Franchines Food and Restaurant McDonal-1

Franchising in Food and Restaurant Sector

UNIVERSTITY OF MUMBAIPROJECT ON

FRANCHISING IN FOOD AND RESTAURANT SECTOR

2008

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INDEX

Sr.no

CONTENTS Pg.no

1 Introduction 1

2 Emergence of Franchising 3-4

3 Introduction to Franchising 5-15

4 Concepts of Franchising 16-35

5 Franchising in India 36-43

6 Franchising of food and Restaurant Sector in India

44-50

7 McDonald’s Franchising 51-63

8 Statistical Data 64-69

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1. INTRODUCTION TO THE PROJECT

Franchising business has already proven to be one of

the fast growing areas of development for entrepreneurs in

India as well as abroad. There is a growth in the non-

traditional areas such as professional services and hair care

services. Franchising is growing because the system

provides self-employment with less capital.

Franchising permits businesses to grow more rapidly

than other method. By increasing the efficiency by which

goods and services are distributed, it brings impressive gains

to any economy. On a cultural level, franchising is one of the

few developments that generate employment, earnings and

entrepreneurship at the same time. It disseminates

ownership rights and decision-making power to thousands of

small unit operators. For developing countries, or countries

shifting to a market economy, franchising has the effect of

creating relationships between one economy and another. It

promotes sharing of technologies, trademarks, marketing,

intellectual property and even architectural designs.

My aims of studying “Franchising in the food and

restaurant sector” is to learn the various policies and

procedures that are followed while setting up a franchise and

ho far has this business the development of economic

growth in India.

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1.1 OBJECTIVE OF THE STUDY

The subject of franchising is generally obscure to

many people in India. We can no longer afford to be ignorant

of the dimensions of the topic or its implications for the

Indian economic development. Hence the main objective of

the study is to gain an insight into the various aspects of

“franchising in the food and restaurant sector”

1.2 METHODOLOGY

Secondary data collected from libraries like IMC British

council in the form of articles from newspaper, magazines,

websites, books and various publishes data found were

useful for the study.

Primary data obtained from the authorities of the

various outlets of McDonald’s and by the means of a survey

through Questionnaires and interview sessions with the

people who frequently visit McDonald’s helped to study the

to her details of the topic in depth which wouldn’t have been

possible with secondary data alone.

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2. EMERGENCE OF FRANCHISING

2.1 INTRODUCTION

Franchising is one of the methods of marketing a

proven business concept. In order to understand the role

played by franchising, one has to look at the marketing

organization. There are several options open for marketing

channel decisions. One of them is “Branchising”. Branchising

in turn leads to franchising. The areas of operations of

franchising, nature of its operation and management is given

here. In addition, one can see the recent trend of American

and other franchisers expanding their operations overseas.

There are different modes of internationalization. Some of

them are successful and some unsuccessful.

2.2 HISTORICAL PRECEDENCE OF FRANCHISING

The franchise model is traced to the practice of Roman

Catholic Church, which used to grant local clergy the right to

collect “tithes” (church taxes) in exchange for passing a

portion of it to Rome. This implied that the Catholic Church

was franchising the right to run a parish.

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During the middle ages, there was feudalism where

noblemen were the landowners and peasants were the

slaves of the noblemen. Some serfs were given additional

rights subject to fees paid to nobles. These fees were called

“Royal Tithes” which is the root of modern royalties. These

serfs were granted the status of “freemen”. In France, they

were called Francis. The French word Francis modified into

the English term to efranchise.

Similarly, colonialism based on the traditions of

feudalism European monarchs gave, what may be described

as “franchises” to commercial ventures. These ventures

agreed to establish colonies under the protection of the

monarch in the exchange for payment or “royalties”.

Franchising started as a form of dealership. The

franchiser owned the trademark for a product and for a fee

produced and distributed the product to the dealer. In the

1950’s, business – format franchising becomes popular. This

is governed by some rules relating to the business

relationship. The franchiser first creates a successful

business relationship and creates a format, which can be

duplicated.

The franchiser grants rights to the franchisee to engage

in the business of distributing the franchiser’s products or

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services using the franchiser’s trademarks, trade names and

marketing systems.

