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What is franchising? Franchising is the practice of using another firms successful business model. The word franchises of Anglo-French derivationFrom franc- meaning free. For the franchisor, the franchise is an alternative to building chain stores to distribute goods that avoids the investment and liability of the franchisees. The franchisee is said to have a greater incentive that direct employee because he or she has a direct stake in the business. Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator, or a franchisee, to use the supplier trademark and distribute the supplier, goods. In return, the operator pays the supplier a fee. Thirty three countries, including the United States, china, and Australia, have laws explicitly regulate franchising, with the majority of all other countries having laws which have a direct or indirect impact on franchising. The essence of the franchising concept is as follow: 1) It is a contractual relationship. 2) The franchisor has a responsibility of introducing the franchisee to all relevant areas in business operation. 3) The franchisor owns a trade name, format and procedure. 4) The franchisee must own his own business.

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Terminology When you are looking for ways to expand or grow your business it can be very confusing. Not only are there various option but something the terming also needs deciphering. Its start by defining what a franchising is A franchising is an arrangement that allows another person (or company) to copy or replicate an existing successful business format. Previously this require two parties the franchisor who is the franchisee in order them to replicate the business concept elsewhere. Example: Franchising is an opportunity for successful business owner to grow their business without trying up all of their capital. In order for this to happen the business must be able to be easily replicated elsewhere and have identifiable brand. The next step is for the business owner to systemize every facet of business and operational manuals detailing how they opratrter so that a franchisee can duplicate it. Other options Turn key lease to buy: You hand over the key to completely fit out franchise outlet what is ready to open for business. Ideally you lease it to a potential franchisee with the option to buy the franchise. The lease arrangement thereby you get to assess each other before a long term commitment is made. Although the downside of this arrangement is that you have to finance the setup, the process can also be revenue earner.
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You get, quite legitimately to charge for project managing the business fist out: hiring trades people and purchasing equipment requires a considerable amount of time and effort.

Agency An agency arrangement is when you offer your products or services to another company for them to sell or distribute. Usually an agent sells other complementary lines as well and it is an efficient and cost effective way to get your goods into the market. It is often used by a company with strong representation on one country or state who does not want the initial cost of setting up a Sales team. Typically agent purchase for a trade accounts and adds there is own margin to create a retail sale price.

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History of franchising
Franchising in France can be observed since the earliest years of the twentieth century and gained momentum in 1960s with the development of hypermarkets and the shopping malls that typically surrounded them. Franchising is a great business opportunity for people interested in investing or working on their own. And above all the government of France recognizes this sector as potential sources of development and employment. Franchising is actually booming in France and plays a vital role in the French industry for large medium and small sized companies more than half of all French franchises are small to medium sized companies. Going further back to early stage the first franchising network of France came into being around 1911.The franchising history of France tells us about jean prouvost, owner of a wool mill in the Roubaix who charged one of his employers with a responsibility to create a chain of wool soups The employer created a sort of partnership between the wool mill owner and many traders with an agreement to warrant them the patent of the brand. The brand was the famous laines du penguin (penguin wools); it is because of this event that us and France vie with each other for the primacy of franchising mother country,

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Where did it all start? 1) The first modern franchise was developed when the singer sewing machine company was established. Since then other aggressive companies have employed the franchising methods to expand into markets that would otherwise be unreachable. 2) Today the success stories are endless. Mc Donalds, Burger king, KFC, singer sewing machines are of the visible examples. 3) Today doctor, dentists, accountant and most of the operations you can imagine are profiting from expansion via franchise method. 4) The reasons for franchising in those days were no different than they are today. Expansion of any business is risky and requires significant investment of capital and human resources to run the location. Franchising limits the risk factor of growth allows expansion to occur without the vast amounts of operating capital, and potentially creates the franchise owner at or operating level. Franchise location;The franchise should be located which is convenient and accessible to customer .the factors that affect the franchise location are area of potential demand completion in the area space requirement the presence of another franchisee of the same firms and other physical of the firm.

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Characteristics of franchisee
1) Risk aversion Many people think to succeed as a franchisee; you need to be a gamble. Nothing could be further from the truth. If you want to gamble go to Vegas. Successful franchises are risk averse. They are willing to take some risk but want that risk to be as small and controlled as possible. Any business start up involves some risk of failure, but a strong franchise with a proven track record of success will minimize this risk. Successful franchisees do their homework, so they know what they are getting into. 2) System orientation Dont shy away from franchising because you assume you need a burning entrepreneurial spirit to become a franchisee. Thats simply not true. Entrepreneurs have an almost uncontrollable urge to reinvent the wheel based on their incredible in their ability to figure the figure out how things should be done to maximize result. Successful franchisees, on the other hand, want proven systems. They dont want to have to figure out the best way to do something. They want a system of operation that tells them the best way to do anything associated with the business. They are willing to learn from others to avoid making mistake, so they can be more successful more quickly. 3) Coach ability The motto of franchising is in business for you, not by yourself.Successful franchises look for opportunities to learn from other s in their franchise system. Their philosophy is when in doubt asked. They constantly ask advice of the franchisor support staff and other successful franchise and follow the advice they get. They help when they need it.

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4) Hard work affinity Successful franchise have a willingness to do whatever it takes to get the job done this attitude shows in their every action putting in long hours handling multiple tasks no matter what franchise youre Interested in you can be sure its going to take work to make it successful. The best franchises know and accept that fact. 5) Strong people skills Successful franchises always have excellent interpersonal skills and can effectively interact with their employees and customer. They use these skills to create loyalty value and trust through this characteristic is listed last, its probably the most important of all.

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Merits and demerits of franchising

Merits 1) Your business is based on a proven idea. You can check how successful other franchises are before committeemen yourself. 2) You can use a recognized brand name and trademark. You benefits from any advertising or promotion by owner of the franchise-the franchisor. 3) The franchisor gives you support usually including training help setting up the business a manual telling you how to run the business and ongoing advice. 4) You usually have exclusive rights in your territory. The franchisor wont sell any other franchises in the same region. 5) Financing the business may be easier. Bank is something more likely to lend money to buy a franchise with a good reputation. 6) Risk is reduced and is shared by the franchisor. 7) If you have an existing customer base you will not have to invest time looking to set one up. 8) Relationship with supplier has already been established.

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Demerits 1) Costs may be higher than you expect. As well as the initial costs of buying the franchise you pay continuing royalties and you may have to agree to buy products from the franchisor. 2) The franchise agreement usually includes restriction on how you run the business. You might not be able to make changes to suit your local market. 3) The franchisor might go out of business, the way they do things. 4) Other franchises could give the brand a bad reputation. 5) You may find it difficult to sell your franchise you can only sell it to someone approved by the franchisor. 6) Reduced risk means you might not gemmated large profit

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What are various modes of franchising In India?

1) Direct franchising Franchisor grants franchises to individual franchises in foreign country by executing an agreement however there are certain issues associated with his mode of franchising like difficulty of franchisor to control the performance of the franchisees as they are located in another country taxation assistance to be provided to the franchisee during the operation of agreement question of intellectual and industrial property right in the foreign country choice of law and jurisdiction and law relating to transfer of technology further the structuring of franchise agreement and the existence of treaties between the countries involved may have considerable influence on taxation in the light of these issues it has been observed that direct franchising not used extensively internationally. 2) Subsidiary or branch office Franchising through a subsidiary or branch office though often treated together differs because of the fact subsidiary controlled by franchisor is a separate legal entity whereas a branch office is not .The advantage of franchising through a subsidiary is that the franchisor is present in the foreign country as cooperate body and the franchise agreement will be a domestics deal and thus subject to local legislation .However it is subject to FDI laws pertaining to retail investment in India. Further franchising through a subsidiary or branch office requires the franchisor to send his personal to foreign country for that startup operation, thus involving work permit and residence formalities in addition to the similar issues as indirect franchising. 3) Master franchising
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The franchising grants a person in another country the sub franchisor, the exclusive right within a certain territory to open franchise outlets itself and/or grant franchise to sub franchisees. International agreements between the franchisor and the sub -franchisor (the master franchise agreement) have it be executed in master franchising. In this mode the franchiser all rights and duties to the sub franchisor that will be the in charge of enforcement of the sub franchise agreement and the general and working of the network in that country This type of franchising is the widely used because of advantages like he sub franchisor familiarity with the local habits tastes culture and laws of its own country 4) Joint venture The franchisor and a local partner create a joint venture and then his venture enters into a master franchise agreement with the franchisor for opening of franchise outlets and to grant sub franchises. Is subject to legislation on joint ventures in addition to other legalities that are involved further this mode of franchising could be a way to solve the problem of financing franchising operation in countries where financial means are scare.

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Types of franchising
There are many different types of franchise ownership opportunities. You may choose to become a multi unit franchise owner an area developer or you may decide to buy an existing franchise each ownership opportunity has its own unique responsibilities. The following is list of the many different ownership opportunities franchising offers. 1. Single unit franchise Single unit franchising is the most likely place a brand new entrepreneur would begin. In this type of franchise the franchisee Would only be responsible for running one unit however he or she would be extremely involved with all unit the operations of the business. 2. Buying an existing franchise Many franchise owners decide to sell their franchises after they have opened. There are several reasons why existing franchising are listed for sale. There are pros and cons to buying an existing franchise. 3. Multi unit franchise Multi unit franchising creates the opportunity for the franchisee to open more than one unit in this case multiple units are usually sold at a reduced rate per unit in this type of operation the franchisee partakes less in the day to day operation of the unit. 4) Area developer Area development is similar to multi unit franchising the only difference is that this type of franchising typically involves a greater number of units encompassing a larger territorial area the area
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developer is granted the right to open a pre determined number of outlets in a certain geographic territory.

5) Master franchise Master franchising allows people or corporation to purchase their right to sub franchise within a certain territory a master franchisee helps the all franchise company by recruitment franchisees to open units within a traffic territory.

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Role of franchisee Once you become a franchisee and of a franchise organization what are your roles and responsibility? Financial The first function you have new endeavor is an investors into your business you will need to invest financially with an initial franchising fee, but also be prepared to pay any additional costs that might be necessary to get the business up and running such as equipment costs Also there will be ongoing royalty fees that you will need to be aware of. Time Secondly, you will need to be sure that you can invest an adequate amount of time in the business although the system is basically set up in franchising you will still need to initially offer training and continuous support hence the ongoing royalty payments. Like anything else once you know the in and out of the system the time investment decreases somewhat. Leadership and partnership Once of the most important skill you need to possess as a franchisee is ability to be proactive and take initiative you should be able to easily assume a leadership role. You need to be certain that you understand how the entire system works and not be afraid to ask the franchisor question it is especially important to communicate with franchisor anything that you notice that doesnt seem right to you. After all, you are basically assuming a partnership role with the franchisor therefore you should be able to work together share ideas and resolve issues together you may notice something that the franchisor was not aware of since you are much closer to the
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business the franchisor would probably appreciate your bringing concern or discrepancies to the table especially if you offer possible solutions. Communication With all of the responsibility that the franchisee holds communication and organizational skills are key skills to process as a franchisee. As mentioned, it is important to keep in close communication with your franchisor .in addition; you will need to be able to communicate effectively with your customer, employees, vendor and other business contacts. Furthermore, it can be quite beneficial to team up with other franchisees on a regular basis it can be help you run your business more smoothly if you share ideas and solution to problems experienced with other in the same capacity. Organization In your role as franchisee, you should be prepared to wear many hats. In operating the business, you will most likely have to manage all the daily operation involved in operating a business including ordering supplies, meeting with customer and vendors, preparing payroll resolving discrepancies, etc. These are just a few of your sub-roles depending on the type of business you are running. In conclusion, as long as you understand your role as a franchisee and make every effort to carry it out thoroughly you should be able to manage a successful franchise.

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Process of buying franchisee 1) Choosing the right franchise This is by the most crucial step of step of the franchise buying process. Deciding which franchise to buy is very difficult since there are thousand to choose from. You should choose a franchise you have interest in or choose an industry in which you have past experience also; you must choose a franchise that is financially right for you. Remember, this will be a life changing experience so make sure you make the right choice. 2) Deciding what franchise you can afford You must remember to ask a lot of question and find out exactly what your overall investment is if a franchisor is advertising $50000 initial investment is. This does not mean that this amount is all you are required to invest. This $50000 will probably represent your down payment and possibility a part of your franchise fees, legel fees, and build out costs, supplies and working capital. Get an overall list of the items that make up total investment and make sure it is something you feel comfortable with. 3) Steps to take after you choose your franchise Once you have decided on a franchise that fits your lifestyle and budget the next step is to investigate the company. When you buy a franchise you are not only buying a system but you are also at the beginning of (hopefully) long lasting relationship. You want to make sure it is the right relationship. Take your time and investing ate the company thoroughly .meet with all of the top executives in the company. Track down existing franchises on your and ask lots of question. 4) Hiring a franchise attorney Anyone who is considering buying a franchise should consult with a franchise attorney. This will help you to make sure you understand exactly what is expected of both you and the franchisor. You will do this by reviewing the entire franchise document with your franchise
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attorney. It is imperative that you understand all of the documentation up front. 5) Preparing your business plan If you are borrowing money to your franchise you will need a business plan creating a business plan will not only help you receive financing it will also become your guideline for success. Another reason you own personal goals .any investment you make should always be researched well thought out and follows a certain structure. Creating a business plan will keep you on the right track and help you help you focus on the achieving your goals.

