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India

Franchisee fries

McDonald’s, Subway, Sbarro, 7-Eleven and many others have seen their brand image getting tarnished after a tiff with their franchisee partners

Until quite recently, McDonald's was in the news in India for all the wrong reasons. The souring of a franchise arrangement with Connaught Plaza Restaurants Pvt Ltd (CPRL) led to shutting down of 169 outlets in the North and the East, followed by re-opening of a few outlets after an out-of-court settlement minus key items from the menu.

The franchise issue has certainly dented the brand's image, especially when rivals like Burger King, KFC, etc, are all fighting for the same share of the consumers' wallet.

Like McDonald's in India, brands like Subway and Sbarro Pizza in the US, petrol retailer Caltex in Australia and convenience store chain 7-Eleven worldwide have witnessed a fall in their brand equity owning to differences with their franchisee partners, with some like Sbarro even filing for bankruptcy.

But despite all of this, franchising is the way forward for a brand. “It enables a brand to capture market leadership, supplements cash flow and gives a competitive edge,” says Saurabh Rathore, founder and CEO, London Bubble Co, a bubble waffle and desserts brand which has managed to grow to 50 outlets in India via the franchise model, and has 50 more outlets in the pipeline.

According to Mihir Kulkarni, vice president and head of omni-channel expansion, Pepperfry, franchisee partners are well-established with the local community and this helps a brand to penetrate local markets with minimal manpower and capital investment.

In India, franchising is believed to be a sure-shot route to scale up, expand and enhance brand credibility. According to Franchise India, by 2023, the franchising industry in the country, which is growing at 30-35% annually, will cross $140 billion. There are presently over 1.5 lakh franchisees and nearly 5,000 franchisors in the country.

But the growth potential apart, experts believe that franchising gone wrong can severely impact brands.

“A franchisor gives the franchisee the licence to use its brand name, trademark, etc. Thus, the franchisee becomes a brand ambassador,” states Kulkarni.

But often brands forget that the franchise business is different from a traditional business model. “Alongside the end consumer, in the franchise model, even the franchisees are equally important. In fact, franchisees are the assets, the wheels that run the model, the crucial link between the brand and its consumers, the face of the brand who knows the consumers better than the brand. Lack of constructive engagement with the franchisees spells disaster for the brand,” say experts.

Customer service, one of the most crucial elements in the brand-consumer relationship, an aspect that strengthens customer bonding, delivers immersive brand experiences and promotes customer loyalty, is delivered by the franchisee. Poor customer service, as per global estimates, can cost brands over $75 billion a year, as customers switch over to rival brands offering a better experience.

And to provide a top-class customer experience on a consistent basis, brands should engage in a holistic manner with their franchisees, instead of merely focusing on big-budget branding and marketing campaigns. “Franchising allows brands to attract good quality investors. These investors are knowledgeable and have a great spur to make the project a success in the local market. Maintaining good ties with the franchise partner is extremely important as they are responsible for growing the brand. It is vital to create strong unit economics and partners that will support the brand and the business. This means a careful selection of suppliers, distributors, and service vendors that have an aligned strategy. The infrastructure for franchise operations is essential to manage a franchise with few distractions,” says Zorawar Kalra, founder and managing director, Massive Restaurants.

Franchising is about teamwork and decision-making in an amicable manner, says Samarth Gupta, co-founder, Fiorella India, a flower boutique. “But like in any team, there can be disconnect which should be resolved by being open to suggestions and having a strong communication pipeline.”

According to Rathore, it is necessary to incentivise franchisee partners and empower them through periodic skilling and training, kickback programmes, marketing support and employee management support. “In case of a problem, constant dialogue and diplomacy are needed to work out fruitful and quick solutions that can prevent the brand image from getting tarnished.”

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