Franchising Australian Brands in India

Summary

India is witnessing a consumption boom fuelled by a huge demographic transformation, with more than 550 million people under the age of 25 years, and projections for the growing Indian middle-class to reach somewhere between 260 and 540 million by 2025.[i]

For Australian companies, young India presents multiple opportunities. At one end, India has a fast-growing population of ultra-high-net worth individuals; at the other end is a highly aspirational young generation with disposable incomes. These opportunities are particularly present in the rapidly developing franchise sector, where there is significant interest in Australian brands penetrating the market.

Current and ongoing demand is forecast amongst Indian entrepreneurs and family business houses to franchise Australian brands in food and beverage, retail, education, apparel, fashion, beauty and healthcare

Trends and opportunities

The market

Franchising is a very popular business model in India, with more than 5,500 domestic and international franchise concepts in the market. The franchise management model in India was started in the 1990s with the beginning of the liberalisation of the Indian economy. Initially, it was IT companies and some educational institutions which adopted this strategy for business expansion to new geographies.

Food service concepts dominate the franchise scene in India with well-known international brands such as Starbucks, Subway, Domino’s Pizza, Pizza Hut, Burger King, Taco Bell, Nandos, Chillis etc.[ii]

Many global brands are expanding their footprints in India through the franchise route, partnering with Indian operators and utilizing the expertise and knowledge of local Indian partners to navigate the market and consumer preferences. Some of the popular non-food franchised brands are Mimiso, Zara, L’Oréal, Chanel, Ralph & Lauren etc.

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

India, with its increasing levels of personal wealth, English being the common language for business dealings, familiarity and acceptance of Australia through tourism, education, a growing Indian diaspora in Australia and popular television shows like MasterChef Australia, is an ideal testing ground for Australian franchise concepts in India.

Opportunities

Indian’s indulgence with new food concepts from across cultures dictates that food and beverage franchise concepts are most likely to gain the quickest acceptance in the market. Australian franchises such as Boost Juice, Coffee by Di Bella, Cookie Man Australia, Patissez and Gloria Jean’s have made in-roads into India, and broadly across South Asia.

Australian franchises in the non-food sector that have presence in India include Forever New, Plus Fitness 24/7 Gyms, etc.

While the outlook seems to be skewed towards food and beverage franchises, there is also room for more service-oriented businesses that have a unique selling proposition for delivering services that appeal to an increasingly sophisticated and cosmopolitan consumer base.

Competitive environment

Several international brands have chosen India to launch their franchise concepts. The key competitors are mainly from the United States, the UK and local brands.Notwithstanding stiff competition, there is a growing interest for creative and unique franchise concepts in India.

Market Challenges & Obstacles

Some of the key challenges that Australian Franchisers should be aware of are:

Linguistic/ Cultural Differences: Understanding local culture and tastes and innovative strategies like “Indianisation” of products is vital to a franchise’s success. For example, Indians are predominantly vegetarian. A classic example of successful “Indianisation” is the fast food sector. Several companies such as McDonald’s, Pizza Hut and have developed special Indian menus to cater to the Indian palate.

Expensive Real Estate: In the large cities of India, retail space continues to be expensive and scarce, and the quality of real estate is relatively poor. Outdated rent control laws makes locating a suitable and affordable location difficult.

Resistance to Fees & Cap on Royalties: Indians are tough negotiators, and Australian franchisors should also be prepared to face stiff resistance from prospective Indian franchisees towards the franchise fees/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 is therefore quite similar to Australian contract law. Although the India legal system is known for its transparency and fairness, the franchisor should still carry out a due diligence investigation on the counterpart and their previous or ongoing business.

General custom duties will be applicable on the products sourced from Australia for the franchising business.As in any country, the following factors need to be reviewed when establishing a franchise in India:

• Background – Check for capacity, capability and genuine interest in operating and expanding the franchise.
• 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.
• Intellectual property – Franchisers must ensure they do the necessary paperwork to protect their business concepts in the market.

Marketing your products and services

An Australian retail chain doing well thru franchising is Boost Juice Bars, which is present in India under the brand Joost Juice Bars. The company introduced the natural juice and smoothies bar concept in India through a master franchise agreement and currently operates 35 stores in Delhi and Mumbai.  The company has outlets at airports, hospitals, shopping malls and plans to expand to 100 stores by 2021 via sub franchising.

Another example is Melbourne based fashion brand Forever New which has over 50 stores across major cities in India.

Market entry

Consider the following market entry strategies:

• Partner Search - Austrade offers a tailored services of finding qualified partners as per the requirements of Australian companies.
• Visit or participate in franchising and licensing exhibitions in India.
• Visit to market/participate in Austrade’s outbound business missions to India.

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 is 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.

The writer works for Austrade which is the federal trade promotion agency of Australia with offices across major cities in India. If you are an Australian company looking to expand to India, please reach out to Austade or can message him directly.

Source:

[i] Credit Suisse India Wealth Report 2018

[ii] Franchise India