3. INTRODUCTION TO FRANCHISING

3.1 WHAT IS FRANCHISING?

When we talk about franchising, it covers a very broad

term, and covers various aspects of collaborations and

investments, which we have had in this country for various

manufacturing processes and for making various products.

We also have had various investments coming along with us

various technology transfers for the last four decades and

which is generally called “Industrial Franchising”. But, the

generally accepted term or word “Franchising”, which is

being used today, relates to certain business techniques that

even have been quite recent, and what is generally called as

“business format franchising”. Franchising in general means

granting of certain rights by one party (the franchiser) to

another (the franchisee) in return for a sum of money. The

franchisee then exercises those rights under the guidance of

the franchiser.

The International Franchise Association (IFA)

defines franchising as a “continuing relationship in which

the franchiser provides licensed privilege to do business,

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plus assistance in organizing, training, merchandising and

management in return for a consideration from the

franchisee”.

Franchising is a vertical-cooperatively organized

paragraph system of legally independent enterprises on the

basis of a contractual continuous obligation. This system

arises at the market uniformly and coined/shaped by the

arbiters the performance program of the system partners as

well as by an instruction and a control system to the safety

device of a system-conformal behavior.

The performance program of the franchise giver is the

franchise package. It consists procurement of paragraph and

organization concept, the right to use the patent rights, the

training of the franchise taker and the obligation of the

franchise giver to support the franchise taker actively and

constantly and constantly develop the concept further.

The franchise taker is active on own names and for his

own account; it has the right and the obligation to use the

franchise package against payment. As achievement

contribution it supplies work, capital and information.

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Within a relatively short period, modern-day

franchising, more fully described as "business format

franchising" which was basically adopted in the western

world, mostly after World War II thus, making it the most

popular concept all over the world. Essentially, franchising is

a marketing and distribution system. It has its roots in the

United States, where it has been in evidence since the early

1950's and now commands a market share approaching 50%

of all retail sales. Although other parts of the world lag

somewhat behind, franchising is well established in every

free market economy across the globe, and with good

reason. Statistics show that the success chances of any

small business operated under franchise are infinitely higher

than those of a business that is operated by a lone

entrepreneur in isolation.

In the words of Bill Cherkasky, past president of the

International Franchise Association (IFA), “perhaps

franchising is not perfect, but it is the best method known to

mankind to put people with no prior experience into a

business of their own and help them to succeed." As with

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most things in life, careful preparation and meticulous

execution is the key to success.

Franchising has served as a vehicle for small

businesses to grow successfully into national chains and as a

way for individuals to win their own businesses. There is a

shift in the traditional economic paradigm, which is giving

support to the franchise movement. Retro franchising is used

to transform traditional company –owned retailers and

service providers into franchisers. The established retailers

are considering franchising as a means of entering overseas

markets.

Franchising provides goods and services varying from

hotels, convenience stores, travel agencies, auto dealership,

residential real estate brokers, gas stations, hair salons, etc.

This has become the single most successful marketing

concept ever; it’s the wave of the future. The success

of franchising depends on the relationship between the

corporation, supplier and franchises. One’s success depends

on the success of all. Franchising is an effective way for

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individual businesses to grow while providing mutual self-

help and support.

a

3.2 MODES OF FRANCHISING

The following are basically 5 types of international

franchising mediums:

Direct Franchising:

Under this system, the franchiser grants franchises

to individual franchisees in the foreign country through

the execution of an international contract. The main

problems associated with this type of franchising is the

difficulty of franchisers to control the performance of the

franchisees as these are located in another country, the

assistance to be provided to the franchisee during the

operation of the contract. The question of intellectual and

industrial property rights in the foreign country also needs

to be considered. There is a tendency for franchisers to

want their own domestic law to apply to the agreement,

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even if the franchise is exploited in another country.

Another vital point to be kept in mind is the law relating to

transfer of technology that may be applicable. Keeping

the above problems in mind, it is observed that direct

franchising is not used extensively internationally.