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Laws of franchising in India There is no specific legislation franchise arrangement in India, reasons being the complexity of the relationship and the vast areas of now which such relationship involve. The laws regulating franchising in India includes law relating to contract agency distribution leasing assignment securities financial investment intellectual and industrial property, competition, companies, immovable and movable properties, lab our, foreign investment insurance banking import export technology transfer, and other legislation which may become applicable in particular case. The applicability of laws spends precisely upon the modes of franchising which may be domestic trans-border . Royalty remittance The FEMA and RBI regulate the terms of payment under franchise agreement (such as franchise fees, management fees, development fees, administrative fees, royalty fees and technical fees) where one party is non-Indian entity including the amount to be paid and procedure for remittances such as finishing of tax clearances and chartered accountant certificate at the time of remittance of these payment outside India. The RBI prescribes certain requirement such as furnishing of tax clearances and chartered accountant certificate at the time of remittance of royalty payment by franchisee to franchisor outside India. The Indian government permits foreign franchisor to charge royalties up to1%for domestics sales and 2%on export for use of the foreign franchisors brand name or trademark without transfer of technology. The laws in India also permit lump sum and royalty payments to be made by Indian franchises to their foreign counterparts for use of foreign technology, which includes manuals, system etc.lump sum payment up to U$$2million are permitted and royalties of 5%on domestic sales and 8%on exports can be paid to the foreign franchisor. In addition foreign companies can enter into consulting agreement and receive up to U$$1miilion per project .amount in excess of these can also be received but with the permission of the Indian government. These rules allow a
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foreign franchisor to structure its business in India in such a way so as to ensure that it can repatriate the maximum amount from India. The government has specified formula for calculation of royalties which must be adhered to before the foreign company can remit funds out of India. If the franchise agreement process royalties or lump sum fees beyond the specified limits, the approval of the foreign investment promotion board is required . Taxation Taxation is another issue which deserves due consideration. It is important to know the local sales tax, property tax, and withholding tax applicable in certain area. Further, how the franchise arrangement is structured and the existence of treaties between the countries involved may have considerable influence on the structure adopted. Where the franchisor receives royaltys services or franchise fees, tax has to be paid under the income tax income tax act (as income arising and accruing in India.) Whether the franchisor is an Indian or foreign. In case where the foreign franchisor sends training personnel and supervisors to India, the salaries payable to these persons may be subject to personal income tax whether an arrangement is made to deduct the tax at source or they are as self employed persons (professionals.) In calculating the amount of tax payable by the franchisor or the franchisee company, the deduction available in tax laws of India can be important for tax planning purposes. Something of these relate to rent, repair and insurance to premises used for business; depreciation and expenditure of patent rights or copyrights. However, the availability of tax advantages depends on type of franchise, the product of franchise and unit locations.

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Franchising has its disadvantages, risk, barriers, and challenges. The risks and challenges are multiplied in countries with weak legal and regulatory environment, countries were technical services are not readily available, and countries that do not provide an enabling environment for small and medium sized (SMEs) enterprises. However with due diligence, sound legal advice and carefullydrafted contracts, risks can be minimized, benefits maximized and challenges side-stepped. Disadvantages\challenges of Franchising for a

Franchisor
Brand Dilution or Destruction One franchisee can single-handedly hurt an established brand through irresponsible management. Depending on the nature of a franchise, a negligent or irresponsible act in one market can have repercussions in other markets where a franchisor has a presence. Imagine the implications on a fast food franchise like KFC if a franchisee were found to have served dead vultures and passed them off as chicken. Risk of Loss of Valuable Trade Secrets. With the franchise model, there is the risk that a business owner could inadvertently lose very valuable trade secrets and other proprietary information. Given this risk, it is important that local laws are adequate to protect trade secrets and other proprietary information. It is also important that the franchise agreement effectively addresses this problem. Financial Loss Associated with Outlet Failures Even though franchisees provide much of the capital needed for expansion, the franchising approach to business expansion is not cost-free. For a franchisor, there are costs associated with due diligence investigations, entry into frontier markets and other unchartered territories, franchisee selection, as well as preoperating training and assistance. These initial costs are lost if a franchise fails. Depending on the sector, franchisor failure rate can
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be quite high. Standardization Challenges Standardization and quality control are crucial in business format franchising. Typically, a franchisor is expected to ensure uniform standards and quality within its many units. Standardization is achieved through common products, procedures, systems, trademarks and trade dress maintained throughout the franchisors network. It is important that a franchisor insist that all franchisees use the franchisors standardized branding, menus, design layouts and administration systems. For prospective franchisors, three challenges arise: (1) Developing standard products and operating procedures; (2) Effectively communicating these standards to existing franchisees as well as prospective franchisees; (3) Maintaining standardization and monitoring performance; and(4) addressing compliance issues through timely resort to enforcement mechanisms. It is clearly easier to ensure standardization in a vertically integrated chain with only company-owned units that it is with several independent franchisees. Increasingly, businesses are coming up with innovative ways (e.g. through management contracts) to overcome standardization challenges. Performance Monitoring Costs and Challenges To ensure standardization throughout a network, periodic training and periodic monitoring are usually necessary. Implementing effective standardization program can be costly and requires a pool of highly trained personnel. Moreover, monitoring costs go up in countries with poor infrastructure and weak legal and regulatory environment. Innovation Challenges Innovation can be a challenge for businesses that adopt the franchising model. With company-owned expansion model, company units easily become incubators for new ideas. It is also easier to implement new ideas and practices throughout a network where the units are all company-owned than is the case in franchised units. Particularly where there are costs and risks
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associated with a particular idea, franchisees are likely to resist attempts by franchisors to use them as laboratories. Extensive Regulation: Detailed Financial and Legal Disclosures Compared to some other business model, the franchise business model is heavily regulated in many countries. In some countries, franchising is governed by both federal and state laws. Three types of laws common in franchising are the franchise disclosure laws, the franchise registration laws, and the business opportunity laws. Franchise disclosure laws typically require a franchisor to make available to prospective franchisee detailed information about the franchisor, the franchise business and the franchisor-franchisee relationship. Some countries require the disclosure to be in a standard format. In the United States for example, the Disclosure Document must be given to the prospective franchisee at least ten business days before the franchise agreement is signed (ten-day rule). The Disclosure Document outlines about twenty-three (23) topics that must be fully addressed. Topics covered in the Disclosure Document are varied and include: The franchise, its predecessor and affiliate; Litigation; Bankruptcy; Initial franchise fee; Territory; Franchisors obligation; Earnings claims; Financial Statements; and Contracts. Even if no law requires a franchisor to make a full business disclosure, a prospective franchisee can demand such disclosure. Thus, the franchise model will not work for a business owner who likes secrecy and who does not want information relating to the business to become public knowledge. As already noted, there are some disadvantages to the franchising model. Given associated risks and challenges, businesses must weigh all options for expansion carefully and consider the experience of existing chains carefully. Franchise associations are important. Franchise associations exist in most advanced markets and in many emerging markets. Home-Grown Franchises or Foreign Franchises? A locally-developed franchise can flourish even in markets that popular, global franchisees fear to tread. Businesses in Africa should be inspired by the growth of home-grown franchises in countries like India (SPOT Taxi and Kegs Farms) and Brazil (Nature). Home-grown franchises are beginning to emerge in Africa, although very slowly. While home-grown franchises may not
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be exposed to some risks that Western franchises face in subSaharan Africa, they may be subjected to certain restrictions that are not applied to Western franchises. The point it that the successes and travails of big Western franchising chains in subSaharan Africa may not be a perfect indication of how home-grown franchises will fare. There is need for further studies to understand the unique risks and challenges local chains face? There is also need for further studies to understand why home-grown chains appear to be succeeding in emerging markets like India, Malaysia and Brazil. Readiness for franchising The prospects of minimizing the disadvantages of franchising and overcoming the challenges associated with franchising are higher if a business approaches franchising carefully and strategically. Decision to expand and to expand using franchising model should not be made lightly. Before jumping into franchising a business owner should answer some key questions. Is your type of business the kind that can be replicated using the franchising model? Do you have a profitable and sustainable business model? Do you own a brand? Is there an established and growing demand for the product or service you offer? Is your product unique or distinctive in any way? Do you have the time and resources needed particularly in the start-up phase? Do you have plans for overcoming some of the unique challenges to doing business in sub-Saharan Africa such as limited access to finance, limited access to human resources, poor legal and regulatory environment, and, increasingly, security concerns? Have you considered the legal restrictions and requirements in place in the country you plan to operate in? Conclusion Although franchising offers many advantages to a business desiring to replicate and expand, there are associated risks and challenges. The level of risks and challenges depends very much on factors such as the market size, experience, competitiveness of an enterprise. Overall, with due diligence, careful planning, and sound legal advice, risks can be managed and challenges overcome.
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The franchising Association of India is a Membership Organization of Franchisors, Franchisees, Vendors, Consultants, Financial Institution and Students and others. Indias Franchise Association services are dedicated to provide a one-stop shopping experience for franchising business and with membership of the prestigious World Franchise Council we have ongoing access to knowledge of the World accepted best practice related to Franchising in different areas of business activity as also networking contacts with the WFC member Franchising Associations in different parts of the world for generating new business opportunities for Indian entrepreneurs. In recognition of the increasing role of franchising in the market place and the very beneficial positive contributions of franchising to the Indian economy, the franchisor and franchisee members of the FAI believes that franchising must reflect the highest principles and standards of fair business practices.

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FAI Mission Tap the vast entrepreneurial energy available in the country by promoting the concept and practice of franchising in India. FAI Objectives Exchange and safeguard the business environment for franchising, both with regard to franchisors and franchisees Act as the resource centre for current and prospective franchisors, franchisees, the media and the Government. Disseminate knowledge to promote the concept of 'franchising' and propagate it as a healthy business practice. Establish a forum for discussion and deliberation on Franchising related matters and problems and help promote the interest of members by organizing seminars, conferences and meetings. FAI Activities To work towards achievement of the above mission and objectives our activities will include: Creation of appropriate forums for discussion of issues and problems related to Franchising. International linkages to promote - bringing in of foreign franchisors and best practice for doing business in India through Marketing India at International Expos and otherwise. Make representations to the Government with regard to legislative and other measures affecting the promotion of concept and practice of Franchising. Encouraging Bank and Venture Capital funding for franchisees. Publication of Franchising Successes.

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The result in the form of a 'Report on Indian Franchising Industry'2013 prepared by KPMG in India is in your hands. As you will notice this is the first and the most authentic study report on the Franchising Industry in India and KPMG in India have done an excellent job of covering a lot of ground in term of the rapid progress made by this Industry in India so far in the context of the International scene and otherwise. The context of growth of the modern retail trade has been an important driving force. The issues and challenges before this Industry including the required Government support are well brought out. The Franchising Industry has great potential going forward and is going to be a significant contributor to GDP growth. Franchising is clearly a rapidly growing model for business expansion in the retail sector and is going to be an increasingly important part of the growing services sector of the Indian economy in the years to come. Franchising has also got a huge potential for job creation, direct and indirect, particularly for our young and educated class besides of course providing immense entrepreneurial opportunities for young and not so young people wanting to be their 'own boss I hope this report will stimulate further and faster growth of the Franchising concept and the related best practices to ensure healthy growth of the Franchising Industry in India.

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The World Franchise Council (WFC) is an association of 45 National Franchise Associations, whose purpose is to encourage international understanding and cooperation in the protection and promotion of franchising worldwide. Communication between representatives of world franchise organizations helps assist the members of each nations franchise association and in turn the economies and wellbeing of the people involved in franchising at the local and national level. This independent analysis of the past, present and future of franchising in India will assist in a clearer understanding of the opportunities to develop the franchise business model, which can play a major role in the countrys economic development, as well as the potential to become an agent of social change. Franchising, with its multiplier effect in terms of enterprise creation and job generation, has the power to produce the needed sustainable jobs that can provide a better future for hundreds of millions of individuals all over the world. With the evidence from more than 30,000 franchise systems generating at least 2,000,000 business enterprises worldwide, franchising is a proven business strategy worldwide that can have immense positive impact on the Indian economy. We hope that this report prepared by KPMG in partnership with Franchising Association of India, our only recognized member Association from India, will add a lot of value and be of great help for healthy and faster growth of the Franchising Industry in a large market like India.

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The International Franchise Association is excited to see this research on Franchising in India and commends the Franchising Association of India and KPMG on assembling the data to tell the success story of franchising in India. U.S. Franchisors count India as one of their growth markets. This research will help educate the media, government officials and the public about the potential of franchise business to spur economic growth in India. The Franchising Association of Indias partnership with the International Franchise Association and the Institute of Certified Franchise Executives (CFE) program further shows FAIs commitment to the growth of franchising in India.

