Franchising, piggybacking on a successful brand

Franchising, piggybacking on a successful brand

“I always wanted to be an entrepreneur, but, at the same time, I am not that confident about creating the right marketing strategies,” confesses Navneetha Lakshmi K. of Hyderabad. Her hesitation rings familiar to many others whose desire to do their own thing is strong, but their inexperience in formulating successful strategies proves a difficult barrier to get past. Like most others, Lakshmi treaded the beaten path, working with other organisations, all the while being very unhappy about her inner conflict. In her effort to address the issue at hand, she started looking for experts to guide her. It was through this phase of research that she decided to become a franchisee for Eurokids, from whom she would get help in areas such as marketing and advertising. “I feel these are very important to start any new organisation,” she says.

For those like her and even for entrepreneurs like N. Shriram of Shree Graphics, Chennai, becoming a franchisee for an established brand is a way to be an entrepreneur while sharing the risks with a parent organisation.

Shriram, a mechanical engineer, was working for automobile companies like Anand Group and Hindustan Ferodo, marketing their products. In 1995, he felt the need to do something on his own and created Shree Graphics with very little investment. The firm was into screen printing, basically catering to the stationary requirements of his ex-employers and known circle. To expand, he diversified into print finishing units with facilities for print lamination, spot lamination and the like.

Going directly into the market was certainly possible, but, it would have been time consuming

In 2005, he noticed a flat growth since the printing industry was struggling due to the shortage of quality labour. “I was looking for diversification and that is how I became a franchisee of Cartridge World,” he explains. He adds, “A readymade, proven business model is available to you, off the shelf.” Shiram explains further, “The market for printer cartridges in India is growing at a rapid pace – approximately 40 per cent annually. Currently the market is polarized with the high priced original equipment manufacturers (OEM) and the largely unorganised refill market offering cheap, but, poor quality alternatives.” Cartridge World offers its customers, cartridge recharging with quality as good as new at a fraction of the cost of OEM cartridges. Though he does not have any expertise in this area, by partnering with Cartridge World, he expects to benefit through their expertise. He brings in his understanding of the market he operates in, thus enhancing the sales for the principal.

Matching needs

Today, several businesses thrive on the franchise-model. Beauty salons, food, retail, education businesses, are just a few amongst the slew. Established brands allow their brand to be leveraged by local partners who understand the market, gaining from the partner’s domain expertise in return. “Franchise route is a proven mechanism for rapid business expansion whereby a brand can capitalise upon the local market knowledge of a franchisee who also adds to the business’s financial resources. A franchise may also bring about quick brand equity enhancement,” explains Shahnaz Husain, Chairperson, Shahnaz Husain Group (SHG). Prajodh Rajan, vice president – EuroKids and project head, Eurokids International, is in agreement, “Going directly into the market was certainly possible, but, it would have been time consuming. There is no denying the fact that our policy of expanding our network through the franchise route has contributed to a great measure in developing EuroKids International as the largest player in the pre-school segment.” It is interesting to note that the first two pilot pre-schools that EuroKids established were also franchise driven.

The franchisee benefits from being associated with an established brand and therefore has a positive mindshare in the market already. The franchise only needs to bring space and people to the partnership in which the concept, product or service are provided by the principle. Advertising and brand building are also done by the principal, leaving the franchise to focus on running the operations. While the franchisee provides the infrastructure and the capital to run the center, the principal has a stake in ensuring that it matches their standards since their brand is at stake.

Understanding expectations

There are some expectations of the franchisee. As Husain says, “A franchisee salon or an academy is expected to be an exact replica of our company owned salon or academy in terms of look and feel and product and service offerings.” SHG will help the franchisee achieve these, if required. They also provide extensive training to the franchisee staff even before the launch of franchisee outlet to ensure that the right quality of services is offered to customers. When Navneetha Lakshmi zeroed in on Eurokids after deciding to take the franchise route, she underwent a teacher’s training course at their training institute for one year and then started her own center as per their specifications.

“A franchisee is an individual who has a burning desire to succeed in a business of his/her own and yet is reluctant to re-invent the wheel,” says Shriram. But, what he believes a franchisee should have is the capability to absorb new concepts quickly, in addition to enthusiasm and entrepreneurial spirit to build the business and motivate staff. All while displaying a willingness to follow the principal’s blueprint to the letter.

 

Most importantly, a franchisee must have the capital to invest upfront. In his case, it was approximately Rs. 15 lakh (Cartridge World’s business model has a pre-approved loan facility with SBI). Eurokids needs its franchisees to be able to invest between Rs. 6 lakh and Rs. 12 lakh.

Space and infrastructure are also key. Husain states that their franchisees must possess a business space of a minimum of 1,000 sq.ft. and a financial capacity to invest into infrastructure development, machinery and equipments, products amongst other things. To avoid any confusion over shared responsibilities, a formal agreement is signed between the principal and the franchisee, elaborating their specific roles in clear terms.

The road to expansion

Eurokids has grown from just two franchisees in 2001 to over 650 franchisees in over 260 towns and cities, pan India. “We have a plan to add another 300 franchisees within the next one year. Our aim is to have a network of over 1000 franchisees in two years,” shares Rajan. Additionally, they plan to increase their presence in the SAARC nations and start operations in South-East Asian and Middle East countries in the near future.

SHG started franchising way back in 1975 and currently has 200 franchisees all across the country, not to mention franchisees abroad. “We have plans to add 30 more franchisees to our network in the financial year 2010-11,” says Husain.

Both Shriram and Navneetha Lakshmi dream of becoming mini chains in this large chain and have multiple centers of their own.

Like wheels within wheels, the franchisee business offers the entrepreneur with a way to dream of growing big whilst piggybacking on an established brand name. For the principal, it is a quick way to reach multiple locations with minimum investment. The dream run can be cut short if either parties is dissatisfied with the other, but, considering the successful growth of franchising as a business model, clearly, it is a way forward for both the brands and the small time players who need each other to survive in these competitive times.


Important factors to keep in mind before taking up a franchise

  • Investigate and talk to current franchise owners 
  • Make sure you are passionate about the company you are franchising 
  • Work with a lawyer to understand the franchise contract
  • Ensure the franchisor is an established brand 
  • Don’t hesitate to ask any questions to the franchisor
  • Evaluate several options before pinning down your choice of franchisor 
  • Most importantly, have a realistic business plan with financials.