What is Franchise Business: Advantages and Disadvantages
Franchising is a highly preferred option for starting a business. It comes with certain benefits that help boost an individual's start-up venture.
The model of franchises in India has developed gradually over the years. If you plan to opt for a franchise, you should understand its pros and cons before investing in this model.
What Is the History of Franchises In India?
The franchise business in India initially started during the 1990s. Several investors looking for easy options began investing in international companies, leading to a steady franchise model growth.
- The first to grow was the education and healthcare sector, along with the IT industry. These sectors were preferable options after the rapid privatisation of services in India.
- Brands looking to expand in the Indian market also saw an opportunity to penetrate the market with local individuals willing to invest.
- Indian audiences have particular tastes, which is challenging for multinational companies. Franchising allowed these brands to understand and implement customisation to their products, particularly to Indian culture.
- The youth invested largely in franchise companies to take advantage of low-investment franchise businesses in India.
- Currently, the franchise industry in India is a billion-dollar market expanding rapidly.
- With the economic development in India, its franchise market is expanding vastly, creating more opportunities for expansion which will boost the market even further.
- Franchising holds favourable opportunities in India to generate employment for its vast population, specifically in beverage, fast food, and other markets.
What Are the Advantages of a Franchise Business?
Franchising has widely been accepted as one of the most profitable business formats globally. In the Indian subcontinent, this model has also grown to achieve an exceptional market. Most profitable franchises in India have received high acceptance consistently. However, these top companies and their franchisees have understood Indian culture, and the various advantages of the franchise model and have implemented its strategies accordingly. Therefore, it is also important to understand the benefits of franchise business in India for franchisors and franchisees individually.
- Income: Revenue from fees and royalties is an excellent income boost for the brand owners to develop their business.
- Partnership: Franchise partners are beneficial for the company as a whole. They bring in ideas and skills for the growth of the venture.
- Expansion: It is one of the most important advantages for franchisors as their brand presence grows quickly through multiple franchises.
- Capital: Expanding a business requires huge capital; the franchisors can expand rapidly without the burden of a hefty investment.
- Brand Reputation: With an increasing number of franchises, the brand reputation also grows parallel, eventually profiting the brand.
- Brand valuation: Brand valuation increases rapidly, developing the company's net worth.
- Brand Image: Franchisees benefit from existing brand recognition of the franchisor without facing the challenges of starting from scratch. The reliability of the audience is present right from the start.
- Customer Demand: An existing brand has a ready customer base from the initial stage.
- Marketing: As a business owner, marketing is important to grow your business. The franchisor invests in marketing which benefits all franchises under the company.
- Profit: Unlike a new business, franchises enjoy a good profit margin from the start due to the existing brand reputation and audience demand.
- Business Assistance: Franchises, by default, receive several kinds of assistance from franchisors to maintain the brand quality of products and services. This is a benefit for new entrepreneurs.
- Low Risk of Failure: As a brand is established, it has a stable demand and recognition. It assures the profit of an individual franchise and lowers the risk of failure.
What Are the Disadvantages of Franchise Business?
As attractive as it sounds, franchising is not suitable for all. Despite popular belief, it is important to understand that a franchise business model is not a guaranteed way to success and depends entirely on your business objectives and the pattern of the venture. Hence, it is crucial to understand the disadvantages associated with franchising. Just like the advantages, the disadvantages of this format are also different for franchisors and franchisees.
- Additional Costs: Although capital costs for franchises are distributed among franchisees and not the franchisor, they still have to invest a certain amount in training and brand assistance for setting up a new franchise.
- Risk of Negative Publicity: Franchisees are independent business owners and have an individual influence on their franchise service. Hence a negative performance of franchisees can affect your brand reputation.
- Risk of Failure: Franchising is a fast-growth model, but several components, like market demand, ambiguity, etc., are not within the franchisor's control. Additionally, a franchise’s set-up also involves various costs and logistic challenges. A lapse in the performance of the franchisees can have a fatal impact on the business and may also fail.
- Time Management: Managing a franchise model for your business is time-consuming. In addition to your business, investing time to manage a wide chain of franchises is challenging.
- Capital Cost: Franchisees have to invest a bulk amount as an initial cost to start a franchise, which is a crucial factor in addition to the franchising fee paid to the franchisor.
- Lack of Privacy: As the franchise is part of the larger brand, the franchisee does not have complete privacy of accounts and other components of their venture.
- Negative Influence of Partnership: As the franchise is associated with the brand, other franchisees' bad reputation or performance may affect your business and reputation.
- Recurring Expenses: In addition to general business expenses, franchises often need to spend money on expenses specific to a brand’s quality needs. Royalty for trademarks and resources is also a fixed cost for the franchisee.
List of the Top Franchise Businesses in India
The franchise business format has become successful in India, with promising growth in the future. If you plan to start your venture, this list of franchise businesses in India is among the best options.
It is one of the most popular fast-food chains in India. Their unique proposition to customise your entire order from scratch makes them a favourite choice. In addition, their business has grown rapidly over the years in India, making them a good choice for franchises.
- Establishment Cost: ₹ 60, 00, 000 to ₹ 1, 20, 00, 000 (Approximately.)
- Profit Margin: Approximately 7.5% of annual sales.
Benefits of a Subway Franchise
- Subway offers fresh meal options, which is popular among generation Z.
- They offer comprehensive training and support to a new franchise.
- They have no fixed limitations regarding space requirements. Thus you can opt for small business space if required.
- Subway is one of India's fastest-growing franchise brands and the 2nd largest restaurant chain globally.
This pizza brand from the USA is the most popular in the Indian market. India is known to have the most Domino's franchise in the world, with over 1000 outlets. In India, the master franchise that operates the franchise management of Domino's Pizza Inc. is Jubilant Food Works. Their unique menu and exciting offers like 30 minutes delivery make them a good choice for business.
- Establishment Cost: ₹ 80, 00, 000-₹ 1, 25, 00, 000 (Approximately.)
- Profit Margin: Approximately 15% of annual sales.
Benefits of a Domino’s Franchise
- In-depth training and services from the brand.
- High demand in the market.
- Flexible franchise options.
- Marketing expenses incurred by a franchisor.
McDonald's has the largest market share in the fast food industry. Their affordable rates make them an investable business.
- Establishment Cost: ₹ 30, 00, 000 – ₹ 1, 00, 00, 000 (Approximately.)
- Profit Margin: Approximately 20% of annual sales.
Benefits of a McDonald’s Franchise
- McDonald’s is the largest restaurant chain globally.
- They provide space for business against rent.
- High demand in the market.
- Good profit margin.