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According to KPMG India estimates, the franchising industry is expected to quadruple between 2012 and 2017. There is scope for Franchising industry to contribute almost 4% of India GDP in 2017 (assuming 6% Y-o-Y GDP growth between 2012 and2017), growing from a current estimated contribution of 1.4 percent of GDP. This is also expected to create job opportunities (including both direct and indirect) for an additional 11 million people by 2017. While increasing consumption, willingness to spend, growing preference for branded products, global exposure and use of international brands is driving the demand side of franchising, increasing set of opportunity-driven competent entrepreneurs, growing awareness of Franchising as a business opportunity and its relative low risk profile are driving the supply of new franchisee units. Services sector which includes Consumer services such as Financial Services, Courier Services, and Health & Wellness and Food Service sub segments is expected to contribute to majority of the growth in Franchising in the next half decade. KPMG India estimates suggest that franchisees in these areas are expected to form around 55 percent of total estimated Franchisees in 2017. Franchising in Health & Wellness sub-segment is expected to grow to almost 6 times the current penetration. Retail (which includes sectors such as Apparel, Jewelry, Neighborhood stores, Food & Grocery) and Education are expected to be the other major areas where there is huge scope for franchising to succeed. Allowing Foreign Direct Investment (FDI) in single brand & multi-brand retail is expected to generate interest among large international players to adopt the franchising route to enter and expand in the country. While certain operating models with-in franchising such as Area development and Regional Master Franchisee - appear more attractive than others, diversity in Indian consumer preferences and degree of localization are expected to impact the choice of final model to be adopted. Today, India does not have any franchising specific laws; however various generic Indian laws such as Competition laws, Indian
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contract Act etc are applicable on franchising operations. Any future consolidation with formulation of franchise specific regulations in this area should allow conducive growth of franchise systems along with protection of franchisee rights. Success of franchising is also dependent on role financial institutions can play in promoting franchising. Changing dynamics in franchising industry would warrant a mindset change as well. A collaborative approach involving Franchisees, Franchisors, Financial institutions and industry associations is the need of the hour. The analyses and point of view presented in the report have been validated through extensive discussions with industry players. We take this opportunity to thank the industry players for making this endeavor possible. Ramesh Srinivas Head, Consumer Markets KPMG in India

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Franchising market potential

India, by witnessing huge demographic branded products, global exposure transformation fuelled by the consumption led growth, stands as a driving adoption of the franchising attractive destination globally for the franchising fraternity. Consumerism is growing rapidly aided by high industry is expected to quadruple population, increasing household incomes over the last two decades. Scope for the franchising industry to Overall, the Indian economy has witnessed a structural shift from an agricultural based economy. According to KPMG in India estimates, the franchising industry is expected to quadruple between 2012 and 2017. There is scope for the franchising industry to contribute to almost 4 percent of Indias GDP in 2017 (assuming 6percent Y-o-Y GDP growth between2012 and 2017), growing from a current estimated contribution of 1.4percent of GDP. This is also expected to create job opportunities (including both direct and indirect) for an additional 11 million people by 2017. Both demand and supply side factors are expected to contribute to this growth. Demand side factors Supply side Demand side factor Supply side factor Increasing consumption and willingness to spend Increasing set of opportunityIncreasing purchasing power of driven competent entrepreneurs the middle class. Increasing awareness of Growing preference for branded Franchising as a business and quality products among Opportunity and its relative low consumers. risk profile. Increased global exposure and Government initiatives such as growing aspirations to adopt the liberalization of FDI in retail western culture and use which has allowed foreign international brands. brands to enter India.

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Franchising Opportunity: Sector Overview

As per KPMG in India analysis, retail and consumer services sectors are expected to emerge as high potential service sectors within franchising to cater to the prevailing consumption boom. Non-traditional segments such as food service, jewellery pre schools etc. also present a huge opportunity for growth in franchising. Despite the challenges the country presents, there have been many successful case studies of franchising in India. From franchisors such as Aptech and NIIT which have pioneered the franchising model in India to new age franchisors such as Gitanjali and VLCC who are adopting innovative expansion models within franchising, many brands/companies are adopting the franchising model to expand and provide a consistent and quality experience to its end customers Franchise Business Models Firms that have created an easily replicable business model, while certain operating models within franchising such as often choose franchising as their preferred route to expand their area development and regional master franchisee appear operations and scale their brand. However, within the realm of more attractive than others, diversity in Indian consumer franchising, there are several franchising models that differ preferences and degree of localization impact the choice of the final model to be adopted. Attractiveness of India in Global Franchising Many international brands have already entered India and are adopting the Franchise route to growth. Global brands such as Dominos, KFC, and Baskin Robbins have adopted variations of the franchise models to grow in India. Many
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other international brands are contemplating entry plans into India. However, Indias growing but fragmented market can seem chaotic and difficult to deal with. The international franchisors consider the following factors as challenges while entering into India : Transparent Legislative framework: Due to no specific rules or laws promulgated in India to address the functioning of franchisors and franchisees, international players perceive a higher risk to business continuity. India is not one market: Entering a new market becomes more complicated in case of India where consumers hail from diverse cultural backgrounds. Several cultures, languages and socio-economic diversities make it a set of multiple markets. Bribe and corruption: International franchisors remain threatened with the bribe and corruption cases in India. Due to no legislation around anti-bribe in India, as in the US; it not only discourages the expansion strategies of many brands, but also impacts Indias credibility in the international market. Franchise Industry Survey Key Highlights While the survey carried out by KPMG in India corroborated the reasons for growth in franchising and operating establishing models it also brought out certain key findings as mentioned below : Franchisors believe that they are providing adequate support to their franchisees; however the latter are expecting more from the support particularly in the post launch phase of operations. Response to another related question in the survey. Suggested that almost half of those interviewed were not willing to take up additional franchisees with the existing franchisors suggesting certain level of dissatisfaction. While franchisors adopt franchising model for growth, many entrepreneurs are opting for the franchising route as it primarily offers a safe and relatively easy way of establishing
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business and is expected to offer higher than market levels of profitability. This trend necessitates the need for franchisors to educate the franchisees on potential profitability and investment returns from the business. Sectors such as jewellery where payback periods could range between a minimum of four to five years are particularly vulnerable to such mismatch in outlook. Real estate rentals are posing a major challenge for the success of franchising. Collaborative efforts between franchisors and franchisees in structuring business models that are sustainable even under such conditions could address this concern. Regulatory Scenario While franchising sector in India, per se is not regulated, there are multiple laws which have an impact on franchise operations. Any future regulations in this area should allow conducive growth of franchise systems along with protection of franchisee rights. KPMG Indias comments on a few areas of regulations have been highlighted in the table below:

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parameters Specific franchising Law

KPMG comment Franchising focused rules & regulations are expected to send a positive message to both Indian and global franchising community about the seriousness of Indian government in promoting franchising as a mainstream sector that can contribute to overall GDP growth and employment generation This will not only protect franchisee rights but also ensures that only serious Players consider franchising as a business model. This is expected to reduce overall risk to business continuity. Free market pricing should be encouraged while making sure that royalty and fee payments lie within industry standards It is critical to have a transparent dispute resolution mechanism and an independent body to address conflicts that may arise between a franchisor and franchisee. It is important to protect intellectual property rights of all the franchisors to discourage counterfeiting brands.

Pre-contractual disclosure norms

Control on royalty payments and franchisee fees

Conflicts resolution

Intellectual property protection

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Financing the Franchise Business One of the key criteria of franchisors while selecting a franchisee is investment capability and financial strength. This in itself is an indicator of how difficult it is for a franchisee to tap the debt route to investment. Most lenders do not treat franchisees as a separate customer segment and usually cover them under the ambit of the broader Small & Medium sized Enterprise (SME) sector classification. This gets particularly magnified in case of services franchising where there is an absence of asset base on which a collateral can be taken to provide a loan. A comprehensive and collaborative mechanism is once institutions can offer innovative financial products to franchisees, adequate support from the franchising ecosystem including that of franchisors and industry associations is necessary to make this a success. Franchise association of industry Could spearhead formation of collective and mutual credit guarantee consortia comprising of franchisors, franchisees, lending institutions and government. Provide greater reassurance to the lending institutions by offering services such as due-diligence of the franchisee business plans Increase awareness of innovative asset-light business models amongst lending institutions Provide a common platform for the interaction of franchisors, franchisees and lending institutions Source: KPMG

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Franchising - Pushing India Ahead Current market landscape for franchising in India Case studies in the Indian Franchising Space
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Franchise Industry Survey Franchising Regulatory Scenario Business Models in Franchising Employment potential in the Franchising Industry Financing Franchising Business Franchising Success: Role of the government
Conclusion Appendix Acknowledgement

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Franchising Pushing India ahead

Contribution of Franchising to GDP and Employment (2012)

With a potential to push the Indian economy forward, franchising has been playing a significant role in generating new employment (both in terms of numbers and job quality), provide revenue options for the government in the form of taxes, duties etc. Along with its contribution to the country's gross domestic product (GDP), it has also helped many national and international brands to spread their presence in the country. A brief look at the chart indicates the contribution franchising made to GDP and employment of various countries. While US stands relatively high on generating employment through the franchising mode, Australia has been able to generate significant income for the country through the franchising route. Close to 10% of Australian GDP is contributed by Franchising in Australia. International Scenario Franchising, though as a concept is western, is not limited to the developed nations only. It has spread its mark to developing countries like India, Brazil, and China etc. Even the African nations, over the last few decades have started tasting the flavors of franchising. Such as KFC, Dominos etc have already set up franchisee outlets in the country to tap this potential. Franchising accounts for almost 10- 25 percent of the GDP of most of the OECD (Organization for Economic Cooperation and Development) countries. A brief look at the chart indicates the contribution franchising made to GDP and employment of various countries. While US stands Relatively high on generating employment through the franchising Mode, Australia has been able to generate significant income for the country through the franchising route. Close to 10% of Australian GDP is contributed by Franchising in Australia. Though US has seen a major closure of establishments during 2008-2011 when they decreased from 7.74 Mn establishments in 2008 to 7.36
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Mn establishments in 2011. However the country is seeing a reversal of the trend and has grown by 1.5% in 2012 and 2 expected to grow by 1.4% in 2013.Brazil and China have seen relatively higher growth both in new brands resorting to franchising as a business model for expansion as well as new franchisees .

The following table illustrates the growth of franchising in a few countries

countrie s franchiso Growth rs in the in 2012 last 5 year(CAC R) last 5 years (CAGR) ~3500 n.a ~1200 2426 929 5000 5 ~4.2% ~15.2% ~2.8% ~7.4% Franchisee Establishme nts in 2012 Growth in last 5 years (CAGR) Franchisee s /Franchisor Ratio(2012 )

USA Australia Brazil UK China

~7,50,000 ~73,000 100,000 ~40,000 300,000350,000

-0.6% 2.8% 9% 2.1% 22.4%

~213 ~62 ~41 ~43 ~24

As corroborated by the above analysis, there is a large scope for franchising to contribute to India's economic growth while generating employment (both direct and indirect). Franchising as a business model also allows efficient flow of capital from the unorganized segment into organized business. Such a model is well suited for an emerging economy like India where there is wide spread distribution of capital.

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Current market landscape for franchising in India

