Competitor conversion• Franchisee selection criteria & process• You “grant” a franchise, not sell

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Franchisee advantages

• Proven business model - increased chances of business success• Independence to operate business - in business for yourself, but not

by yourself• Established brand recognition & acceptance • Access to pre-sold customer base which can take years to establish• Established methods & quality - proven product, service & methods• Access to bulk purchasing• Consumer branding attraction for quality & consistency • Pre-opening support…

• site selection, design / construction, training, grand-opening program

• Ongoing support…• Training, advertising, operating procedures & assistance, ongoing support

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Franchisee’s disadvantages• Lack of independence – in business for yourself, but not by yourself• Must operate according to procedures & restrictions set by franchisor• Include products or services offered, pricing & territory. • Initial franchise fee (goodwill), plus ongoing royalties & advertising

contributions• Must balance restrictions & support with own ability / skills• Damaged, system-wide image can result if other franchisees

performing poorly, or franchisor runs into problems• Limited tenure & franchisee may have little or no say about

termination or renewal terms

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Franchisee start-up costs• Start-up costs / initial investment - CAPEX

• Initial franchise fee (goodwill)• Leasehold improvements• Fixtures & fittings • Plant & equipment• COGS Inventory (product)• Various utilities, deposits, advisor fees, etc• Working capital (through to break-even)

• Ongoing operating P&L expenditure – OPEX

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Franchising killers!• Corporate mentality staff • Franchisee’s don’t require support• Business can survive on royalty alone• Store selection criteria• Franchisee selection criteria• Unproven business format

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Constraints franchising faces in India• Lack of franchisor vision

– Franchisor executive themselves– Ability to credibly impart the vision to franchisees

• Lack of systems & process – Ops manual is malleable & legal extension of franchise agreement

• Skills & experience within franchisor team– Hiring wrong people / not hiring the company’s needs

• You “grant” a franchise – not sell– Signing up anyone with a “heartbeat & cheque book” – Lack franchisee & location selection criteria & process– Too eager to grow the channel at expense of the network

#1 Fix: Gov’t legislation for Prior Disclosure?

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Franchise Knowledge Series International Workshop on Franchising & Business Growth

20 October, 2013