retail market opportunities and franchising

8/2/2019 Retail Market Opportunities and Franchising

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RETAIL MARKET

OPPORTUNITIES AND

FRANCHISING

By :-

Sudhanshu Gupta (34-MBA-10)

Suraj Gandotra (35-MBA-10)



RETAIL

Retailing is the interface between the producerand the individual consumer buying for personalconsumption.

A retailer is one who stocks the producer‟s goods

and is involved in the act of selling it to theindividual consumer , at a margin of profit.

As such retailing is the last link connectingindividual consumer with the manufacturing anddistributing chain.



THE INDIAN SCENARIO ….

Components Share % in

GDP (2002-03)

Growth during

2002-03

Construction 5.3 7.3

Trade 14.0 4.5

Hotels & Restaurants 1.1 4.0

Railways 1.1 5.7

Other transport 4.3 6.0

Storage 0.1 -7.8

Communications 3.5 22.0

Banking & Insurance 6.9 11.6Real Estate, Business/ legal Services 6.1 5.9

Defense 5.9 5.3

Other Community & Social Services 7.8 6.2

Total 56.1 7.2




Retail industry is divided into organized andunorganized sectors.

Organized Retailing – trading activitiesundertaken by licensed retailers , i.e.; thoseregistered for sales tax, income tax , etc.

These include corporate-backed hypermarkets andretail chains and pvt. owned large retailbusinesses.

Unorganized Retailing – refers to the traditional

formats of low-cost retailing , for example , thelocal kirana shops , owner manned general stores, paan/beedi shops , convenience stores ,hand cartand pavement vendors, etc.




Unorganized retailing constitutes 98% of trade(2002-03) and remaining 2% as organized tradeaccounts.

Kearney estimated the true size of retail businessin India as Rs 4,00,000 crores.

Out of the retail , food retail is most importantand is increasing employment opportunities intimes to come with food retail sales as 63% of thetotal retail sales.

Efficiency enhancements and increase in the foodretail sales activity would have a cascading effecton employment and economic activity in ruralareas also.



Since there is no dearth of indigenous capital, the question arises :-

WHAT IS THE NEED

OF FDI ????



FDI ….

Foreign direct investment is a cross borderinvestment where foreign assets are invested intothe organizations of the target market excludinginvestment in stock.

Majors drivers of FDI have been :-

Availability of cheap labor.

Uninterrupted availability of raw material.

Less production cost compared with othercountries.

Quick and easy market penetration.



WHY INDIA ?

India‟s GDP growth is second highest in the

world.

India has world‟s youngest population with 66 %

Indians under 35 and 50 % under 25 years.

According to national sample survey literacy ratewill touch around 75 % by 2020.

The number of female heads of households grewby 16 % from 2002 to 2003 and has been

increasing since then.

Working women constitute 15 % of total urbanfemale population and this is to rise to 20% by2020.



WHY INDIA ….

Expenditure on babies:- Apparel – Rs 2209 cr.

IT products – Rs 1978 cr.

`Stationery - Rs.621 cr.

Health & Beauty (not including cosmetics or services) - Rs.415 cr.

Toys – Rs 389 cr.

Indian kids Spend nearly Rs 219 crores as pocket money

As per international survey , brand loyalty among Indians startsat age of 11 yrs.



F.D.I.

GOOD

ORBAD????



FDI GOOD ….

Efficiency.

Greater integration into the global economy.

Improvement of living standards.

Consumer will be benefited.

Technology introductions.

More jobs in Mfg.

Benefits to local producer especially farmers.



FDI BAD ….

Retail as „forced employment‟ Sector

Indian retail is highly fragmented with lots of kiraana and paan /beedi shops, hardware stores ,bazaars etc.

There are about 11 million outlets operating in the country

and only 4 % of them being larger than 500 square feet in size.

One of the reasons for fragmentation of retail is the primaryform of disguised unemployment/underemployment in thecountry.

Till 2005 413.88 lakhs job seekers registered at employmentexchange and over period 1992-93 to 2001-02 , only a total of 30,000 jobs have been added in the organized sector in thewhole country.



FDI BAD – THE WAITING GIANT

WALL MART ….

The largest retailer in the world „Wal-Mart‟ has a turnover

of $ 256 bn and is growing annually at an average of 12-13%.

In 2004 its net profit was $ 9000 mn.

It had 4806 stores employing 1.4 mn persons of these 1355were outside USA.

The average Indian retailer had a turnover of Rs 186,075and total turnover of the unorganized retail sector was Rs

735,000 crores employing 39.5 mn persons.

Wallmart has deep pockets to sustain losses for years.

This will entail job losses by millions.



WAITING GIANT - WALLMART

Walmart performance per store – turnover of Rs 80,330mn with only 10195 employees extrapolating this inIndia will mean displacing about 4,32,000 persons.

If large FDI driven retailers were to take 20 % of theretail trade , it would mean employing of 43,540 personsand displacing nearly 8 mn persons employed inunorganized sector.



WAITING GIANT - WALLMART

Once wall mart is set , it would sell everything fromvegetables to electronic gadgets.

Major chunk of these materials will be outsourced fromforeign countries rather than India.( opening of a giant

pipeline from China, Thailand ,ASEAN countries ). Indian manufacturing is not ready to cater to the

giants thus forcing foreign spending rather thanindigenous buying.

Also countries like China , Malaysia who have openedtheir doors for retail FDI have now stared constantlymonitoring these retails and forming policies to curtailthem.



WEAK MANUFACTURING IN INDIA

Agriculture employs nearly 60% of our totalworkforce , and is in dire need of shedding excessbaggage.