Since liberalization, the Indian economy has witnessed steady evolution. Consumerism has risen on account of a growing young population, high disposable income and growing urbanization consequently, retail and services sectors are expected to play a major role in this consumption boom .The macro statistics reveal that agriculture is no longer the chief contributor to the Indian economy. This growth has also given impetus to a huge entrepreneurial appetite Over the last decade, franchising has surfaced as one of the most prolific and feasible ways of expanding businesses in India Several industry verticals such as food and beverage, education, fashion, tourism and hospitality are leveraging their growth by franchising their products under various formats. . Today India is home to more than 3000 brands which adopt the franchising model. Bata, one of the leading footwear companies, was among the first franchisors in India other pioneers of Indian franchising Were NIIT, Apollo Hospitals and Titan Watches. In addition, today several leading global franchise companies, such as Dominos McDonald's, Yum Brands, Baskin, Robbins and Subway, have already established a presence in India franchise industry is expected to continue to benefit greatly from government support across various sectors through various measures including allowing foreign direct investments (FDI) in single brand and multi-brand retail. Understanding franchising Franchising is perhaps the most period, with widely used way of business expansion method adopted by both international and domestic players. While Indian law does not officially owner of a trademark or trade name services define franchising, the term permitting another to
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sell a product indicates a way of doing business or service under that name or Business format franchising, a involving the use of a person mark. combination of the other two ('franchisee'), pursuant to a license, There are three distinct types of types of franchising, using the of another person's ('franchisor') franchising: franchisor's trademark/ business model, name, image and name in order to distribute the business identity along with his/her Product or service under that name or mark. There are three distinct types of franchising: Product distribution franchising involving a co-operation for the distribution of goods, mostly in the retail business Trade name franchising, where the franchisee uses the trademark / business name of the franchisor in order to sell its own products or services. Business format franchising, a combination of the other two types of franchising, using the franchisor's trademark/ business name in order to distribute the franchisor's goods or services. The economic significance of franchising market in India Franchising contributes to economic growth of a nation in entrepreneurs consider it as the multiple ways such as job creation, access to necessary service and goods expansion country's tax base. The concept growing at an impressive rate since 2008, as risk-averse Indian entrepreneurs consider it as the most viable option to tap the nation's vast consumer market. KPMG in India estimates suggest that the Franchising business in India was worth USD 13.4 billion in 2012 and is expected to witness CAGR of 30 percent over the next 5 years. This amounts to about 1.4 percent of the country's GDP in 2012. KPMG in India expects both demand and supply side factors to contribute to this growth. 1. Increasing consumption and willingness to spend 2. Increasing purchasing power of the middle class. 3. Growing preference for branded and quality products among consumers.
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4. Increased global exposure and growing aspirations to adopt western culture and use international brands. Supply side factors 1. Increasing set of opportunity-driven competent entrepreneurs 2. Increasing awareness of Franchising as a business Opportunity and its relative low risk profile 3. Government initiatives such as the liberalization of FDI in retail which has allowed foreign brands to enter India. Source: KPMG India Franchise: Sector watch The franchise business in India is increasingly getting popular among domestic and international players across various sectors. Several major industries credit successful franchisees for their rapid progress. The key industries that possess high prospects for the successful franchise opportunities in India are following: Retail franchising Food and beverages Health, beauty and wellness Consumer services Education and training The individual growth and potential of these industries are driving the growth of the overall franchise sector in India. Education and training: Owing to the sector demographics, education is one of franchising in sector includes pre- schools, K12, education industry through Higher Education, within education, expansion through franchising: Vocational training: Planning Commission, in 2011, workforce in India was skilled.6 4 corresponding numbers for Korea, years (~5 million since 2001). Germany and Japan are 96 percent, currently; existing pre-school 75 percent, and 80 percent, franchise businesses cater to only respectively. 5. The segment has high needs to create 10-15 million jobs potential for franchising per year
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over the next decade to opportunities in tier 2 and 3 cities, provide gainful employment to which lack quality Pre-school: India has large population of about 158.8 million children in the age group of 06 years (~5 million since 2001). Currently, existing pre-school franchise businesses cater to only about one tenth of the total children in this range. The segment has high potential for franchising opportunities in tier 2 and 3 cities which lack quality education services and facilities. Our estimates suggest that revenues from franchisee pre- schools are expected to reach almost USD 94 million from a current value of USD 16 million. It is estimated that a total of 21000 franchisee establishments may be required by 2017 to meet the growing demand for pre-schools. Food and beverage: The food service industry in India is estimated to be worth USD 48 billion in 2012 and expected to grow at 13 percent, CAGR over the next 5 years. Restaurants (QSR), Caf/bars and fine & casual dine is expected to see a rapid jump. Our estimates suggest an opportunity to the tune of USD 1.5 billion, USD 1.4billion and USD 1.2 billion for franchising by 2017, in each of the three segments respectively. The market size of the overall beauty and wellness industry in India (organized and unorganized put together) is estimated to be USD 4.5 billion in 2012. It is expected to grow at nearly 20-25 percent annually. The key industry segments include Salons (60 percent of total market), Fitness and Slimming (25 percent) and Spa (includes alternate therapy with 16 percent industry share). Health, beauty and wellness sector: The key drivers behind this exponential growth include more awareness toward hygiene and wholesome lifestyle coupled with a surge in retail business in India The sector is going main stream. Through franchised based business models. Since the sector requires high capital investment for growth, high capital investment for growth players in this segment area increasingly relying on franchising to scale up businesses and extend reach to Tier 2 and 3 cities. Retail sector: The retail industry landscape in India is change in rapidly on the back of factors such as favorable demographic
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profile rising disposable income levels and the industry appetite to cater to thiermerging consumption boom. The organized retail (including Food &Grocery) is estimated to be USD 24 billion in 2012, largely concentrated by retail franchisors in the Apparel, Consumer Durables and Food Groceries space with around 80 percent share. However, India drives only about 2.5 percent of total retail sales (organized and unorganized) through franchise formats, as against nearly 50 percent in the US, indicating huge potential for the market in future. KPMG estimates that over 43000 franchisee establishments (valued at USD 36billion) may be required by 2017 to meet the growing demand in the retail sector from a current base of13000 (valued at USD 10.6 billion). Recent FDI reforms in single brand and multiband retail are likely to lure more global retailers to participate in India. Existing retail majors are under pressure to consolidate and increase their franchise network reach. Meanwhile, several multinationals such as IKEA, Wal-Mart are looking to establish their brands in India. Franchising is expected to continue to be one of the most popular Business formats among organized retailers to tap the emerging consumption boom, specifically in the tier 2, tier 3 and smaller cities. However recent clarifications issued by the Indian government on FDI regulations in multiband retail allowing foreign retailers to only open company owned company operated outlets could be a big blow to growth in Retail franchising in India. Consumer services: The Consume services industry basically deals with customer-centric services, which means understanding new consumer trends and requirements; and generating products and services accordingly. Innovation remains the key to service thindustry for the franchisors; however relatively lower investments and moderate domain knowledge suffices the business need. KPMG in India estimates that a total of around 50,000 franchisee establishments (contributing USD~4 billion) may be required by 2017to meet the growing demand in the services sector. Currently it is estimated that franchising in-services sector contributes to almost USD 1 billion of revenues from around 15,000 outlets.
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Following are the few case studies highlighting 'innovation' as one of the key success factors In franchising in the consumer services sector in India: Segments 'Innovation' is the Franchise spread till key 2012 Car cleaning and 3M Car Care 3M operates grooming segment recently launched seventeen 'germi-clean franchisees of its Treatment in car-care centers in metros, for the car India. owners who generally eat and spend most of their time inside their cars. This treatment ensures 99 percent decline in the microbial and bacterial growth on The mats or the upholstery of their cars. Laundry services Village Laundry The company Services (VLS) operates through 20 operates under the franchise stores in trade name southern India. 'Chamak' and offers affordable and high quality washing, drying, and ironing Services. VLS has got funding from Procter & Gamble and Calvert (a US-based fund). Both these companies aim to build a completely new service
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concept (highquality, affordable, Laundromats) and to help low-income individuals get sustainable livelihoods. Other niche sectors: The franchise industry in India is growing rapidly in multiple sectors. Despite strong penetration in the retail, foodservice, healthcare, education and services sectors, franchised operations have gained momentum in some niche sectors Entertainment, agriculture, real-estate, telecom, gaming, media entertainment and personalized. Services such as home cleaning are among emerging niche sectors KPMG in India estimates a steady growth in the franchise penetration in aforesaid sectors... Overall, the franchising industry in India is expected to witness an above average growth rate over2012?17 across sectors. The grow would be fuelled by rising income and expenditure levels of the young population along with the recent FDI policy changes, economic and socio-cultural developments.

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Case studies in the: Indian franchising space

Despite the challenges the country presents, there have been many successful case studies of franchising in India. From franchisors such as Aptech and NIIT which have pioneered the franchising model in India to new age franchisors such asMakemytrip.com and VLCC who adopting innovating expansion models with-in franchising, majority of the brands/ companies are adopting the franchising model to expand and provide a consistent and quality experience to its end customers. Many international brands such as McDonalds Dominos, KFC, Subway, and Booster Juice have entered the country through the franchising route. The sector is largely unorganized; the organized share is primarily limited to grooming spas and saloons. However, the same is expected to change given the expanding base and inclusion of innovative wellness themes such as stress conditioning spas and specialized segments such as Tai Chi and power yoga. Consultation, diagnostic services, health checkups and pharmacy are also 2some high potential and profitable franchise options in the healthcare sector.

VLCC
VLCCs performance VLCC Area of operations Start of operations Key brands No of outlets Presence across cities Turnover (INR million)

Beauty and wellness 2007 (franchise) VLCC Salon (VS), VLCC Centre (VC 56 (as of August 2012) 4760 (FY12)
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Net profit (INR million)

260 (FY12)

How VLCC shapes success amongst franchisees Training and support VLCC provides free startup training to franchisee staff in areas such as products, services, operations and client handling. VLCC also supports them in other areas such as selecting sites, developing projects, recruiting staff, launching centers, procuring equipment and marketing. VLCC maintains a stringent system of quality control through its team of dieticians, beauticians and operations experts, who visit franchisee centers regularly to conduct checks and audits. Key investment considerations Area requirements Investment Break-even period Royalty Expected ROI considerations 1,700 - 1,800 square feet (VC) 900 - 1,000 square feet (VS INR4.1 - 4.4 million (VC) 900 - 1,000 square feet (VS) 16 - 18 months (VS) 14 percent of sales (payable monthly) 40 percent in the initial 4 - 5 years, improves thereon

Quick expansion of network is a key reason for adoption of franchising route by VLCC. As of August 2012, 25 percent of VLCCs 160 slimming, beauty and fitness centers were franchisee run. VLCC plans to setup 300 wellness centers by 2015 As of August 2012, 12 out of 51 VLCC Beauty and Nutrition Institutes were operated by franchisees

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VLCC is present in countries such as UAE, Nepal, Sri Lanka and Bangladesh. It is exploring new franchise opportunities in Pakistan, Sri Lanka and Bangladesh.

Make mytrip.com
Make my trips performance

Segment Start of operations Key brands No of outlets Presence across cities Turnover (INR million)

Online travel portal 2009 (franchise) Makemytrip.com 51 (2012) 196.6 (FY12)

Understanding MMTs flight to success Key investment considerations Area requirements 500700 square feet Investment INR11.5 million Break-even period 11.5 year Royalty INR0.41 million depending on city tier. Other requirements Preferably located on main road Or high street. Agreement validity 3 years The number of franchise outlets has grown from 0 in 2009 to 51 in 2012.30-35 percent of MMTs holiday packages are sold through offline outlets, majority of which are franchise outlets (72 percent of the outlets in 2012).MMT is looking for overseas expansion in regions such as south East Asia through growing number of franchisees in India. Successfully targeting the clickaverseconsumer
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MMTs franchise partners are a part of MMTs hybrid expansion model to help serve those consumers who are more comfortable planning holidays offline. These are typically consumers looking for personal interaction and would not have ideally opted for the online option.

Strategy for geographic expansion Franchising has given MMT access to key Indian markets such as Ahmadabad, Kolkata and Bangalore. As on May 2013, MMT is looking to expand further in cities such as Mangalore, Gandhi ham, Kolhapur and Patiala through the franchising route. Focus on quality Service quality is one of the most important factors that differentiate MMTs franchise partners with key competitors such as offline travel agents. This is enabled through franchisee training which includes: Standard training on products and destination guides. Close involvement if MMTs service delivery team with the franchisee. Periodical trainings before peak holiday season. Consistency in service quality is maintained through regular audits at the franchise outlets. Associating with the right partners Focus on recruiting the right set of partners is the key to success of a franchising model. This becomes even more important in a specialized service sector like travel. Few important criteria for MMTs franchisee appointment include: Passion for travel industry. Proven business track record and management skills. Ability to invest the necessary capital. Other support To enhance demand, MMT supports its franchise partners through: Designing stores optimally Managing store launch and creating awareness in the area.
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Carrying out local promotional activities such as road shows and mall even

Jumbo King
Jumbo kings performance Area of operations Start of operations Key brands No of outlets 50 Food retailing 2004 (franchise) Jumbo King 50 58.5 (FY11)

The number of franchise outlets has grown from 45 (in October 2012) to over 50 (as of May 2013). The company plans to grow to 200 stores by 2015 and is focusing on the master franchising model to establish presence in cities such as Bangalore, Aura Nagpur, Bhopal and Surratt. Recipe for success Location JK targets prime locations with high footfalls, such as railways stations for setting up outlets. JKs franchisee relation team offers support in site election and rent/price negotiation to ensure best locations at optimum costs. JK also supports a joint ownership model where multiple individuals can open a franchise outlet. This also helps in Overcoming the cost constraint typically associated with owning/renting prime locations. Standardizing quality
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The USP of Jumbo King is hygienic food, and with pan-India presence it is important that consistency in food quality is maintained across outlets. To ensure consistency, Jumbo King has outsourced all manufacturing so that there is no difference in quality ofoodoffered. Key investment considerations Area requirement its 300 square feet (Single franchise) Investment INR1.2 million (Single franchise) Staff requirement Other requirements About 7 Shop should be in prime location with high footfalls as The format is of on-the-go service.

Core factor Jumbo Kings master franchise model Innovative royalty system After expanding through single-unit franchises in areas such as Mumbai, Jumbo King, in 2008, decided to focus on master franchising rather than single-unit franchising. A master franchisee is required invest in a minimum of 5 single-unit outlets (directly under his control). A key reason for opting for MFs is the business stability that larger players can offer compared to smaller players. The small outlet size also permits franchisees to diversify investment (by investing in multiple outlets) and minimize risk unlike other QSR formats where franchisee invests in a single outlet. Increasing ownership of partners Jumbo King follows a more decentralized franchisee model, unlike most other players in the sector. A master franchisee can get the right to sub-license Jumbo King in his area and expand his presence. A master franchisee
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also contributes to Jumbo Kings regional marketing program and localization of the menu.

Franchise industry survey

KPMG in India carried out a survey of Franchisors and Franchisees to solicit their perspectives on outlook for growth and how overall dynamics between Franchisor and Franchisee community is shaping up. The results of the survey have been broadly categorized under the following heads Growth drivers for franchising in India. Franchise Operating Models Franchisee Satisfaction Franchisee Support &Relationship Management Challenges in Franchising Conflict Management

Growth drivers of franchising in India India, with its large population has always been a consumption story and will continue to remain so for the years to come. Burgeoning consumer class with an increasing appetite for consumption is considered as the biggest growth driver, both by franchisors and franchisees. Increase in entrepreneurial drive coupled with risk taking abilities has steered a number of people, especially those with no-specific business background, take a plunge in franchising based business models Franchising as a business model has achieved stability over the course of time, giving new entrepreneurs increased confidence on the success of their ventures. Besides these, availability of investment sand increased investment capability has also been a key factor driving the growth of the industry, especially when investment support from franchisors is minimal.
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Businessmen predominantly choose franchising route as it helps increase the scale of operations while reducing the time to market. This also aids in brand building process through value creation Franchising imparts uniformity of product / service offering there by Leading to increased standards and quality. This is mainly the reason for franchisors not willing to customize their offerings for various franchisees, an aspect which most franchisees are not very comfortable with.

