BES’S INSTITUTE OF MANAGEMENT

STUDIES AND RESEARCH

FINAL PROJECT TITLE

“Study on how to set up a franchise in the F & B industry of Mumbai – A Study on

Suburban Café Coffee Day.”

Submitted By:

Kunal Ailani (02)

MMS - II

Batch 2009-2011

Submitted To:

Prof. Quresh Moochhala

15th December, Wednesday

Executive Summary
Franchise market in Indian is in its infancy stage and growing exponentially at close to 25 %
annually

Franchising not only increases the efficiency by which goods and services are distributed, being
different for different markets but also generates employment, earnings and entrepreneurship at
the same time.

Franchising has a bright future in India due to the convergence of many factors:

The average Indian income is steadily rising and individuals have more purchasing power.

Telecommunications and transportation infrastructure improvements facilitate the exchange of

information and goods.

Increasing levels of consumer spending, with greater recognition of brand value.

Internet access is opening the world to India, making its population more aware of global trends
and brands.

And conversely, the Internet is making it easier for international companies to gain an
understanding of India's; culture, geography and politics.

As far as Food and Beverage industry is concerned The food processing industry is witnessing
a 20% annual growth rate and, consequently, and so is the demand for processed foods and
beverages in the country

However there exist many problems in the franchising route for food and beverage industry.
These include fairly high on investments, lack of skills & the attitude to manage a food business
and logistics & supply chain mechanisms

Despite of many hurdles, there are a number of homegrown & foreign brands that are taking the
franchise route and have proved to be great successes

Contextual Background
Today, international franchising in India is one of the most exciting areas in the franchise
industry, as globetrotters are more likely to do their shopping in franchised stores. Global
franchise organizations like Pizza Hut, Marks and Spencer, McDonald's, Subway, HP, Holiday
Inn, Dominos, Gold's Gym, Kodak, Kentucky Fried Chicken, and so on are bullish on the
potential of franchising in India and have started their operations here. And it is not just foreign
brands that are eying for its attention. Indian apparel brands like Park Avenue, Color Plus,
Provogue; food chains like Nirulas, Sagar Ratna; Mars restaurants and numerous other brands
across product categories are all just waiting to serve them. With the arrival of MNCs, the
Indian market has woken up to the concept of franchising as a way of doing business. Though
the concept of franchising has existed in India since many years, it is only now that the average
Indian entrepreneur and companies have woken up to the possibility of using it as the fastest
route to growth. What makes franchising so attractive to companies is the obvious fact that it is
the fastest and cheapest way to get your product across to millions of people and into new
uncharted territories. But more importantly, in a country like India where cultural diversities
make retailing a big challenge, franchising is allowing the companies to truly think global and
act local. As a result of having franchise outlets, a brand owner based in North India does not
have to worry whether he will be unable to identify with his potential customers in the South.
He knows that his face in the South is his franchisee, which is a local and understands that
particular market. Hence, he does not have to worry about lack of identification at the retail
level. Nor does he need to invest in the costly process of setting up his own outlet, finding the
right people, managing large number of culturally diverse stores on a daily basis and so on. On
the franchisee side, today's businessman is no longer willing to sit idle and just live off his real
estate rent. He is looking for something that can assure him income and at the same time give
him social credibility. This makes franchising an extremely attractive proposition to him. So
today, instead of just leasing out his property, he is actively looking for companies that are
willing to take him on as a franchisee. Besides, education and retail franchising is also making
its mark in service industries like consultancy, housekeeping, travel etc.

EMERGENCE OF FRANCHISING
The term franchisee comes from the French verb “affranchiar” which means to ‘to tree’.

The American Industrial Revolution began the mass production of consumer goods, which
created the opportunity for these companies to produce manufactured goods at lower costs, fuel
consumer demand and to sell and distribute the products efficiently and cost effectively. Many
methods of sale and distribution were tried before franchising, including direct factory sales,
sales through non-branded locations such as pharmacies, direct mail and traveling salesmen.
While all proved to be insufficient to satisfy the needs of the company, local salesmen were the
most effective. By selecting franchisees, and providing them with exclusive territories, the goods
manufacturers were able to effectively bring their products to market.

Franchising emerged as a force to be reckoned within the post war 1950's, taking advantage of
pent-up consumer demand.

