Indian franchise business to grow fourfold by 2017: KPMG
1 min read . Updated: 04 Jul 2013, 11:21 PM IST
Premium(Abhijit Bhatlekar/Mint)
Retail, food and beverages, health, consumer services, and education are predicted to be the key sectors
Mumbai: India’s franchising industry is expected to quadruple in volume in the next five years, accounting for almost 4% of India’s gross domestic product (GDP) in 2017, according to a report by KPMG India Pvt. Ltd released on Thursday.
The industry was worth $13.4 billion in 2012, contributing 1.4% of GDP, the report said. That compares with almost 10-25% of GDP in most OECD (Organization for Economic Co-operation and Development) countries.
The industry is projected to provide almost 11 million employment opportunities by 2017.
Retail, food and beverages, health and wellness, consumer services, and education are predicted to be the key sectors for franchise opportunities.
While the organized retail segment in India is estimated to be worth $24 billion, only 2.5% of total retail sales are driven through franchise formats compared with nearly 50% in the US, indicating significant potential, the KPMG report said.
“Franchising is critical for retailers to achieve exponential growth. Given the threat of mom-and-pop stores closing, both due to the changing external environment and the rising aspirations of the second generation, there is huge potential for franchise growth in the retail sector," said Anand Ramanathan, associate director of management consulting at KPMG India. “What’s constraining growth right now is the fact that the business model hasn’t been standardized enough—not all business models balance profitability for both partners."
There are presently more than 3,000 brands in India that have adopted the franchise model. Bata, NIIT, Apollo Hospitals, and Titan watches were among the first Indian franchisers.
Several leading global companies already have an established presence in India.
Recent FDI reforms in single- and multi-brand retail are expected to support this growth, although recent clarifications allowing foreign retailers to only open company-operated outlets could pose a hindrance.
Standardized service conditions, however, are still missing. “Franchisers have not focused enough on long-term training for their franchises. Retail especially has high levels of attrition, and it’s important for companies themselves to invest in training the way the hospitality industry has. Building sustainably professional service is key to growing a strong network of franchises," said Ramanathan.
“Franchising is not an industry, so it’s not treated as a sector by financial institutions, which makes it difficult for them to raise money. It is important to identify them as a separate segment to increase lending from banks and assist expansion," he said.