That leaves us with manufacturing with only 17% workforce employed. This sector can hardlyabsorb anything without major expansion.

China has been expanding with GDP around 10 %from manufacturing as major driver whereasIndia has been growing around 5.6 % withservices as the main driver.

The underlying point here is that Retail is not a nactivity that can boost GDP by itself, It is only anintermediate value-adding process.



WHAT INDIA CAN DO

More availability of bank finance to retailers.

National commission be setup for policies forforeign retailers to curtail their monopoly.

Entry of foreign players made gradual and high

entry costs. Location of giant stores to be far (at least 15 km)

away from main markets.

Improve manufacturing sector in India.

Co-operative stores to be setup.

Attention should be given to agro producers.

Infrastructure facilities should be made tofacilitate the setup of big stores by Indian

players.



FRANCHISING

Franchising is the practice of using another firm'ssuccessful business model.

For the franchisor, the franchise is an alternativeto building chain stores to distribute goods and

avoid the need for investments and liability for achain.

The franchisor's success depends on the success of the franchisees.

The franchisee is said to have a greater incentivethan a direct employee because he or she has adirect stake in the business.



BENEFITS OF FRANCHISING

Franchising allows the franchisor to :

Have greater access to capital

Expand rapidly

Save operating costs

Capitalize on the abilities of independententrepreneurs



BENEFITS OF FRANCHISING

Franchisees joining a franchise system enjoy thefollowing benefits:

Backing of a bigger organization

Shorter learning curve

Established trade mark or service mark

Economies of scale

Joint advertising and promotion

Transfer of management expertise

Training & support from the franchisor



FRANCHISING IN INDIA Acceptability growing by the day.

Fairly conventional industry spread.

Approximately 600 franchisors spread across industrieslike education, retailing, professional services, healthcareetc.

Over 40,000 franchisees.

Annual turnover from Franchising – anywhere betweenRs.8000-Rs.10,000 crores.

Total investments made by Franchisees – over Rs.5000crores .

Over 300,000 people directly employed by franchised

businesses. Variety of hybrid formats in practice.

Number of International franchises already existing, morecoming in.



FACTORS DEFINING THE GROWTH

OF FRANCHISING IN INDIA

Positive Factors

Huge consuming class

Fast-growing consumerism Shift towards Services from Agriculture &

Manufacturing

Franchising has already proven to be

successful in several sectors Large entrepreneurial pool



FACTORS DEFINING THE GROWTH

OF FRANCHISING IN INDIA

Negative Factors

Lack of regulatory framework

Financing mechanisms not in place

Skewed real estate markets



FRANCHISING TRENDS IN INDIA

The Education sector dominates the Indianfranchising scenario, although Retail is fast catchingup.

Most of the franchisors are relatively new andsmall.

Several large Indian corporate also going thefranchising way Newer & innovative concepts beingintroduced.

Substantial interest from international franchisorsas well as Indian business houses for masterfranchises.

Franchising is now spread across the country,thereby providing opportunities to entrepreneurseverywhere.



RETAIL FRANCHISING WITHIN

INDIA

Grew initially in the apparel & footwear sectors

Has gradually grown to cover a wide variety of sectors including food,consumer durables, jewelry, books, home décor etc

Two varieties of Retailers: the manufacturer-retailers :

Typically Product Distribution Franchises – have been around for awhile

The aggregators – typically Business Format Franchises – onlynow beginning to show up

Existent & likely to be successful only in smaller formats

Substantial action also happening in non metro locations

Thereby spreading organized retailing over a larger footprint

Has had to contend with the peculiarities of the Indian real estate markets

Result – MG (Minimum Guarantee) has become the key driver



THE FRANCHISED RETAIL MODEL



BENEFITS TO FRANCHISOR

(RETAILER) Store Employee Salary / Number of Employees Reduction

Only back end operation Control

Electricity

Stock Loss

Pilferage/Theft

Capital Investment /Interest Cost

Other Miss Exp

Expansion without Investment

IT Cost

Title Controls

One Point Sale

Ware House Out Source

One Time franchisee Fee

Maximum Promotion of Private label



BENEFITS TO FRANCHISEE Centralized purchase & the single-point delivery of all products!

Opportunity of Multi Store Ownership

Proven & never-ending business!

Readymade & ever-growing customer base!

Groceries, food products and vegetables at challenge prices in the industry!

No investment risk in the inventory!

Remarkable payback period - Just 1 yearsLow on investment, high on returns!

Advisory for site selection, store design and visual merchandising!

Reliable recruitment and training support.Very high success in delivery!

Strong Customer Loyalty!

Very high success in delivery!

An established brand!

Great vendor base!

Excellent relationships!

Exclusive RightsInitial Start up TrainingProven Support Systems!

Aggressive brand-promotion, advertising and marketing campaign!

Mega Launch!



PANTALOON INDIA

Pantaloon Retail, a Future Group venture startedits operations with Pantaloon Shoppe in 1993.

Emerged as the retailing giant of India with over5 million.

Square feet of retail space spread over 450 storesacross.

40 cities in India. Pantaloon Retail operates inover twenty.

Diverse store formats, with a spectrum of offerings ranging from food and grocery tocarpentry services.



CONCLUSION

The retail is no doubt the buzz sector today and inrecent times to come but government can checkthe entry of foreign players to an extent wherethey don‟t disrupt the market but compliment a

healthy competition.

Moreover the big ingenious retails of India like“Pantaloons” and shopper stop should be

promoted more vigorously to open morefranchised stores to help the local shop keepers inkeeping tandem with the big retail stores.



THANK YOU



DHANYAVAAD

retail market opportunities and franchising

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