Subsidiary or Branch Office:

Franchising through a subsidiary or a branch office

are two methods, which are often treated together,

although there are differences, which derive from the fact

that a subsidiary, albeit controlled by the franchiser, is a

separate legal entity whereas a branch office is not.

Whatever be the difference, an advantage of this

approach is that the franchiser is present in the foreign

country as a corporate body. The contract will in this case

be a domestic contract and thus subject to local

legislation.

The problems associated with this type are similar to

direct franchising. In addition, the franchiser will be

required to send his personnel to the foreign country for

the start up operations thus involving work permit and

residence formalities.

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Area Development Agreements:

Such agreement traditionally involves an

arrangement whereby the developer is given the right to

open a multiple number of outlets to a predetermined

schedule and within a given area. These arrangements in

the past have been used mostly in domestic franchising,

but are now being used increasingly in international

franchising.

Items that are to be considered here include the

number and density of the outlets to be opened, detailed

development schedule and the consequence of non-

complying of the schedule. In such arrangements, the

developer will need to have substantial financial

resources so as to be able to open the required number of

outlets.

Master Franchise Agreements:

In the international scenario, this is widely used. In

respect to such agreements, the franchiser grants a

person in another country, the sub-franchiser, and the

exclusive right within a certain territory to open franchise

outlets itself and/or to grant franchises to sub-franchisees.

In this case, there are two agreements involved: an

international agreement between the franchiser and the

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sub-franchiser (the master franchise agreement) and a

national franchise agreement between the sub-franchiser

and each of the sub-franchisees (the sub-franchise

agreement). The franchiser transmits all its rights and

duties to the sub-franchiser, who will be in charge of the

enforcement of the sub-franchise agreement and of the

general development and working of the network in that

country. All the franchiser will be able to do is to sue the

sub-franchiser in case of breach of obligation to enforce

the sub-franchise agreement as laid down in the master

franchise agreement.

The advantages of this system are that the sub-

franchiser is familiar with the local habits, tastes, culture

and laws of its country and that it will know ways about

the local bureaucracy for necessary permits as and when

necessary. The disadvantages include that the financial

returns of the franchiser will be reduced by the amount

due to the sub-franchiser and also that the franchiser will

have to rely on the sub-franchiser for the performance of

the franchise system.

Joint Ventures:

In the case of joint ventures, the franchiser and a

local partner create a joint venture. This venture then

enters into a master franchise agreement with the

franchiser, and proceeds to open franchise outlets and to

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grant sub-franchises just as a normal sub-franchiser

would do.

An arrangement such as this will have to consider

legislation on joint ventures in addition to all the other

legalities that are involved. Problems may also arise with

the fact that the double link may create conflicts of

interest for the franchiser. The advantages accruing from

this arrangement may include that it could be a way to

solve the problem of financing franchise operations in

countries where financial means are scarce.

Miscellaneous forms:

There is no limit to the refinement that can be made

to the above forms of franchising to accommodate the

differing demands of potential franchiser and/or

franchisee. New forms of franchising, or combinations of

different forms of franchising, appear at regular intervals.

Examples of these are stated as follows:

Multi-unit Franchising

Affiliation or conversion Franchising

Franchise within a Franchise

Subordinated Equity Arrangements

Management Agreement

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Franchise Buy-ins

3.3 MARKETING ORGANIZATION:

The decision regarding marketing channels is similar to

“ make versus buy” decisions. The “make” decision relies in

the marketing channels is similar to vertical integration and

“buy” decision on independent agencies. The vertical

integration depends on the transaction cost analysis, which

emphasizes the importance of the product/service to the

company and the nature of the service required.

Conventional: In this, the membership is diffused.

Coordination is normally achieved through bargaining

and negotiation. There is easy entry and exit of the

members. The network is unstable.

Administered: Autonomous units agree for ad hoc

division of labor. This started with the programmed

merchandising agreement. Manufacturing companies

who have developed a programmed system normally

starts this. Examples of such systems adopted are

General Electric Credit Corporation for its financing

plans for wholesalers.

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Retailers: McDonald’s purchasing arrangements with

its suppliers, etc. This system is based on trust of the

administrator and his expertise.