No one can doubt that the evolution of franchising has also been a genuine revolution of ideas,
business concepts and the entire economic process. The evolution of modern franchising, created
by the innovative companies and the pioneers that have led them, is an exciting tale in itself. The
future, energized by still unimagined new concepts, new business techniques and international
expansion, promises to add still more dynamic chapters to the continuing and growing adventure
of franchising.

FRANCHISING IN INDIA
India is at the threshold of a revolution in franchising which contributes to around 20% of the
world GDP. Though franchising in India did not rake off, as it did globally, still it is more
popularized through domestic franchising thanks to IT and Education. Internationally franchising
started with international companies, especially US stepping in emerging markets.

Best Opportunities
India is a “Sleeping giant” when it comes to franchising. The sheer size of the market, a growing
middle class with disposable income, a more informed value seeking consumer, and the booming
retail sector will see franchised business grow off the charts in the next decade and beyond.

Why Franchising is required In India

With Indian consumers transforming into global customers, they now demand better facilities,
international standards of service and experience besides top brands and quality. Hence, it is
becoming difficult for stand alone starters to stay in business. On the other hand companies find
it difficult to penetrate the local markets, considering the sheer size of Indian market. The
demographic and social profile changes within few kilometers and the great language, cultural
and traditional differences make it more difficult for the entrepreneurs to gauge the local
markets. Thus, it became mandatory for the companies to look for different opportunities

Growth Potential

In a vast country like India with over 1 billion population and rapidly changing life styles and
growing awareness in the consuming class wanting continuous improvement in the quality of
products and services the scope for growth of Franchising is Phenomenal. Going forward this
growth is inevitable not only through Foreign Franchisors coming into the country but more so
through the growth of a large number of Indian, Franchise Systems like Aptech, Nirulas, NIIT,
Barista, Raymond, Colour Plus and a host of other emerging Franchise business in the area of
health care, entertainment, beauty parlous, education, business services and the like.

Considering that there is no dearth of entrepreneurial talent in the country and that there are
scores of India Franchisors looking out for suitable Franchisees this sector is set to explode to a
level of over 2500 Franchise systems in the next 4/5 years with over 1, 00,000 Franchisees
operating all over the country with its corresponding positive impact on employment generation.

The industries cited as the top prospects for successful franchise opportunities in India
include:

 Food and beverage

 Education
 Apparel
 Entertainment
 Courier Services
 Stationery and gift shops
 Health and beauty
 Fitness and nutrition

Many of the world's largest and well-known franchise companies, such as UPS India,
McDonald's, Yum Brands, Baskin Robbins and Subway already have a visible presence in India.
Other US companies, from diverse industry sectors, are now gaining a foothold too.

With India's retail sector growing at more than eight percent a year, The Dollar Store is
actively seeking franchisees. This retail chain, based in Florida, USA, sells low-priced general
merchandise products and services. India is just one of the geographical areas targeted for the
company's multi-million dollar overseas business expansion.

And there are some surprising entries to franchising in India too, which at first glance, might not
seem like a logical fit with traditional Indian culture and consumers.

Contours Express launched its first Indian center in Bangalore, with a second location in
Mumbai. The company has 700 fitness centres for women in the U.S and additional locations
across 24 countries, and plans to have at least 1000 Contours clubs operating around the world.

Pizza Corner aims to open 36 stores in India, and is extending efforts to expand in Sri Lanka,
Nepal and Singapore.
According to statistics from the Franchising Association of India, franchises currently account
for only two percent of retail revenues in India compared to almost 50 percent in the US.
However, that two percent is growing at a fast pace, and the implications point to astounding
market potential.

The success rate for individual franchise business owners in the US is 92 percent, and since
franchise businesses are based on proven systems, the success rate for Indian franchises should
be comparable.

Franchising has a bright future in India due to the convergence of many factors:

 The average Indian income is steadily rising and individuals have more purchasing
power.
 Telecommunications and transportation infrastructure improvements facilitate the
exchange of information and goods.
 Increasing levels of consumer spending, with greater recognition of brand value.
 Internet access is opening the world to India, making its population more aware of global
trends and brands.
 And conversely, the Internet is making it easier for international companies to gain an
understanding of India's; culture, geography and politics.