Franchising Operating Model While many brands and companies would view franchising as a key operating model for expansion from a scale and time perspective, they also believe franchising model allows them keep the brand relevant to their target consumers and result in better Profitability for the system (franchisor and franchisee community) as a whole. There are many reasons for business persons to consider franchising as a business model. Predominant of the reasons are related to capacity expansion, scale building and brand building, in a shorter span of time. While there are other choices, scale building and brand building and Faster Time to Market emerge as dominant choices with 26 percent, 16 percent and 17 percent responses. While Franchisors believe franchising as a good option to grow, many entrepreneurs are opting for the franchising route primarily due to it offering a safe and easy way of establishing business and offering higher than market levels of profitability. Franchising is also seen as a less-riskier option given that the business concept has already been pre-tested in the market and the entrepreneurs get to see the results of the franchisors as well as other franchisees. However while Franchisors believe in the concept of franchising, most franchisors are not willing to alter the terms and conditions of their proposal, in order to protect the brand value.
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Business Differentiators Increasing growth in franchising is also reflected in the increasing competition within the industry, with a constant stream of new franchisees starting their businesses. Increasing competition intensifies the need to develop unique selling proposition that can Differentiate one brand from the other Business concept turns out to be the biggest differentiator in business for 37 % of the respondents; it was closely followed by return on investment and standardized processes at 26 % each. While majority of franchisors adopt the Franchisee Owned and Franchisee Operated model for expansion, few franchisors have also mentioned the need for coexistence of Company Owned Franchisee Operated models. This was particularly necessary in high streets of metro cities where the rentals negatively impact the Business viability for the franchisee. Also there are cases where franchisors want to have a few large format flagship stores. In both these cases, franchisors preferred investing initially. Franchisee Satisfaction Out of the 20 franchisees surveyed, were either satisfied or satisfied to a certain extent with franchisor business, both in terms of operations and financial returns. Amongst the 50% franchisees who were satisfied to a certain extent, the biggest cause of concern was the inadequate operational support. But they still continue with the franchisor, mainly, due to the financial returns obtained. There were also around 14% of the franchisees who were entirely unhappy with the financial returns and operational support provided. In terms of franchisee interest for undertaking additional franchisees, almost half of those interviewed were not willing to take up additional franchisees with the existing franchisors. This is primarily due to friction in the relationship between franchisors and franchisees on various aspects, especially in financial revenue sharing aspects in comparison to the nature of operational support provided. Such a situation is more relevant in the services franchising business where franchisor support is seen as critical.
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Most of the franchisees who were willing to undertake further franchisees were in product franchising business Franchisee Support & Relationship Management Collaboration between franchisor and franchisees is critical to success of franchising businesses. There are several avenues for collaboration between franchisors and franchisees such as project set up, marketing, employee training, operational management, revenue management, cost management and risk management. Project Start-Up Support Operational Support is the first area of collaboration between franchisor and franchisee. Most franchisors are involved in demographic analysis of the location, site evaluation, survey and approval, facility planning and architectural design of the store and store opening (retail clients). Franchisees also acknowledge the importance of franchisor contribution in getting the basics of the project right. Marketing Support Functions such as advertising and promotions, regional and local publicity and event based promotion schemes have been the most important support provided to franchisors. Such activities build the brand, increase credibility of the offering and ensure increased product awareness amongst the target clientele. Majority of the franchisors have indicated marketing function as the key support provided for the franchisees, which is also recognized by most franchisees. This is specifically true in the case of national level brands and large regional brands. Few of the regional brands expect the franchisees to separately share cost of regional/local marketing. However, amongst smaller brands, marketing support has been usually restricted to advertisements with nothing specific being done for local publicity. Franchisees of local brands have also indicated the diminishing of marketing support once the. Employee Training and Development is taken as a focus area amongst national brands, especially those in services franchising . Well planned employee development program encompassing well-defined processes for recruitment and selection, continuous training and up gradation of skills to the technical, operational, sales teams adds to the success
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of franchisee operations. Of the key challenges that new. Franchisees face, hiring and training of employees is the key. The challenge is particularly severe at retail concepts, where front-line employees are the face of the brand, dealing directly with each customer every day. While most franchisors have well-defined training programs, a large number of franchisees particularly find it difficult to hire good candidates and retain them. Operational Support an apparent area of collaboration whereby the franchisor provides defined guidelines for operations, employee management, product/service pricing guidelines, troubleshooting support, supply chain and procurement support. Large brands deploy dedicated teams to respond to operational requirements of franchisees but the case is not the same with smaller and regional brands. Few franchisees, while appreciating the good intentions of support from franchisors, are disappointed with the pace of response for operational challenges. Key challenges in Franchising Both franchisors and franchisees face certain challenges before and during operations. From the survey it is clearly evident that rentals are impacting profitability of franchisees and overall business viability. Franchisors too are concerned about consistent royalty payments by franchisees in such a scenario where business viability is being threatened. The survey also indicated that one of the key reasons for attrition in the. franchising space is due to falling profits. Franchisor View - Franchisee Challenges in Operations The biggest of the franchisee challenges in operations are related to real estate. Setting up businesses in the desired locations and paying high rentals is on the top of the challenges. Besides these, deploying the right talent and funding the business operations are also other challenges faced by the franchisees Franchisee View - Operational Challenges of Franchisees
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While location and rentals are biggest problems faced by franchisees, recruitment of right employee & retaining them is also suggested as a key concern by franchisees. Attrition was found to be fairly common in the franchise business with the major reason being falling profits for the business. Conflict Management There are several causes of friction between the franchisors and franchisees, which if not addressed in the beginning, could cause a rift between them which might eventually lead to severance of relationship. While most franchisors are aware of the problems with franchisees, matters become worse, when then turn blind eye to the problems. Some of the key areas of conflict between franchisors and franchisees include: Low expenditure on regional marketing and advertising model. Additional marketing fee for regional publicity, despite a high revenue share allocation Transcending geographical exclusivity or reducing radius of coverage Lack of empathy by franchisor employees handling franchisees Poor training of franchisees and inadequate handholding during initial stages of operation Financial pressures leading to short term decision making by franchisors Not considering franchisees as the critical part of the franchisee ecosystem Lack of effective communication system with one sided communication to franchisees Lack of on-par treatment with franchisees leading to decisions being thrust on them Lack of professional approach to franchisee relationship management
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Rumor mongering amongst franchisees Non-sharing of financial stakes in the franchisor organization, especially when going public Franchisors need to evolve amicable strategies to address various risks that could emerge during the course of business relationship. Such strategies are essential in the long run for the sustenance of the franchisor-franchisee network. Several of the national brands have developed a proactive, positive and a disciplined culture that rewards franchisees in a fair manner. Greater communicative collaboration between franchisors and regulators will improve the perception of equity in franchising relationships and promote superior perception of trust in franchising as a business model.

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Franchising Regulatory Scenario

Franchising legal framework in India

The entry of international brands in India is guided by foreign exchange laws which include the Foreign Exchange Management Act (FEMA), 1999, which was replaced by the Foreign Exchange Regulation Act FERA), 1973, in June 2000 and several other important laws and regulations. At times, adhering to multiple laws creates challenges for global franchisors . Following are the key laws governing the franchising operations in India: The Indian Contract Act, 1872: Franchise contracts such as offer, acceptance, validity, breach and termination and act as an ultimate point of reference to determine the rights and obligations of the various parties of a franchise agreement. Competition laws: All restrictive terms and regulations in pursuant to the franchising operations in India fall under the purview of the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). It restricts unfair and restrictive trade practices in the franchising industry. Further, the Competition Act, 2002, promotes healthy competition among all the players in the industry. The act governs practices such as resale price maintenance, tie-in products arrangement and the consequences of mismatching registration requirements.
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Intellectual property laws: The Trademarks Act, 1999, the Designs Act, 2000, the Patents Act, 1970, and the Copyright Act 1957; govern the Intellectual Property Rights (IPRs) in India. These include trademarks, patents, registered designs and technical assistance required for franchising agreements. Consumer protection laws: These laws protect consumers against the inconvenience caused due to defective goods and unsatisfactory service. The Consumer Protection Act, 1986, encourages Indian consumers to file complaints with the consumer forums for any defects/deficiencies in the goods or services supplied by the trader/franchisor. However, in such cases, whether consumers have recourse to franchisors, franchisees or both depends on the degree of control they have on the business. Additionally, the following statutes and laws also apply to franchise operations in India: Foreign Exchange Management Act 1999 (FEMA) Lab our laws Income Tax Act 1961 Provincial Insolvency Act 1920 FDI in Multi-brand Retail India has recently made amendments to its FDI policy allowing up to 100 percent FDI is single brand retail and up to 51 percent FDI in multi-brand retail. However a recent clarification issued by Department of Industrial Policy and Promotion (DIPP) suggests that foreign retailers may not be allowed to franchise their stores and will have to own and operate the stores (Coco Model) in India

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Business Models in Franchising

Firms that have created an easily replicable business model, often choose franchising as their preferred route to expand their operations and scale their brand. However within the realm of Franchising, there are several franchising models that differ significantly in terms of operation control and legal scope. This section details these models and compares their relative attractiveness. Further sub by accounting for certain unique success factors within a sector, this section attempts to recommend certain models for each sector. Direct Franchising: Direct or unit franchising is th classic form of franchising. In this direct franchising model, the franchisor enters into an agreement with the franchisee allowing for one franchised-outlet to be open by the franchisee that is typically protected by guarantee of exclusivity for a certain geographical area. In most cases the franchisee will not be obligated to achieve certain sales or growth targets. The franchisor is usually expected to provide ongoing product and marketing support to the franchisee. In return the franchisor typically commands a percentage of profits as royalties in addition to the initial franchising fee. The direct franchising model offers a significant amount of control for the franchisor and entails a two- party contractual agreement between franchisor and franchisee.
All rules issued by the RBI

Area Development: In the Area development model, Area developers are granted exclusive rights for a broad geographical location to own and
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operate their own franchise outlets d and develop further franchisees for the franchisor. Typically, area developers are set certain targets in terms of number of outlets within .The region. Most are often obligated to own and operate an outlet of their own. In most Area development models, the franchisor still enters into a two-party agreement with the franchisee and is still expected to provide ongoing support to the franchisee thus offering a good degree of control to the franchisor. However the franchisor will likely share a percentage of the royalties with the Area developer. Many companies offer this type of franchise mode within their home country including brands such as Maui Tacos and Salad Creations. F Master Franchising: Under the Master franchising model, the franchisor appoints a Master franchisee for area. The Master franchisee is a broad geographical area with the responsibility of opening and responsibility of opening and typically expected to own and operate some of their own outlets and is usually set certain sales and growth targets. The franchisees within this area, often referred to as sub-franchisees, enter into a tri- partite agreement with the Master franchisee and the main franchisor typically, the Master franchisee will r command royalties from the sub by. Franchisees and will pay a percentage of these royalties to the franchisor. Further, the Master franchisee is expected to provide ongoing support to the sub the franchisees. The Master franchise route is typically used by foreign brands to enter international markets as they seldom have the regional knowledge and cultural acumen to successfully carry out business and franchising operations. Typically the Master Franchisee is granted at a National Level. In India, International brands such as Golds Gym and Hard Rock Caf and domestic brands such as Jumbo King and Chocolate Room have pursued this route. Sector amenity to franchise models This section explores the amenability of certain sectors to certain franchise models. From the franchisor's perspective, prioritization among factors such as Quality control, Process Standardization, Inventory costs and Time to Market are likely to changed
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depending on the chosen sector and this is then likely to have an impact on the choice of the franchise model. Food & Beverage sector: The critical success factor of a brand within the F&B sector is the brands ability to standardize a unique experience across several outlets while localizing its tastes and products. Simultaneously, food safety and quality standards are critical as well as an efficient supply chain that usually carries the brand's unique produce. There is an optimum balance between quality control and sensitivity to local tastes. In such a scenario a well- appointed Regional Master franchisee with detailed local knowledge and business acumen would be ideal. It bridges the cultural gap that exists between the franchisor and the market while ensuring standardized process and e customized distribution avenues without the resources usually expended in overseeing several individual outlets. Retail sector: Within the retail sector, distribution/supply chain is of utmost importance given the level l of competition. In addition, securing franchisee loyalty is crucial an relationship management and franchisee profitability is critical Further, Time to market and scale are important as they build on brand presence. Education sector: Franchising within the education sector is g characterized by the need to maintain excellent relationships with the franchisee. Constant feedback from the franchisee will help improve the product while constant support from the franchisor is paramount. Localization is limited to National sphere and thus in these circumstances, a National Master Franchisee is preferred, especially for an International brand, as this layered approach ensures minimum resource expenditure for oversight while ensuring a effective delivery mechanism for any product upgrades. Service sector: Customer experience is paramount within the service industry. This coupled with tight quality controls are critical success factors. Control over franchisees is an important factor and in this scenario, direct t franchising is expected to yield the most favorable results.
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Beauty, Health and Wellness: Similar to the general service sector quality service experience is essential in the Beauty, health and wellness segment. Many of the business within this segment employ machinery, often patented employ machinery, often patented to service their customers. In these scenarios, the franchisor is keen to avoid the upfront Inventory an holding costs to efficiently support and service a large network of potential franchisees and thus a Regional Master Franchisee is often employed as they are able to effectively deploy quality control mechanisms within the area while catering to the inventory needs of franchisees. Key operating business models for franchising A business model describes the This rationale of how an organization business model involves business model involves company's creates, delivers, and captures value franchisees own investment for own investment for setting up the(economic, social, cultural, or other setting up the store. It shifts the risk store. The outlets involve higher forms of value) 8. There are different of investment of the company to capital, and relatively slower kinds of business operating models the franchise holder. Franchise owned outlets: This business model involves franchisees own investment for setting up the store. It shifts the risk of investment of the company to the franchise holder. Franchise operator, is generally aware about the local market dynamics, hence strategically plans operations such as purchase, recruitment marketing, and distribution and end- consumer services. It tends to operate better than the company and delivers faster growth to the business. Company owned stores: This business model involves company's own investment for setting up the store. The outlets involve higher capital, and relatively slower business growth for the business However, with no middle-men involvements, company tends to generate higher ROI and avoid instances of theft and shop-lifting etc.
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A detail study of existing business models related to franchising in India Company owned company operated (CoCo) Company has complete control over business operation Complete onus of supply business growth for the business. Chain management due to no middle-men involvement leads to less wastages and shrinkages The company gains better understanding on the regional growth dynamics which could help in long term sustainability and scalability of business Company owned franchise operated (CoFo) and Franchise owned company operated (FoCo) In both these operating models, a company invests in franchisee but not necessarily monetarily. Minimal investment from a franchisor and significant interest from a franchisee ensures impressive growth. A franchisor might invest along with a franchisee or support him in the financial profitability of the business. Faster business growth in terms of increased market share, while maintaining control over stores . Franchise owned franchise operated (Fofo) All operational rights and responsibilities lies with the franchisee, hence the franchisor (company) can invest more time on the strategy development of the business. Here, a franchisee makes the investment. As a result, he/she is self-motivated and does everything possible to ensure the success of his/her business. It is possible to grow exponentially, as multiple outlets provide economies of scale and increase margins.