Contractual: The locus of decision is done at one level

and is ratified by other units. The vertical integration is

done through contractual agreements. There are many

variations. Some of the more common and widespread

systems are wholesaler sponsored voluntary groups,

retailer sponsored cooperative groups and franchise

system.

3.4 BRANCHISING

David. D. Salts use the term “Branchising” as a generic

term, which includes franchising. Branchising covers many

methods used by the company to expand its operations. This

is the method for rapid market dominance, with minimum

capital outlay and results in immediate and ongoing cash

flows. It adopts the OPM (Other People’s Money) principle of

financing.

Branchising is a method of rapid expansion of market

for goods and services. The term “Branchising” is generic. It

comprises various methods of expansion such as direct

sales, leasing, joint ventures, franchising, etc. Franchising is

one of the options of Branchising i.e.; is expansion.

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4. CONCEPTS OF FRANCHISING

4.1 FRANCHISER

Franchising transactions can involve different levels in the

manufacture and distribution of goods and services. In this

respect, there are four types of franchisers:

1. Manufacturers and wholesalers

2. Manufacturers and retailers

3. Wholesalers and retailers

4. Retailers and retailers

Coca-cola and Pepsi can note the manufacturers and

the wholesalers franchising in the case of bottling

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arrangements. The manufacturers and the retailer’s

arrangements are typical in the arrangements between

petrol companies and their filling station proprietors or

motor vehicles manufacturers and their dealers. The

arrangement between wholesalers and retailers is more

popular in the motor vehicle accessory in U.S.A.

The franchiser is the grantor (giver) of the franchise. To be

deserving of the title, the franchiser should: -

Know every facet of the business and have a hands-on

approach to problem solving.

Be honest and forthright in all dealings.

Have operated the business he wishes to franchise for a

reasonable period. Agreement exists that the minimum

period should be one to two

Years but research has shown that most companies

wait for six years or more before they roll out a

franchise.

Have adequate financial resources to develop the

concept and make the necessary investment into the

brand.

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Want to grow through others, and be prepared to share

the rewards resulting from teamwork with franchisees.

Strive for excellence in every facet of the business and

determined to grow.

4.2 FRANCHISEE

Franchisee is the one who is willing to invest money

and time on the proven concept of the franchiser. A

franchisee (recipient of a franchise) is an individual with a

burning desire to succeed in a business of his own but

reluctant to operate in isolation, more often re-inventing the

wheel in the process as it was. Franchisees should be: -

Capable of absorbing new concepts quickly.

Willing to follow the franchiser’s blueprint to the letter.

Positive people-persons imbued with the necessary

enthusiasm to market the business and motivate staff.

Adequately resourced to meet the initial (capital

investment) and ongoing (working capital) financial

requirements of the business.

Able to manage and control the business, and willing to

drive the brand at local level.

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Prepared to co-operate with the franchiser’s team as

well as with fellow franchisees, and play an active part

in programs offered by the network.

Determined to build the business into the best and

most successful in the territory.

Convinced of the merits of the franchise and the brand,

and prepared to defend both against possible attack by

competitors or others.

Depending on the rights granted, franchisee’s can be

classified into:

Unit Franchisee: This is the simplest and most

common form of franchising. This franchisee is granted

the right to operate one unit or outlet of the franchised

business.

Master Franchisee: He is generally granted the right

to a substantial territory. It will then grant unit

franchises to unit franchisees throughout the territory.

The Master Franchisee needs to have sufficient drive

and resource to fully exploit the territory and control

the unit franchisees territory.

Regional Franchisee: In a geographically large area a

franchiser, or a Master Franchisee may decide that it is

commercially appropriate to further divide the territory

up with separate regions and grant a Master Franchise

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for each separate region. These franchises are known

as regional franchises or sometimes area franchises.

Multiple Franchises: Some unit franchisees operate

not just one unit, but also several. These are referred to

as multiple franchises and usually have a large number

of individual unit franchise arrangements – one for each

unit.

Developers: Large Corporations sometimes prefer to

exploit their territory by opening outlets themselves.

These are known as developers. They have a single

developer agreement, which allows them to open many

units.

