Grab A Bite Of The Food Franchising Business
Franchise Business If you are reading this, you are probably thinking about getting a franchise. Getting into the franchising business in the current economic climate is a wonderful idea and food franchises are notoriously famous for generating the most revenue in sales and for having the maximum foot traffic. Today, no matter which city, whether tier I, tier II or tier III or even small towns, you will find food franchises flourishing all over. You enter a mall and you will see lines of people waiting at food counters and restaurants, whereas you might not see similar crowds inside any other kind of franchise.
FOOD MARKET IN INDIA According to the latest surveys, the fast food market in India is expected to grow at a compound annual growth rate of 18% by 2020. The fast food market is expected to be worth US$27.57 Billion by 2020, which makes it one of the most lucrative market segments to invest in. The casual dining restaurant under the fast food segment is to grow at a compound annual growth rate of 18% in the year 2019-2020. The Quick Service Restaurants (QSR) market in India is to grow at a compound annual growth rate of 20% by 2019-2020. Together, the casual dining restaurants and the QSRs contribute the most
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revenue to the fast food market and have the most franchising opportunitiesin the food business. This growth is not surprising and is attributed to the increase in the size of the middle class, the growing number of single working people and nuclear families. All these segments spend a considerable amount of money every month on eating out or ordering in, which has become even easier with the advent of various nationwide food delivery apps. Due to such factors, the quick service restaurant segment is witnessing the fastest growth rates in the food industry at 20-30 percent. However, a lot of data gets lost as currently most of India’s fast food segment is unorganized, which includes street vendors and home setups. Only about 10 percent of the fast food market in India is organized, but it is estimated that the organized fast food market in India will be growing at a compound annual growth rate of at least 27 percent by 2020.
IMPORTANCE OF REGION OR CULTURE ON THE FOOD MARKET To enter the food franchise market like any market, you need a lot of research. You need to understand the geographical area where you are planning to open the franchise and the demands and the needs of the area. Culinary tastes differ with region and culture. Large multinational food chains have learned that and incorporated that in their business models in different regions and have changed their products according to the region. Similarly, you need to understand the region and need to be sure that the items on the menu of the franchise match the preferences and tastes of the people of the region. A simple market survey can enable you to learn about the people’s preferences, tastes, demands and price factors, which would affect their buying choices. It is essential to thoroughly know your customer base and cater to their needs. Many a restaurant and food chains have shut down due to their inability to understand the regional requirements of the people and their miscalculations while foreseeing demand.
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BRAND WORTH Other than this, you also need to carefully study the food brands that you are considering. Look into their brand’s worth and value, the brand perception and the history and continued growth of their current franchises. Speaking to some current franchise owners would be a great way of getting to know the reality of the business and the food brand. Once you have zeroed in on a brand, you will have to work your way through a complex business negotiation but if done right, it can reward you beautifully.
ECONOMICS OF FOOD FR ANCHISES
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Food franchises, like other franchises, work with the franchisor leasing out the brand and providing some services to initiate and monitor your setup for a franchising fee. The investment is usually borne by the franchise, although some deals may have both parties investing in the initial capital, any investment from the franchisor would result in higher profit margins to be extracted by the franchisor. Profit is divided between the franchisor and the franchise partner based on the model, the capital required, the operation costs, supplies, revenue, advertising costs, etc, which might differ for each brand or region. But if employed correctly, the food franchise model turns profitable for both parties. The food market in terms of restaurants or small setups usually earns a high gross profit, which is the total revenue in sales minus the cost. However, there is a huge difference in gross and net profit and the net profit is what the franchise partner earns at the end of the period. Gross profit has high margins attached to it as overheads, like the franchisor’s profit share, labor costs, utilities, taxes, operation costs, maintenance, etc. The difference between the gross and net profits can be huge and sometimes can turn gross profits into net losses and run down a business altogether. This is where most food franchises fail. They manage to get enough customers due to the brand’s familiarity but fail to foresee the eventual or net profits they’d make out of the deal. It is important to make these calculations and negotiate based on the expected revenue and work out a model, which will pay for itself and not leave you with losses.
ADVANT AGES OF HAVING A FRANCHISOR While working with a food chain brand for a food franchise, it is imperative to know their responsibilities as the parent company in order to gain from the franchise agreement. Most brands will provide the franchisee with training staff to train the staff for the new franchise. They will provide quality control guidelines and total manufacturing/ assembly guidelines. They will also help in finding suppliers who meet the brand’s requirements and most suppliers work with brands on larger scales and hence, will provide you good discounts for the franchise. Managing a restaurant staff is a difficult job with high employee turnovers but franchisors can also provide assistance in hiring and maintaining staff.
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All in all, opening a food franchise is a highly popular business franchise segment and can be very invigorating and exciting. It creates credibility and recognition in society for the owner as a good restaurant is frequented by one and all. The help of a franchisor makes the difficult job of managing and owning a restaurant much easier and with much lesser risk. Although net profits can run thin, a food franchise is still one of the most successful franchise business models and can result in a long term success if planned with adequate research and caution. To find out more about food franchises and opportunities, visit our website and look for exciting brands and deals.
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