Franchising to India

Trends and opportunities

The market

India is witnessing a consumption boom fuelled by a demographic transformation, with more than 550 million people under the age of 25 and the Indian middle class projected to reach up to 540 million by 2025. [1]

India’s fast-growing population of ultra-high-net worth individuals and a highly aspirational young generation with disposable incomes present opportunities for franchising Australian brands in India.

Franchising is a very popular business model in India, with more than 5,500 domestic and international franchise concepts in the market. The liberalisation of the Indian economy in the 1990s led to the birth of the franchise management model. Information technology companies and some educational institutions were among the first to adopt this strategy to expand to new geographies.

Today, food service businesses dominate the franchise scene in India. Well-known international brands in the market include StarbucksSubwayDomino’s PizzaPizza HutBurger KingTaco BellNandos and Chilis. [2]

According to a KPMG and Franchise Association of India (FAI) report, the Indian franchise industry has the potential to grow from A$20 billion to A$72 billion in the next three years. [3]

Many global brands are expanding their footprints in India through franchising. They utilise the expertise and knowledge of local Indian partners to navigate the market and consumer preferences. Some of the popular non-food franchised brands are MinisoZara, L’Oréal, Chanel and Ralph Lauren.

India is an ideal testing ground for Australian franchise concepts. The country is familiar with Australia through tourism, education, popular television shows like MasterChef Australia and a growing Indian diaspora in Australia.

Opportunities

There is a growing interest in India to franchise Australian brands in food and beverage, retail, education, apparel, fashion, beauty and healthcare.

Indians’ embrace of new food concepts from across cultures dictates that food and beverage franchises are most likely to gain the quickest acceptance in the market. Australian franchises such as Boost Juice, Coffee by Di BellaCookie ManPatissez and Gloria Jean’s have made in-roads into India, and broadly across South Asia.

Australian retail chain Boost Juice introduced the natural juice and smoothies bar concept in India through a master franchise agreement with 35 outlets in New Delhi and Mumbai. Boost now has outlets at airports, hospitals and shopping malls, and plans to expand to 100 stores by 2021.

While the outlook is skewed towards food and beverage franchises, there is room for more service-oriented businesses with a unique selling proposition that appeals to an increasingly sophisticated and cosmopolitan consumer base. Australian franchises in the non-food sector include Forever NewPlus Fitness 24/7 Gyms and F45. Melbourne-based fashion brand Forever New has over 50 stores across major cities in India.

Competitive environment

Several international brands have chosen India to launch their franchise concepts. The key competitors are mainly from the US and the UK. Local brands are also potential competitors.

Notwithstanding stiff competition, there is a growing interest for creative and unique franchise concepts in India.

Marketing your products and services

Market entry

Australian companies should consider the following market entry strategies:

  • Work with a local partner. Austrade can help find qualified partners based on the requirements of Australian companies.
  • Visit or participate in franchising and licensing exhibitions in India.
  • Visit the market or participate in Austrade’s outbound business missions to India.

Consider the following when marketing your products and services:

  • Get your concept right before venturing offshore.
  • Choose the right partner – they are the custodians of your brand and the first contact that comes along is not always the right one.
  • Ensure systems and training are implemented in accordance with the concept.
  • Support your partner to establish their (your) business.
  • Seek advice from lawyers, consultants, peers and Austrade. Preparing the ground with a tested concept and market research takes time and money – spend both wisely.

Franchisors may also find it useful to use the services of experienced Indian franchise consultants and lawyers. Austrade can recommend qualified consultants and lawyers to vet your legal documents.

Market challenges

Below are some of the key challenges that Australian companies should be aware of.

Linguistic/ cultural differences: Understanding local culture and tastes and innovative strategies like the ‘Indianisation’ of products is vital to a franchise’s success. An example of successful ‘Indianisation’ can be seen in the fast food sector. Companies such as McDonald’s and Pizza Hut have developed special menus to cater to the Indian palate, which is predominantly vegetarian.

Expensive real estate: In large cities, retail space is expensive and scarce, and the quality of real estate is relatively poor. Outdated rent control laws make locating a suitable and affordable location difficult.

Resistance to fees and cap on royalties: Indians are tough negotiators, and Australian franchisors should be prepared to face stiff resistance from prospective Indian franchisees towards franchise fees and royalty payments, which are considered high by Indian standards.

Tariffs, regulations and customs

There is no franchising code or act in India. The relationship between franchisor and franchisee is governed by general contract law, which is based on the English common law and therefore quite similar to Australian contract law. Although the Indian legal system is known for its transparency and fairness, franchisors should still carry out a due diligence investigation on their franchisee and previous or ongoing business.

General custom duties will apply on products sourced from Australia for the franchising business.

As in any country, the following factors need to be considered when establishing a franchise in India:

  • Conduct background checks: Check for capacity, capability and genuine interest in operating and expanding the franchise.
  • Analyse market conditions: Success in Australia or other Western markets does not necessarily spell success in India. Certain adjustments may have to be made to fine-tune the concepts for this market. Be open to the opinions of the potential franchisee, bearing in mind the need to maintain your key competitive advantage.
  • Protect your intellectual property: Franchisors must ensure they do the necessary paperwork to protect their business concepts in the market.

Links and industry contacts

Franchise-related sources

Franchise India
Franchising Association of India

Government, business and trade resources for India

Invest India
India Brand Equity Foundation

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[1] Credit Suisse, Global Wealth Report 2018, India, October 2018
[2] Franchise India, accessed July 2019
[3] KPMG & Franchising Association of India, Collaborating for growth, 2013

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