4.3 WHAT IS FRANCHISE FEE?

A fee paid by franchisee to a franchiser. US standard

accounting practice requires that franchise fee revenue

should be recognized when all material service or conditions

relating to the sale have been substantially performed or

satisfied by the franchiser.

4.4 PRODUCT AND BUSINESS FORMAT FRANCHISING

In practice, franchising has become synonymous with

two specific ways of doing business, namely product

franchising and business format franchising.

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A product franchise, as the name suggests, focuses

almost exclusively on a product or service. The franchiser

offers the product and some corporate identity, but in

conducting the business, the franchisee is largely left to its

own devices.

Format Franchising: Under this the franchiser can

enter the market rapidly at relatively low cost using

motivated entrepreneurs. And the franchisee has an

opportunity to enter a business with a proven product,

service or brand name at less cost.

The first generation business franchisees are known as

tied-house systems. It started among German brewers

who contracted with taverns to sell their brands

exclusively.

The second-generation business franchisees started

when Singer Sewing Machine Company sold its

products to its sales force in the 19th century. This is

known as product-trademark. This pattern is adopted in

automobiles sales, retail gasoline and soft drink

distribution.

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The third-generation of franchising is known as the

business format franchise developed by A&W

Restaurants in the 20th century. This entails replication

of an entire business including product or service, trade

name and methods of operation.

Under business format franchise, the franchiser can

enter the market rapidly at a relatively low cost using

motivated entrepreneur. And the franchisee has an

opportunity to enter a business with a proven product;

service or brand name at less cost although it is based on a

product or service, revolves around the way the business is

conducted. The franchiser will have developed a

comprehensive blueprint for the successful operation of the

business. The franchisee will receive initial and ongoing

training and strict adherence to the blueprint will be

mandatory, so much so that the franchiser will carry out

regular inspections to ensure that all facets of product and

service delivery conform to prescribed standards.

The franchiser’s close ongoing involvement enhances

the franchisee's success chances considerably. Furthermore,

an increasing number of product franchises have recognized

that business format franchising is the better way, and are

converting to this concept.

There is a difference between business format and

product franchisees. A product manufacturer needs to

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develop a distribution network to sell his products. Gasoline

service stations were purely product franchisees. One can

ascertain a product franchise through its quality of the

product, its availability and its value. Business format

franchisers are marketing a style of doing business; this is

based on the quality of the trademark, the reputation for

quality and service, the quality of training and support

provided by the franchiser as well as the amount of royalties

and other fees.

TYPES OF FRANCHISING

Territorial Franchising: In this the franchisee has the

authority over a territory, which may be a city, state or a

country.

Operating Franchising: This refers to an independent

business, which has a franchise.

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Mobile Franchise: It is a type of franchise for selling

products on moving vehicles.

Distributorship: An exclusive coverage of a geographical

area for distributing the products and also acts as a supply

house for the franchisees.

Co-Ownership: Here, both the franchiser and the

franchisee share in the investment and form partnership.

Co-Management: In this the franchiser has a majority of

investment and he/she and the partner manager share

profits proportionately.

Leasing: The franchiser can lease the land, building and

equipments to the franchisees.

Licensing: In this the franchise has a license to use the

franchiser’s trademarks and business techniques.

Manufacturing: The franchisee has a license to

manufacture and distribute the franchiser’s product.

Service: in this type, the franchiser provides a pattern of

professional service, which a franchisee supplies.

4.6 ADVANTAGES AND DISADVANTAGES OF FRANCHISING

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Advantages for the franchisee

One of the main advantages for the franchisee is the

fact that it enters into a business, which already has a

well-known trademark or trade name. The franchisee in

other words does not have to spend time, money and

efforts trying to make it known and appreciated in the

market. In effect the franchisee already has a potential

clientele.

As the franchisee is not required to invest to make an

entirely new trademark known and profitable, the

investment it has to make will normally be of an

advantageous size, as compared with the investment,

which would be required for an entirely new business.

Of particular importance for franchisees who enter a

business with which they are completely unfamiliar is

the training and assistance provided by the franchiser.