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Employment potential in the franchising industry

The franchising industry is expected to employ 1.4 crore people by 2017, which is almost 10 percent of the total estimated workforce in that year. Given such a large need for skilled resources, it is absolutely imperative to identify the skill gaps and work towards 1 bridging the same. Sector Retail Estimated employment potential 77 lakhs (5% of total workforce) Skills requirement Good communication skills due to high customer involvement. Understanding customer behavior and having product knowledge. For stores is in smaller towns, store personnel with knowledge of vernacular language is essential Good communicatio n skills, ability to handle
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Food & Beverage (F&B)

10 lakhs (1% of total workforce)

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Consumer Services 31 lakhs (2.2% of total workforce)

Education

20 lakhs (1.5% of total workforce)

guests and supervisory skills. Ability to manage F&B inventory and managing the day to day operations Maintaining high level of hospitality and cleanliness Ability to take orders from customers in a professional and courteous manner Basic understanding of the industry. Knowledge of the respective products they offer Soft skills such as communication and selling skills Sector specific skills where required (example: financial services) Ability to deliver content in a simple and effective manner
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Good communication and observation skills to address the problems of students Ability to use Information and Communication Technology (ICT) and constantly update oneself with the knowledge of technology In addition to the direct employment, franchising is expected to create push for indirect employment as well. It is estimated that indirect employment is expected to create an additional 1.8 million jobs by 2017 across the key franchising sectors. Services oriented franchisees including Food service sectors are expected to generate maximum indirect employment.

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Financing franchising business

Most franchisors look for the financial capability of the prospective franchisees before awarding them the business contract. However, several of the aspiring franchisees are hindered from undertaking the business due to financial constraints. The ease of obtaining loans for franchising business is very low in comparison to other industries. This is contrary to the reality where in franchising business, business concept is pre-tested and proven and chances for failure is lower than a start-up SME. Under the existing RBI norms, the limits for investment in plant and machinery/equipment for manufacturing/ service enterprise, as notified by the Ministry of Micro Small and Medium Enterprises is as given below. Most franchisees who obtain franchising loans are covered under the same classification as that of SMEs. Manufacturing sector Enterprises Investment in plant and machinery Micro Enterprises Do not exceed INR 25 lakh Small Enterprises More than INR 25 lakhs but does not exceed INR 5 crore Service Sector Enterprises Investment in equipment
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Micro Enterprises Small Enterprises

Do not exceed INR 25 lakh More than INR 25 lakhs but does not exceed INR 5 crore

A key factor which makes Franchising ecosystem different is in the services franchising sector where there is an absence of asset base on which a collateral can be taken to provide a loan. However, financiers do believe that there is potential in the Franchising sector lending. Franchisees need funding during different stages of operations such as the start-up, growth and global expansion phase. Financial institutions are more welcoming in offering support during the growth and expansion phase of operations over the start-up phase. There are several differences between a typical franchisee fund request and an SME fund request which makes the former a better candidate for support. Parameter SME entrepreneur Franchisee entrepreneur Business Concept Traditional Business Both Innovative and Concepts Traditional Business Concepts Business Viability While the business Be it innovative or concepts are pretraditional concepts, existing, an SME the franchisee entrepreneur starts entrepreneur gets his business from support from the scratch, with no franchisor formal throughout business support from other operations industrial players (they are mostly his Probability of Equal chances for Higher chances of success success and failure success given that the franchisor has already tested the market and then launched expansion
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Financial Security

Usually the collaterals provided by SME Entrepreneur

through franchising Collaterals/Guarantee provided both by franchisor and franchisees

A tripartite arrangement with the Franchisor, Franchisee and the lending institution is the collaborative arrangement most lending organizations such as SIDBI are looking for. Such arrangements will ensure complete sharing of information and support thorough due diligence of the franchise business plan. Lending institutions also seek additional assurances from the Franchisor such as first loss guarantee, change of franchisee or location in cases of nonperformance etc. The SIDBI FAI collaboration Small Industries Development Bankof India (SIDBI): Corporation set up under the Act of parliament, it is the principal financial institution for the promotion, financing and development of Indias Micro, Small and Medium Enterprise (MSME) sector. It is also involved in the coordination of functions of other bodies engaged in similar activity. Franchising Association of India (FAI): Nodal Agency for the Indian franchise sector which represents franchisees, franchisors and service providers belonging to the sector. Its key objectives include establishing international best practices in the sector, disseminating information to key stakeholders and educating government about key sector issues Key enablers for this collaboration: SIDBIs assistance flowing to eligible franchisees under the mentorship and guidance of Franchising Association of India (FAI).

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A good track record of the franchising in terms of success rate and a growing number of win-win arrangements between franchisors and franchisees.

Increasing inclination towards entrepreneurship, spurring new entrepreneurs to increasingly look at franchising as an option

Key features of the collaboration and areas of cooperation Co operation on entrepreneurship to create enabling environment for development of MSM Collaboration on avenues related to entrepreneurship such as policy advocacy, structuring of new risk capital and other direct credit products. Franchising Association of India (FAI) to disseminate information and create awareness: Under the agreement, Franchising Association of India (FAI) would lay the groundwork for creating a conductive business environment. This would include organizing meetings, workshops and other such events for dissemination of information about SIDBIs schemes. Franchising Association of India (FAI) would work to provide visibility and recognition to SIDBI through above events, websites, newsletters and other promotional material. Franchising Association of India (FAI) to screen the members initially Screening of enterprises for extension of financial support is
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expected to be conducted by Franchising Association of India (FAI). The proposals are referred to SIDBI for assistance under schemes such as the Direct Credit Scheme to MSMEs and the Risk Capital Assistance scheme. Franchising Association of India (FAI) to mentor Franchisees Post approval and dissemination of financial support from SIDBI, Franchising Association of India (FAI) comes into the picture by assisting and mentoring the Franchisees.

Enhancing Funding Ecosystem in Franchising Franchising Industry Associations Could spearhead formation of collective and mutual credit guarantee consortia comprising of franchisors, franchisees, lending institutions and government. Provide greater reassurance to the lending institutions by offering services such as due-diligence of the franchisee business plans Increase awareness of innovative asset-light business models amongst lending institutions. Provide a common platform for the interaction of Franchisors, Franchisees and lending.

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Franchising success: Role of the government

Different economists have expressed different views on the role of a government in any society one school of thought, represented by John Maynard Keynes and John Kenneth Galbraith, states that an activist government is essential for the efficient growth of an economy However, another point of view was developed by twentieth century economists Frederick von Hayek and Milton Friedman. They argued that an activist government is the key cause of economic instability and inefficiencies in the private sector. The absence of a regulatory framework and formal franchise laws in India could deter potential franchisees from investing. Countries such as Singapore and the US, which offer attractive franchise opportunities due to substantial gave While India has liberalized francrnment support, are examples of how a government c facilitate and promote franchising in a country royalty/fee payments since 2011. Foreign franchisors can now charge a lump-sum fee and royalty without any maximum limit for transfer of technology and royalty for use of trademark/brand name on the automatic route without any prior approval from the Indian As a first step India could look at some of the leading practices for Franchise regulations in other countries and initiate dialogue with Indian Franchising community to understand their needs and concerns.
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11

India Expected 2013 GDP growth Market size (customers) Legal concerns for international brands Ease of setting up a new business Political risk (stability)
1

Singapore Malaysia brazil

1 2 2

US
3

UK
3

1 2

4 1

1 2

1 2

1 2

Case study: Singapore Government support boosts sector growth Since 1985, the Singapore Government has been SPRING is a statutory board under the Ministry of Trade actively promoting franchising as a means of and Industry (Singapore). It offers financial assistance internationalizing domestic small companies. Eligible to local SMEs to foster the franchise business companies can leverage various schemes related to environment, facilitate the growth of industries, and franchise consulting, the registration of trademarks, enhance innovation and enterprise capabilities market surveys and participation in overseas domestically. Similarly, IE Singapore facilitates the exhibitions. Overseas growth of domestic companies and promotes international trade. The lead government agencies that promote franchise development in Singapore are: Standards, Productivity and Innovation Board (SPRING), Singapore International Enterprise (IE) Singapore
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SPRING provide financial assistance to local entrepreneurs SPRING: offers and interventions Several financial incentivesin the form of cash/voucher to defray expenses, tax incentives (PIC scheme)* and grants (CDG)** support enterprising competitiveness, increase productivity and improve human resource management practices for local small enterprises in Singapore. The country supports the industry in working capital, trade finance and equipment finance activities through government backed loans and schemes such as the Local Enterprise Finance Scheme (LEFS), the Loan Insurance scheme (LIS) and the Micro Loan Program (MLP). External economic opportunities: IE Singapore is a government agency, under the Ministry of Trade (Singapore), which facilitates the overseas growth of domestic companies and promotes international trade. Globally Competitive Companies (GCCs): These companies facilitate international trade opportunities for potential domestic players. GCCs compete in about 35 countries in various industries. They contribute to Singapores economic buoyancy, cultivate global business leaders domestically and strengthen the countrys overall brand value . Expected role of the government in addressing the industry's key challenges: Identified key issues Expected support and challenges from the government faced by the industry Absence of a strong The absence Evaluate the legal framework of a dedicated need and regulatory urgency to framework formulate franchising franchising and formal franchise specific laws laws sometimes including preacts as a, mind disclosure
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block for a business investor or a prospective franchisee looking to invest in a new franchise system

Need for financial assistance

Regional diversity

norms, effective Dispute resolution and governance mechanism. However, such laws should not be restrictive in nature Single window clearance for international franchisors No specific Government could financial look at setting up assistance funding programs to programs or encourage adoption schemes for of franchising franchise market, business model by except for the SME entrepreneurs Sector. Government could also look at providing guarantees to bank loans for certain identified sectors with-in franchising Counter guarantee collective mutual credit chemes A balanced Provide and welldata/informatio informed n to strategy is franchisors, required especially on for smooth franchise Demographics, as operations in a well as growth rates diverse country and trends in various
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such as India

industries/regions.

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The top 10 franchise opportunity in India

1) Agni Jewels Ltd. The company is celebrating the glorious 5 years of being the frontrunner in the branded CZ gold jewels category in India. Today, Agni brands reach has extended to over 2600 retail outlets. And to cater to the growing demands of the business growth they have increased its sales force by almost 3 times over the last year, doubled its distribution strength by now having 134 distributors and creating over 1100 designs for its catalogue

2) The Loot Store The Loot will have a Shop-in-Shop with every Spencers store in the country The LOOT is a multi-branded discount store, offering customers a wide range of products with a minimum of 25% & going up to 70% discounts - throughout the year. The store retails brands like Adidas, Nike, Reebok, Red Tape, Lee Cooper, Pepe Jeans, Levis, Benetton, Spikier, Wrangler, Lee, Prorogues, Arrow, SF jeans and many more. Apart from Indian brands the store also sources products from global markets, most of which are unavailable in the country. The Loot started off as a franchisee of various brands & later moved into the current format of Value Retailing in mid 2004. The concept & the store outlook has managed to get a strategic tie-up with Spencers Hypermarket (a RPG Enterprise). 3) Cotton Cottage They bring together the charm of the folk print, the comfort of natural fabrics and the love of the contemporary look with our range of garments for men, women and children. With something for every temper and body type, they like to keep a finger on the pulse of their Customers. They have fish-cuts, boho frills, and
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simple lines in mute tones for classic lovers, kali tucks and Nehru ankles for the vintage fans, pencil skirts for the chic and a burst of colors for cheerful folk. In the fabrics used, you will find an almost exhaustive Collection of Indian textile with us. They have blockprints made of pomegranate dyes, prints ranging from religious patterns to cauliflower sprigs to a wide range of hand embroidered garments. These are the prints from little villages that have put India on the world fashion map 4) DIVYAVASTRA Jewelers Pvt. DIVYAVASTRA TM presented by Union Chains TM and Jewelers Pvt. Ltd.; is a collection designed to express ones pure devotion towards God. This collection caters to all different religions and cultures in the world by offering a product line that includes devotional apparel, accessories, jewellery for idols of deities, temple decoration material and other devotional and spiritual embellishments used in religious activities. They provide franchise opportunities in three formats such as distributorship, exclusive brand outlet and shop in shop. For distributorship the required area is150 sq.ft. and investment of INR 40-45 lacs in metro cities and an investment of INR 25-30 lacs in tier two(other) cities is required. The area and investment required is 300 sq.ft. And 35-40 lacs respectively for an exclusive brand outlet in metro cities. Also a 300 sq.ft area and an investment of INR 25-30 lacks for an exclusive brand outlet in other cities are essential. The shop in shop type requires an area of100 sq.ft and an investment of INR 5-10 lacks in all major cities Pan-India. Further details can be found on the link provided.

