Graphically Speaking

The silent contributor

In franchising lies a huge opportunity for Indian entrepreneurs, but rural India is still unequipped to reap the benefit 

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Published 10 days ago on Sep 11, 2020 Read

In the 1950s, Ray Kroc, a milkshake mixer salesman, partnered with two brothers who were expanding their burger joint’s footprint across the US. Eventually, cut-throat franchising by Kroc led to him acquiring the entire business from the founders. The rest is history. He built the most successful fast food chain in the world. You know McDonald’s today not because of the founders, but because of Kroc. He taught the world about the power of a good franchise network.

Globally, India is the second largest franchise market, with about 4,600 operating franchisors and 0.15-0.17 million franchisees in 2017. From 938 billion in 2012, the franchising business reached 3,570 billion in 2017, and is projected to hit 10.5 trillion by 2022, growing at CAGR of 24%.

A Grant Thornton India report states that this market employs over 14 million people and contributes nearly 1.8% to GDP, which is expected to go up to 4% by 2022. While start-ups spend a significant amount of time and money in trial and error, a proven franchise eliminates many of those challenges, it notes. Also, franchises have a higher rate of success (around 85%) as compared to start-ups. As per the report, the retail sector has dominated India’s franchise industry over the years, with share of over 71% in 2017. The average return on investment in the sector has been around 19% to 25%, with 20,000-50,000 revenue per annum per square feet.

A driving force behind this growth has been rural India. However, massive potential in rural areas still lies untapped. For instance, franchising can boost rural entrepreneurship, bridge the income disparity gap, reduce migration, promote optimal utilization of resources and increase awareness. To achieve that, a lot needs to be done to make basic services such as banking, ATMs, internet and logistics accessible in the remotest parts of country. Is the government up for the challenge?