Research Objective
 To study how to set up a franchise in Mumbai suburban area.
 To study what are the formalities and other compliance in setting up a franchise in Mumbai.
 To study the growth in franchise of Café Coffee Day in Mumbai.

Hypothesis & testing

Hypothesis 1:

H1 – Preference of customers towards CCD is the reason for increase in franchise of CCD

Hypothesis H0 – Preference of customers towards CCD is not the reason for increase in
franchise of CCD

Hypothesis 2:

H1 – People opt for CCD franchise since it is very easy to set up.

H0 – People don’t opt for CCD franchise since it is not easy to set up.

Research methodology
A survey would be conducted at various CCD joints in the suburban area of Mumbai to know
how to set up a franchise.

A questionnaire to test the hypothesis that due to preference of customers towards CCD over
other competitive brands there has been a rise in franchise of CCD.

Sampling Types, Methods & Data Sources

Primary Data

Primary data is that data which is collected for the first time. It is original in nature in the shape
of raw material. For the purpose of collection of primary data, a well structured questionnaire
will be framed which will be filled by the respondents. The questionnaire will comprise of close
ended as well as open ended questions. In close ended questions dichotomous, ranking, checklist
questions and multiple choice questions are used.

Secondary Data

Secondary data is the data which is already collected by someone. They are secondary in nature
and are in shape of finished product. Secondary data will be collected so as to have accurate
results. Required data will be collected from various books, magazines, journals and internet.

Sampling Design

Sampling refers to selecting some of the elements in a population by which one can draw
conclusions about the entire population.

Universe

Universe is the infinite number of elements which the researcher is targeting in his study. Since
the study is restricted to franchise un Mumbai suburbs consists of all the CCD joints in Mumbai
suburbs.

Extent

Extent refers to the geographical area where there is a scope of population. The extent of the
study is Mumbai suburbs.

Sampling Technique
The selection of the respondents will be done on the basis of convenience technique based on
the non probability method of sampling.

Sample size

Sample size is the size of sample drawn from the population which is the true representative of
the research.

References

BOOKS & MAGAZINES:

  FRANCHISING – S. Siva Ramu

 Several Issues of Business today, A & M & Business World.

WEBSITES
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]

Conclusion

Looking at all the problems faced in the current scenario, following are some of the key issues
that need to be resolved for the sustained growth of franchising in the country:
  Working Group / Regulatory Authority on Franchising

There is clearly a need for a working group on Franchising, which can identify the correct
priorities for the growth of the sector in the country. Such a group should preferably be set up
under general industry bodies like FICCI and Franchising Association of India. The group should
have a mandate to identify the correct priorities for the sector as well as lobby for them with the
relevant government authorities.

The same group should at later stage form a Regulatory Authority which would be responsible
for regulating the Franchising sector in the country.

 Need for Disclosure Norms

In most countries where Franchising is developed and accepted, there are well-developed
disclosure norms for franchisors in place. These include:

 Mandatory registration of franchise offers with the relevant government departments /

regulatory authority.

 Mandatory disclosure of information on franchisors along with the franchise offer.

The information to be disclosed via this UFOC (Uniform Franchise Offering Circular)
could include –
Background of the franchisor, its financial status, operating history, number of units operational,
number of units closed down along with reasons for closure etc.

 Cooling-off period.
In many countries the franchisee is given a mandatory cooling-off period which has to lapse
before the franchisee can sign the final franchise agreement. This is to ensure that the franchisee
does not take a decision in the heat-of-the-moment but rather thinks before he signs on the dotted
line.
These are some of the disclosure norms prevalent overseas. There needs to be an effort made
towards identifying what would suit Indian business conditions and then implementing the same
with a Regulatory Authority in place.

 Need for Franchise Laws

Along with the setting up of disclosure norms and the regulatory authority, what is also required
is a set of Franchise Laws developed for the sector. Currently, Franchising in India is regulated
by the Contract Law and a number of other business laws but there is no specific law to take care
of specific issues arising out of Franchising. This is badly needed to regulate the growth of the
sector.

 Understand & Honor Commitments

Last but not the least, it is important that both franchisors as well as franchisees need to
recognize the fact that understanding and honoring their commitments to each other is the only
way the relationship would remain long-term. If any one out of the two parties loses sight of this
fundamental factor, the relationship is bound to fail.

As simple as it may sound, this is one of the key factors that will determine the fate of
Franchising in India.