The franchiser will provide initial training in the

business method it has elaborated, but often in basic

business skills such as accountancy. Furthermore, for

the whole term of the agreement it will provide any

assistance that the franchisee might need to solve the

problems, which the running of the business gives, rise

to. Some large franchisers will infact have a twenty-four

hour service at the disposal of the franchisees of the

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network.

Advertising is an effective means to spread a unitary

image of the network and, at a national level, is

therefore often conducted by the franchiser for the

whole franchise network, the expense being shared by

all participants.

Local advertising is often left the local franchisees,

even if there is a certain co-ordination and it sometimes

has to be approved by the franchiser.

Lastly, in some businesses a network can obtain

preferential rates for bulk purchases.

Disadvantages for the Franchisee

To be weighed against the advantages described above

is the fact that the franchisee is not completely

independent and is therefore not in a position always to

decide the policy of the business. Any major decisions

will be taken either by the franchiser or by the

franchiser in concert with the whole network of

franchisees.

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Furthermore, the control exercised by the franchiser

might appear to be excessive, indeed might on

occasion be excessive. This will weigh heavily on the

franchisee once it begins to know the business and to

feel that it can manage without the franchiser.

The franchise is granted for a fixed period of time,

which normally is renewable. There is, however, no

absolute guarantee that the contract will always be

renewed upon expiry. The franchisee therefore runs the

risk of setting up an effective and profitable business

only to see it being taken over by the franchiser at the

expiry of the agreement.

It is very difficult to estimate what the financial return

of the business will less than expected. Added to this

fact the fees that the franchisee has to pay to the

franchiser might be considerably huge and can also

reduce at times.

To be reiterated is the consideration that the franchisee

has to bear the financial risk of the activity; if it fails it is

the franchisee that loses the money it has invested.

Advantages for the franchiser

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For the franchiser the main advantage is the possibility

to expand the business over a relatively short period of

time without having to make direct investments in a

new place of business, and also without being liable for

the acts of the franchisee as the two are and remain

independent entrepreneurs.

Disadvantages for the franchiser

If the relationship does not work the damage suffered

by the franchiser, indeed by the whole network, could

be quite considerable. In fact, as the owner of the

trademark or the trade name the franchiser is

ultimately the one who will suffer (by, for e.g. a

reduction in sales throughout the network) if any of the

outlet does not conform to the quality standards set.

A disadvantage of the franchise agreement is that the

degree of control the franchiser has over the unit is less

than if they were company owned outlets.

Lastly, the financial returns of the franchiser will be

lower than would be the case with a subsidiary or a

wholly owned outlet, as it will not receive all the

financial returns of the enterprise but only a percentage

thereof.

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4.7 FRANCHISING AGREEMENT:

It is a written agreement that details the expectations

and requirements of the franchiser. It describes the

franchiser’s commitment to the franchisee and includes

information about territorial rights of the franchisee, location

requirements, training schedule, fees, general obligations of

the franchisee, general obligations of the franchiser, etc. It is

usually set up for a fixed period, which requires renewal

after expiry. The agreement should however include the

following:

The rights granted by the franchiser.

Rights granted to the individual franchisees as

against the corporate franchisees.

The goods/services to be provided with manuals and

also guidelines for dissemination.

Obligations of the franchiser.

Obligations of the franchisee.

Terms of payment after fixing the fees by the

franchiser

Duration of agreement.

Basis of renewal and/or termination.

The nature and usage of brand name of the

franchiser by the franchisee.

Provisions relating to the pre-emption rights in

respect of franchising.

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Adaptation of franchise systems to the environment.

Surrendering terms in case of termination.

Additional legal points for successful running of this

business.

4.8 SOURCES OF REVENUE

The different sources of revenue available for the franchiser are:

Initial franchise fees.

Royalty fees.

Advertising fees.

Sales of products.

Rental ad lease fees.

License fees.

Management fees.

4.9 FRANCHISING PACKAGE

There are three types of franchising packages available

to an entrepreneur who decides to enter into a franchising

agreement:

The first package: The franchiser is interested in supplying

equipment or part of the product. He provides his trade

name and offers some services including training. The

franchisee is free to run the business. There is independence

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for the franchisee.