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5) Four Fountains Spa The Four Fountains Spa provides spa services to help keep the stress levels of people at bay due to the rapid urbanization and lifestyle. The Four Fountains Spa presents changes taking place today. Entrepreneurial opportunities for professionals who would like to be part of this growth story and run their own show. 6) Yebhi.com Big shoe bazaar is the largest online shoe store in South Asia and has served the footwear brand aspirations of customers across the length and breadth of our country. It has shipped its products to the remotest part of the country. We have during this time received numerous enquiries to extend our services to cater to large B2B segment. 7) Godrej & Boyce Mfg. Co. Ltd Godrej Interior is a business unit of Godrej & Boyce Mfg. Co. Ltd. part of the Godrej Group, one of Indias largest engineering and consumer product groups. Godrej Interior, a premium lifestyle furniture brand, is one of the biggest players in the furniture industry today. From manufacturing the humble Store cupboard 80 years back to being vibrant, innovative brand with a diverse portfolio its been a brilliant, exciting journey for Godrej Interior. Today, Godrej Interior is one of the leading retail franchise company in India.

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8) Castrol Bike Zone Castrol Bike Zone is a Multi-branded 2 wheeler services franchise center, a unique concept pioneered by Castrol India Ltd. It has 100 franchisees in 22 cities servicing over 3 lacks customers per year. More than 70% of our existing franchisees are not from the automotive trade. 30% of the existing franchisees have multiple franchises. 9) Make my trip India Private Limited A pioneer of online travel in the country, Make My Trip has revolutionized the way India travel. They offer a wide range of travel and holiday related solutions, then may it be air and rail ticketing, bus bookings, domestic and international holidays, quick short weekend breaks, hotel bookings to add-on services like airport pick and drop Backed by continually evolving technology, we have touched lives far and beyond. With presence in India, US, Canada and Middle East, they are the only online travel agency in India to get listed on the NASDAQ.

10) KUONI Travel India (P) Ltd The Kuoni Travel India is a provider of travel and tourism services. The travel services is a part of Kuoni Travel Inc., who stepped into India in 1996 under the legal name of Kuoni Travel India Pvt Limited, a 100% owned subsidiary of Kuoni Travel Holdings. The famous SITA World Travel is a division of the tourism services franchise. As a brand of Kuoni Travel India Pvt. Limited, the tourism services franchise is a reckoning force in the Indian travel and Tourism scenario. Being the leader of Inbound and Travel Services along with SOTC World Famous Tours - the largest Outbound Tour Operator in the country for Indians Travelling abroad, and with Tour Club - the leading Destination Management Company for the Middle East and Africa under one umbrella.

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Are you willing to start new business of CCD? Are you looking for information about how to get lease for Caf Coffee Day and what is the investment required for the same? Then proceed further to get complete information on all your queries related to Caf Coffee Day business. Caf Coffee Day is one of favorite coffee shops in our nation. It is one of best hang out place among youth. With increased taste of this beverage among Indians, many people are making their future bright by making investment in Caf Coffee Day. Although Caf Coffee Day does not have started offering franchise to public yet, but still you can enjoy the benefit to be their partner. If you also want to be one of those who have made their life full of money by enjoying the revenue of this food and beverage company, then here we are having complete information for all your related queries

CCD believes in working for the society too. It runs a trust named as Shankarakudige Veerappa Ghanaian Hedge Education Trust, two institutions Amber Valley Residential School and SVGH Vocational Training College. If you are willing to make a career
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with CCD, then this page may help you can also advertise with Caf Coffee Day. It has been estimated that approximately 3 lakhs youngsters spend their 45 minutes every day at across more than 1100 CCD stores. Thus you can calculate that making advertisement through large wall spaces of this hang out place would bring huge number of customer and profit to your way. More details about the past partnerships of CCD and to download a presentation for the same, you can see the official website of CCD.

How to start CCD business in India

As we have already told you that the company do not offer any franchise at all. But if you have a commercial or commercially converted/convertible retail space on a rental/revenue share basis which are having following specifications in addition, then you can enjoy the benefit to be their partner Requirements to get Caf Coffee Day lease 1. You must have a retail space area at ground floor of at least 1000- 1500 square feet. 2. Good parking space is also required. 3. There must be minimum frontage area of 25 feet in running. If you found yourself eligible and are fulfilling all the demands of the company, then you can contact the authority and they will then contact you at the earliest. Write all the following mandatory details on a clean paper.

These details are:

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1. Name of the person/s that is/ are the owner of the property. 2. Complete contact details of owner/s including postal Residential Address, Contact Numbers and email id. 3. Postal address of the place available for potential Caf Coffee Day. 4. Retail Space Area available in square feet. 5. Frontage area of Retail Space available for this purpose 6. Actual pictures or photos of the location. 7. Demographic specifications of the catchment area for opening Caf Coffee Day. You can also get in touch with the Caf Coffee Day contact persons of different regions, viz. Bangalore, Chennai, Hyderabad, NCR, Kolkata, Mumbai, and Pune and for International areas Identifying the Different Cafe Coffee Day Franchise Details Starting a franchise company is not an expensive and difficult process. If you opt to have this franchise, you have to consider its numerous requirements, and these are the following: Legal You are required to organize a usual disclosure document for your business operation. This legal document known as UFOC or Uniform Franchise Offering Circular is needed. To meet other registration requirements, you also need a professional and effective franchise attorney. This expert can help you in meeting these requirements correctly. Accounting As a franchiser, it is a must to organize audited financial statements for the CCD franchise company. This is one of the disclosure requirements under the law section. Just like other business types, you also need to hire an experienced accountant to establish these audited statements.
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Systems The soul and heart of successful franchise companies is their systems. It means that you need to improve a training program and formalize the marketing plans. It is also best to design a sales system that you can utilize to recruit new franchises. Mindset Right attitude and focus are two of the most essential things in becoming a successful franchisor. Since you are the boss, you should handle the pressure and other related business operations.
Effective Tips on How to Apply

Cafe Coffee Day Franchise allows an investor-entrepreneur to purchase the right of use of an established business. Its main advantage is that it demonstrates the history of success and reputation of the preferred company. This Cafe Coffee Day franchiser provides you the ability to buy a turn-key business and offer support to new franchisees. To get a coffee cafe franchise, you should first talk to the owner of the company. You also need to examine their offered products and services. Before you start making a business with them, make sure that you sign the needed legal and business agreements.

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Subway

Subway negotiates the lease with the owner and sublets the space. This allows it to introduce new franchisees if the existing one underperforms. Subway also provides equipment leasing support to restaurants in the US subject to certain conditions. It has also tied-up with several Companies. Innovative location strategy Besides traditional store formats, Subway franchisees can also opt for non-traditional locations such as satellite towns, school lunch programs, airport terminals, theme parks and national parks. The non-traditional formats have been driving Subways growth. These include automobile showrooms, appliance stores, ferry and churches. In 2011, Subway had about 8,000 restaurants in such locations. Usually, franchisee decides store locations and operations. However, in some cases (such as new markets with low brand awareness) the decision is taken jointly. Prospective franchisee conducts research with existing franchisees. Finds the desired location with Subways field developers Subways proprietary mapping system analyzes the sites Potential. Contacts Subways real estate department for site approval. 12345
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Date of Incorporation: 1965 Franchising Since: 1974 Headquarters: Miami Springs, Florida

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Business Description: Subway Restaurants sell foot-long and other sandwiches, salads, and other food items from a retail store. Franchise Offer: Subway offers qualified purchasers the right to establish and operate, from a single location, a retail establishment preparing and selling foot-long and specialty sandwiches, salads and other food items. Additional franchise options include: nontraditional locations, satellite locations, community development program locations, school lunch program locations, airport terminal locations, theme park locations, and national park locations. An Exclusive Area Development Program is also available. Financial Assistance: Subway offers an equipment leasing program available to all franchisees in the United States (not including Puerto Rico, but including Guam), except those who own an existing restaurant that is not in compliance with the Operations Manual. Subway deems the equipment lease to be a true lease and not a financing lease. Subway offers to finance $10,000 of the initial franchise fee under its minority loan program for qualified franchisees purchasing their first franchise at the full franchise fee in the USA only. Subway also offers finance programs for leased space and construction programs through Subway affiliates, and may loan money to franchisees in connection with a Subway restaurant. In addition, Subway may guarantee a loan for a franchisee in connection with a Subway restaurant. Subway may change or eliminate these loan programs and equipment leasing program without any prior notice to franchisees. Training and Assistance: All individuals who sign the Franchise Agreement must attend and complete the Worldwide Training program at Subway headquarters to the franchisors satisfaction. Perfect attendance and a grade of 80% on all pre-requisite webbased training courses, in classroom quizzes and the final exam, as well as a passing grade on the in-store component of the course are required to complete the training course to Subways satisfaction. Franchisees will be notified when additional courses become required. Territory: An exclusive territory will not be granted to the franchisee, unless the franchisee is under the franchise agreement for an exclusive area development program.
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Term of Agreement and Renewal: The length of the franchise term is 20 years, with the exception of the School Lunch program with a term of 5 years. The franchise will automatically renew for additional 20 year periods, unless either party chooses not to renew. The renewal term for the School Lunch programs is 5 years. Subway has the right to refuse renewal if the franchisee is not in full compliance. Obligations and Restrictions: The franchisee is not obliged to personally supervise the Subway restaurant, but they must attend and complete the training program. The person designated to actively work in the restaurant as the Person in Charge must become certified by completing the Person in Charge program. It is recommended that the franchisee devote a substantial amount of time to the franchised business. The franchisee must operate the restaurant in strict compliance with all required methods, procedures, policies, standards, and specifications of the Subway system in the Operations Manual and in other writings issued by Subway. Estimated Number of Units: 37,335 Investment Tables: Initial Investment: For a Traditional Location: Name of Fee Initial Franchise Fee Real property Leasehold Improvements Equipment lease security deposit Optional security system Freight charges Outside signage Opening inventory Insurance Low $15,000 $2,000 $59,500 $4,500 $2,000 $3,000 $2,000 $4,400 $800 Med High

$5,000 $12,000 $102,100 $134,500 $6,500 $7,500 $3,500 $3,750 $4,000 $5,225 $1,500 $6,000 $4,500 $8,000 $6,050 $3,500
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Supplies Training expenses (including travel & lodging) Legal and Accounting Opening Advertising Miscellaneous Expenses Additional Funds three months Total Ongoing Costs: Name of Fee Royalty Advertising Additional Funds Local Advertising Grand Opening Advertising Audit

$500 $2,500 $1,000 $2,500 $4,000 $12,000

$900 $3,500 $2,000 $3,250 $6,000 $26,000

$1,300 $4,500 $3,500 $4,000 $8,000 $42,000

$115,700 $188,225 $260,350

Amount 8% of Gross sales 4.5% of Gross sales Established by franchisees Established by franchisees $2,000 Overdue amount, plus Audit costs and an Under-Reporting fee equal to 100% of the overdue amount may be charged depending on extent of under-reporting Interest charge of 12% (or maximum allowed by law where the restaurant is located) per annum on amount owed Late fee of 10% (or maximum rate allowed by law where the restaurant is located) per annum of amount franchisee owes may be charged 5% of buyout price $1,000 - $5,000 ($1,000 - $6,000 for non-traditional) per month estimated $2.70 per month per $100 Cost of equipment and buffer to cover freight charges, taxes, and other costs

Fees for Unpaid Balances Late Payments

Transfer Location Rent Equipment lease Equipment purchase and Freight Charges Insurance Indemnification

$800 - $5,000 per year All liability, damages, and costs, including lawyers fees, incurred Incomplete violation $15,000 for each competing store plus
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Confidentiality violation Trademark violation $250 per day Operations Manual $50, subject to change in the future Dispute resolution Half of arbitration fee, except franchisee will pay the whole fee plus costs, including lawyers fees, management preparation time, and travel expenses if franchisee withholds money from franchisor or an affiliate. Probationary Case management fee $500, probationary extension fee $250 Interim order case management fee $250 Litigation expense fee to permit sale of restaurant 5% of gross consideration received for sale of restaurant, not to exceed $5,000 Non-Compliance Charge of an additional 2% of gross with operations sales manual Optional training $100 - $200 deposit deposit or fee Co-Brand 0% - 8% of total gross sales of a cocontinuing fee brand concept Fees charged by Fees and rates set by third party coco-brand franchisor brand franchisor Optional store $100 for each 90 day period listing service Fees for software $520 initial license fee if franchisee license, purchase the POS system from Micros, maintenance, and Dell and Subtotal of $574 if the processing franchisee purchases the Sub Shop/2000TM generic install using a POS system from Partech or another supplier A yearly $400 Sub Shop/2000TM maintenance fee payable to franchisor, plus $16.43 per year payable to a third
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8% of its gross sales Franchisors damages

