Made for each other?

Ever since economic liberalisation set foot in India in 1991 and foreign direct investment started pouring in thereafter, the franchise model of business has seen tremendous growth. Its presence was pronounced, especially, in sectors such as education, food, retail and professional services. But a prolonged slowdown in the country has changed the story. Today franchisors and franchisees both face serious challenges. They are experiencing plummeting sales, rising inventories and high operating costs. How are they supposed to keep their heads above the water?

“While the food sector is leading in the franchise business, it is currently a tough time for franchisors as sales are down and out-of-the-box thinking is required to deal with franchisees who are facing several hurdles,” says Gaurav Marya, President, Franchise India. This, indeed, is a tricky task for managers as the industry that replicates a business at every unit needs to make use of the unique opportunities it can tap and customise market tactics to keep the meter ticking. And while it is said that franchising does not eliminate risk for a franchisee, it definitely can reduce it if the right ingredients are put in place.

So, how do franchisors and franchisees ensure that a successful management menu is in place? While the onus for driving franchisees and motivating them to grow their business lies with the franchisor, the franchisee too has to often be ready to reinvent, remodel and relocate to meet with profits, popularity and most important, to stay afloat.

Anuvrat Pabrai is Chief Mentor and adviser to his sons at the hundred per cent natural ice cream brand Pabrai’s Fresh and Naturelle. He is a successful franchisor from Kolkata who has some 22 franchisee outlets in seven other cities – Delhi, Bangalore, Hyderabad, Chennai, Surat, Jaipur and Siliguri.

Though the ice cream segment has not seen a downturn, Pabrai found that the best way of handling franchisees was by being there for them all the time and helping them fine-tune their businesses. For instance, when he found three of his franchisees not doing as well as they should, he spent a lot of time figuring out the reason for it and provided them solutions that made the going much better. He also found some outfits exceeding all expectations and as the franchisee became an old hand at the business; some of them were offered one more unit, while some have even joined Pabrai in his company.

Being a niche business venture, Pabrai’s Fresh and Naturelle is well known for its Nalen Gur ice cream flavour that uses the particular jaggery from West Bengal as its real ingredient. It also sources natural ingredients from all parts of the world for other flavours and transports the products from its mother centre in Kotkata to its franchisee partners.

Pabrai, therefore, opted for standalone ice cream shops or kiosks for his franchisees, where storage is possible but the feeding is done from a central location. Though the franchisee business is growing, what keeps the bells ringing are institutional sales. The company is supplying its premium range to ITC -Welcomgroup, Sheraton, Taj, Mayfair, Mainland China and a host of others.

Though Pabrai’s solutions for the ice cream segment and for those particular cities may not be the quick fixes other sectors would need, the broader rules for managing the franchise business are similar. Here are some of the musts. First and foremost, a franchisor needs to ensure operational support to the franchisee partner at all times. This means having in place a dedicated team that will provide assistance online and offline in building and running the brand, including regular refresher trainings. Franchisees in the throes of a slowdown are in dire need of marketing support as well. In fact, this is one of the biggest motivations when a franchisor joins a franchise network. So, the greater number of marketing options that the franchisor offers, the better impact it will have on the franchisee’s business.

But the key to this model of growth is franchisee royalty. Royalty is most important for the franchisor who sees it as his earning channel, and crucial for the sustenance of the franchisee as well. How the royalty is worked out between the parties makes a big difference to both.

“Slowdowns make it very difficult for franchisees to keep up their rate of sales and hence impacts their ability to pay the regular royalty. This is what makes it imperative for franchisors to offer a helping hand in different ways. It could be large brand campaigns in the media or increasing the channels for marketing, something that would help the franchisee broaden business possibilities,” suggests an expert on the franchise business. However, there is a lot of secrecy around the subject of franchisee royalty and it is difficult to find out what percentage different franchisees pay.

According to industry sources while there is large scale fluctuations – from as low as 10 per cent to as high as 45 per cent – in the education coaching segment, in other verticals it is less. Another fallout is franchisees’ losing enthusiasm after a few years or wanting to set up their own businesses. The survey had revealed that several franchisees in their 4th or 5th year were in an opting out state of mind.

Experts interpret this as a time when franchisors have to take extra care of their franchisee business and concentrate on their relationship with the partner.

Relationship, in fact, is the key to managing such a partnership. With an adequate flow of communication and understanding between the partners even adversities such as slowdowns can be managed. And that’s the advice experts give, fix broken down communication and work in tandem for the mutual benefit of both parties.