The second package: The franchiser is interested in selling

his products/services on a continuing basis. The franchisee

depends on supply of services from the franchiser who will

have centralized purchasing, product development,

information flow, ongoing training and guidance. There is

interdependence between franchiser and franchisee.

The third package: The units operate under a single trade

name. There is more interdependence between the

franchiser and the franchisee; and also among franchisees.

4.10 FINANCING AND PLANNING

Franchising is a viable route to have an independent

business. It is devoid of the usual risks and pitfalls of starting

a new business. The franchisee, in effect, is buying a

business concept, which is established and proved.

Financers consider the following criteria for evaluating a loan

application of franchisees:

Capital: Kind of capital required and sources

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Capacity: Leadership and experience of the people in

business.

Character: Entrepreneurial bent of the person,

whether proactive or reactive

Commitment: Loyalty and dedication to the business.

Customers: Competition, the image of the business

and market share.

Community: Business in relation to the community

particularly job creation or environmental impact.

Collateral: Protection for the financer.

The plan will have the following parts:

Business objectives

Business description

Franchise description. This will give:

The number of franchisees sold

The terms of the franchise

Training program

Product description. This will provide the

Product/service mix by range and category

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List of precise categories, revealing the income derived

out of individual businesses.

Customer description would clarify the:

Market category, whether consumer, commercial and

institutional.

4.11 EXPANSION ARRANGEMENT

There has been a definite shift from owning a single

unit franchise to multi unit, area development and master

franchise agreements to multi concept arrangements. These

provide expansion opportunities for all franchisees. The

common growth strategies employed are:

Multi-unit Franchise: In this, the franchise acquires

one or more units of a single franchise concept. This

enables the franchisee to have control over its

operation and cost structure.

Area Development and Master Franchise

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Arrangements: This allows the franchisee to quickly

develop the business concept in a wide area. The

franchisee will have exclusive rights to develop a

specific number of units within an area in a given time

frame. Franchisees can either open the units

themselves or sub- franchises them to other

franchisees.

Multi-concept Arrangements: The franchise would

have compatible concepts. This benefits both the

franchiser as well as the franchisee. The franchiser, on

the other hand, benefits having a franchise that is

already in business. While the franchisees benefit by

combining complementary concept.

Currently, the successful multi-unit and multi-concept

franchisees are in the food sector. The food sector gives

opportunities of building an infrastructure similar to the

franchiser. It also makes it possible to have multi-unit

operation through alternative distribution methods such as

Kiosks and mini-shops. The expansion is possible in places

where customers are saying in supermarkets, gas stations,

sporting events or retail stores. However, it is estimated that

there is scope such development in industries that specialize

business-to-business services, children’s services, and

computers.

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4.12 MYTHS

Some franchises operate under certain myths such as:

Conflicts can be avoided through effective

communication. The arrangement is based on contract,

and problems should be addressed quoting the contract

and proposed legal action.

Good franchises are those who follow the system and

bad ones are those who always call the corporate office

questioning the policies and practices.

Franchisers should take a position and stick to it.

Franchisers never do something without receiving

something in detail.

4.13 PROBLEMS

It is assumed that the franchisee benefits as an

entrepreneur in a pre-packaged program, a super efficient

distributor of services and goods through a decentralized

network. The franchise has the freedom to evolve new

methods and headquarters will provide data and support to

fellow franchisees. Many franchisers like Alpha Graphics and

Taco John have created a new co-operative relationship with

franchisees.

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The International Franchise Association claims that only

5% of franchisees are terminated annually. But some think

that the failure rate is far higher and touch almost 35%.

There are attempts in reducing the troubles through the

setting up of franchisee advisory council and improving

communication between the franchiser and the franchisees.

4.14 FRANCHISEE ADVISOR COUNCIL

It is formed by a group of franchisee owners who meet

regularly to discuss among themselves and with company

executives. Franchisees need to start a FAC as soon as there

are 50 to 100 of them in business. This will allow franchisees

to affect constructively the way a company interacts with its

franchisees. FACs are valuable when they encourage joint

decision making, encourage feedback from all the

franchisees, and open two-way communication. The success

of FACs depends on some key factors such as - follow-up,

effective communication, accountability, and positive team

attitude.