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party for DBMS software $20 to extend every 3 years Credit Card Processing Fee charged by approved Payment credit card processor of approximately Processing Fees $.0155 per transaction. Interchange Fees charged by customers bank varies estimated at 1.65% of transaction amount and $.04 per item. Retail Technology Varies as the franchisor implements various new technology initiatives. Usually paid to a third party. Customer complaint $2 - $20 per incident resolution fee Taxes and other Varies by state fees Date of FDD: 2012

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Domino's Pizza
Date Incorporation: 1963 Franchising Since: 1967 Headquarters: Ann Arber, Michigan Business Description: The franchisor, Dominos Pizza Franchising LLC, offers Traditional, Non-Traditional and Transitional Domino's Pizza Store concepts under which the franchisee will operate a Domino's Pizza Store selling pizza and other authorized products through delivery and carry-out services. Franchise Offer: Below are the franchise formats Dominos Pizza employs: 1. Domino's Pizza Traditional Stores are retail outlets located primarily in shopping centers, strip centers and similar retail locations appropriate parking for delivery vehicles and customers of the store. Domino's Pizza Traditional Stores sell pizza and other authorized products through delivery and carry-out services.
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2. Domino's Pizza Non-Traditional Stores sell Domino's pizza and other authorized products and services at non-traditional locations. These locations include office buildings, shopping malls, stadiums, toll roads, airports, zoos, convenience stores and similar retail facilities. Domino's Pizza Non-Traditional Stores will ordinarily offer only carry-out service but may have sit-down facilities depending on the location. 3. Domino's Pizza Transitional Stores are locations where the menu is customized to fit the location. Domino's Pizza Transitional Stores are located in select markets that have fewer potential customers than Domino's Pizza Traditional Stores. Domino's Pizza Transitional Stores generally offer carry-out service only as of the date of the opening of the store and as market conditions materialize. The delivery service will be expanded to the point where full delivery service is offered. At that time the franchisee has an opportunity to convert the Transitional Store to a Domino's Pizza Traditional Store at the same location or such other location as approved by the franchisor. 4. The franchisor also issues licenses to large public entertainment or similar facility operators, like stadiums or their concessionaires, to sell approved products for a license fee based on facility sales. The Licensee can sell pizza and other authorized products for carry-out service at the facility. Financial Assistance: No direct or indirect financing is offered to the franchisee. The franchisor does not guarantee the franchisees note lease or obligation. Training and Assistance: The franchisee must complete all training programs and classes to the franchisors satisfaction. The franchisor may from time to time accelerate or modify the basic eligibility and training requirements at their discretion based on the franchisees operational experience and business acumen. If the franchisee does not have recent management or supervisory experience in the Domino's Pizza System, the franchisee will be required to complete an individualized training program designed to accelerate development in the Domino's System. If the franchisee does not have sufficient prior experience with
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Domino's PULSE the franchisor may require the franchisee to successfully complete training in the use of Domino's PULSE. The training consists of two (2) days of on-site training. It is taught by third party instructors (Franchise Installation Specialists) in the store at the time of the installation of the Domino's PULSE system. Franchisees are responsible for training all of their managers and team members. Territory: The franchisee will operate the store only at a location approved by the franchisor. The franchisee will not receive an exclusive territory under the Traditional store franchise agreement, the Non-traditional store franchise agreement or the Transitional store franchise agreement. However, the franchisee is assigned an area of primary responsibility. The boundaries of the area of primary responsibility will be inserted in the Standard Franchise Agreement when it is signed. The area of primary responsibility will generally be a 1 mile radius around the Store, a 1 mile radius from a street intersection or a written description equivalent to a 1 mile radius, except that in densely populated areas, it generally will be a mile radius. Term of Agreement and Renewal: The term of the franchise agreement is 10 years for the Standard Franchise Agreement and the Non-Traditional Store Franchise Agreement and five years for the Transitional Store Franchise Agreement. These agreements can be renewed for 10 years for the Standard Franchise Agreement and the Non-Traditional Store Franchise Agreement, and one additional five-year term, provided at the end of the initial term and renewal term for the Transitional store franchise agreement if the franchisee meets certain requirements. Obligations and Restrictions: The store must always be under the on-premises supervision of the franchisee or the Controlling Person. The franchisee or the controlling person must devote their full time as manager of the store. The franchisee must offer for sale all products required by the franchisor and make all menu items available for carry-out and delivery from the store. The franchisee may not offer for sale any products that have not been approved. The franchisor can periodically change the types of authorized products.
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Currently, the franchisor grants single store franchises only to applicants who have recently been a successful manager or supervisor of a Store for at least 12 months. The franchisor requires that the Controlling Person own 51% or more of the pizza venture. If the Controlling Person does not have recent management or supervisory experience in the Domino's Pizza system he or she is required to have significant multi-unit food or small business experience. The Controlling Person of a Domino's Pizza franchise may not have financial or operational involvement in another business outside of Domino's Pizza, without prior written approval which may be withheld in the franchisors sole judgment. Estimated Number of Units: 9,750 Investment Tables: Initial Investment: Traditional Store: Name of Fee Initial Fee Leasehold Improvements Furniture, Fixtures and Equipment Signage 3 Month's Rent Security Deposit Opening Inventory and Supplies Opening Advertising and Promotion Training Expenses Domino's PULSE Training Expenses Insurance Miscellaneous Opening Costs Additional Funds - 3 Months TOTAL ESTIMATED INITIAL INVESTMENT Non Traditional Store: Name of Fee Initial Franchise Application Processing Fee Leasehold Improvements Furniture, Fixtures and Equipment

Low $0 $25,000 $62,000 $2,500 $3,000 $1,000 $2,750 $0 $1,000 $1,200 $9,000 $2,500 $10,000 $119,950

High $25,000 $150,000 $145,000 $30,000 $12,000 $4,000 $6,500 $3,000 $17,000 $7,000 $60,000 $461,700

Low $0 $5,000 $62,000

High $25,000 $150,000 $136,000

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Signage 3 Month's Rent Security Deposit Opening Inventory and Supplies Opening Advertising and Promotion Training Expenses Domino's PULSE Training Expenses Insurance Miscellaneous Opening Costs Additional Funds - 3 Months TOTAL ESTIMATED INITIAL INVESTMENT Transitional Store: Name of Fee Initial Fee Leasehold Improvements Furniture, Fixtures and Equipment Signage 3 Month's Rent Security Deposit Opening Inventory and Supplies Opening Advertising and Promotion Training Expenses Domino's PULSE Training Expenses Insurance Miscellaneous Opening Costs Additional Funds - 3 Months TOTAL ESTIMATED INITIAL INVESTMENT Ongoing Fees: Type of Fee Royalty Fee Advertising Fund

$2,500 $3,000 $1,000 $2,750 $0 $1,000 $1,200 $6,000 $2,500 $10,000 $96,950

$30,000 $12,000 $6,500 $6,500 $3,000 $17,000 $7,000 $60,000 $455,200

Low $0 $15,000 $10,500 $2,500 $2,400 $800 $1,500 $0 $1,000 $1,200 $6,000 $1,500 $5,000 $47,400

High $25,000 $100,000 $100,000 $30,000 $10,500 $3,500 $6,500 $3,000 $17,000 $5,000 $30,000 $332,700

Advertising Cooperatives Inspections

Amount 5.5% of Store's weekly Royalty Sales 4% of Store's weekly Royalty Sales. Non-Traditional Stores and Transitional Stores may receive a partial credit or make a reduced contribution. 1-4% Will vary under circumstances
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Audit Expenses Transfer Training Fees Interest on Late Payments Charges for Testing and Evaluation Indemnification Costs of Enforcement Annual Software Enhancement Fee

Cost of audit, charges of employees, understatement plus 1.5% interest per month $1,500 Maximum cannot exceed $1,000 per session Lesser of 1.5% per month or highest legal rate for open account business credit in the state Store Will vary under circumstances Will vary under circumstances Will vary under circumstances $415 per store per year, after the first year

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KFC Date of Incorporation: 1939 Franchising Since: 1952 Headquarters: Louisville, Kentucky Business Description: KFC outlets prepare and sell chicken, stackable and other approved menu items using the certain trademarks and trade secrets owned by KFC Corporation. The franchisor is KFC Corporation (KFCC) whose parent is YUM! Brands, Inc. Franchise Offer: The licensee will operate a KFC outlet, which are characterized by a unique system which includes special recipes and menu items, distinctive design, dcor and furnishings, specifications and procedures for operations procedures for quality control; training and assistance; and advertising and promotional programs. Financial Assistance: Parent company YUM offers two financing programs. Except as described below, KFCC does not offer,
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directly or indirectly, any arrangements for financing the franchisees initial investment or the continuing operation of the KFC business. YUM Funding Financing Program: Funding is available to finance: (1) the construction of new (multi-brand or single -brand) outlets; (2) the conversion of single-brand outlets into multi-brand outlets; (3) upgrades of outlets as required under the applicable franchise agreement; and (4) the purchase of existing KFC, Pizza Hut or Taco Bell restaurants from YUM. The maximum amount that may be borrowed by any one franchisee is $5,000,000. The minimum loan amount is $200,000. YUM Minority Lending Assistance Program: Optional lending assistance program for qualified minorities. The term "minorities" is defined by the United States Small Business Administration for its business development programs at 15 U.S.C. Section 631(f)(1)(C) and it includes African Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Americans and other minorities. If the franchisee meets YUM's criteria for the Program and YUM agrees to allow the franchisee to participate, then YUM's lending assistance will take the form of YUM guaranteeing 25% of the principal of the franchised business loan up to a maximum of $3,000,000 per loan or franchisee. Training and Assistance: The franchisee, manager and the other employees indicated by KFCC must attend and complete to KFCC's satisfaction the initial training program offered by KFCC on the operation of a KFC outlet. At KFCCs discretion, other employees must attend and complete the training program to KFCs satisfaction. Training programs may include written material and classroom instruction. Territory: The franchisee will have a protected territory of the smaller of a radius of 1 miles of the KFC outlet, or an area around the KFC outlet containing 30,000 people. The franchisees rights with respect to the protected territory will not be dependent upon achievement of a certain sales volume, market penetration or other performance factors. Within the protected territory, KFCC will not use or permit others to use in selling food products, any of the Marks that the franchisee has the right to use under the franchise agreement, except for (a) special event sales and (b) in some
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cases, food products (other than chicken in whole pieces) using the name or image of Colonel Sanders. The outlet may only be relocated with KFCC's advanced written approval. Term of Agreement and Renewal: The term of the franchisee agreement is 20 years. Renewal terms are dependent on the franchise agreement signed. Obligations and Restrictions: During the term of the franchise agreement the franchisee or a fully -trained and qualified manager must devote full time to the management and operation of the KFC outlet. The franchisee is responsible for the full performance of the franchise agreement and, if the franchisee is a corporation, one or more of the shareholders may be required to individually guarantee the performance of the obligations under the franchise agreement. The franchisee must sell all Required Products as KFCC periodically designates. The franchisee may not deliver any product from the KFC outlet or anywhere else unless separately approved for delivery and have signed a Delivery Amendment. The franchisee may cater (not including delivery), and make sales at special events only the franchisee complies with KFCC's procedures. Estimated Number of Units: 16,850 Investment Tables: Initial Investment Free Standing Outlet Name of Fee Building Construction Costs Equipment, Signage, and Dcor Site Work Miscellaneous Permits, Utility Deposits, Licenses, and Architectural Costs Application & Background Check Fee Initial Franchise Fee Development Services Fee Real Estate Low $425,000 $216,000 $100,000 $50,000 $300 $45,000 $0 $400,000 High $565,000 $366,000 $250,000 $100,000 $500 $35,000 $1,000,000
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Grand Opening Expense Start-up Inventory Training Expenses Miscellaneous Opening Costs Additional Funds Total Estimated Expenditure Ongoing Fees Type of Fee Royalty

$5,000 $10,000 $2,500 $5,000 $50,000 $1,308,800

$9,500 $10,000 $75,000 $2,471,000

Local Advertising National Cooperative Advertising Renewal Transfer

Amount The greatest of 5% of gross revenues or a minimum of $825, whichever is greater per month (minimum fee subject to adjustment based upon the Consumer Price Index). 2.5% of gross revenues (or as agreed to with local advertising co-ops). 4.5% of gross revenues. $6,750 (subject to adjustment based upon the Consumer Price Index) For existing franchisees $3,375 for first outlet and $1,688 for each additional outlet in the same transaction. For new franchisees $6,750 for first outlet and $3,375 for each additional outlet in the same transaction. Entire cost of audit, including expenses of auditing personnel. $500 services fee for each transaction in which KFCC processes changes to franchisees corporate structure or when processing other approved modifications $0 - $2,000 Will vary Will vary 1- 1.5% per month $265 per follow-up assessment.
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Audit Administrative

Additional Services Costs, expenses and attorneys' fees Indemnification Late royalty payments Food Standards Consultations (FSC)

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Support Services and Software Maintenance for KFCC's MERIT Year of FDD: 2012

$160.34 per unit per month.

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