5. FRANCHISING IN INDIA

Executives of western franchise companies immediately

become excited over the numbers of potential customers

and franchise owners possible in India. The reality is that

franchising has only begun to take hold in India, the largest

democracy in the world with over 1 billion people.

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Franchising is not a new concept in India. Soft drinks

and hotel franchises arrived in India in the 1960’s, but in the

1970’s and 1980’s, the government expelled foreign brands

from India. Some international franchises have recently

come back to India and are doing well. Hotel business like

Best Western Group and the Quality Inn Group have

established themselves. Also, Walt Disney has been

successful in having its label in all sorts of goods for children,

whether they are clothing, toys, and school equipments. Fast

food chains like McDonalds, Slice of Italy, Dominos, Taco Bell

have also come in. Pepsi and Coke have re-captured the soft

drinks market. Raymond has used franchising extensively to

reach the market place - so has Titan more recently. The

recent entry of a host of multinationals has seen franchising

gain prevalence. More and more companies seem inclined to

go in for the “let someone do your business for you”.

Given the diversity of existing formats in India, there is

some confusion as to which ones can be termed to fall under

the definition of a franchise. While Bata, which has only a

handful of their 1,500-odd stores, franchised, McDonalds

operates through a JV and Color Plus has all almost all of its

retail outlets franchised. However, the following issues are

broadly agreed upon as forming the heart of franchising:

The principle of standardization.

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The principle of formalized revenue sharing.

The principle of operational control.

The principle of continuity typically, a franchiser

perfects a business system, develops a product or a

marketing mix, and then franchises it. Franchisers

provide supports such as training, management

system, advertising and marketing.

5.1 FRANCHISING: A TOOL FOR ECONOMIC GROWTH IN

INDIA

Franchising permits businesses to grow more rapidly

than any other method. By increasing the efficiency by which

goods and services are distributed, it brings impressive gains

to any economy. On a cultural level, franchising is one of the

few developments that generate employment, earnings and

entrepreneurship at the same time. It disseminates

ownership rights and decision- making power to thousands

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of small-unit operators. For developing countries, or

countries shifting to a market economy, franchising has the

effect of creating relationships between one economy and

another. It promotes sharing of technologies, trademarks,

marketing, intellectual property and even architectural

designs.

Franchising is a particularly good developmental tool in

any part of the world where financial resources are short and

the need to stimulate individual initiative is acute. There are

no tariff barriers to be dealt with. It puts little strain on the

receiving country's balance of payments. Thus, not

surprisingly, awareness of the benefits of this business

formula is growing at an international level.

Franchising is one of the world's fastest growing and

most lucrative industries. Franchise businesses will be

turning over an estimated $ 1 trillion (which is roughly

equal to ten times the size of India’s current GDP). Today,

there are over 40,000 franchisees existing in India. The

annual turnover of these franchisees is between Rs.8, 000-

10,000 crores.

Franchising awards India an opportunity to build its

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commercial infrastructure and develop its domestically

oriented businesses in an efficient and profitable manner. It

also offers India the opportunity to import and develop

foreign concepts in away, which ensures that the equity of

the business remains in India, so avoiding the politically

desirable situation whereby foreign corporations own

successful domestic businesses.

Franchising in India is dominated by the IT education

sector, which alone accounts for 40 per cent of the Indian

franchising business. According to Gaurav Marya, CEO of The

Franchising World, IT education can be termed the pioneers

in the franchise industry in India. NIIT and Aptech are two

Indian IT franchise companies that have successfully

expanded to 2400 outlets and they have a presence in

almost 52 countries.

The key attractions of franchising in India are as

follows:

Lower capital Requirements: Franchising is an

excellent way for both Indian and foreign corporations

to expand their businesses and make their brand

names known in India without having to risk large

sums of money by “Way of direct investment”. The

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franchisees finance the expansion of the business in

India. In return they have the opportunity to make

substantial income and capital profits.

Geographical extent of the country: Franchising

can enable a company to take advantage of the vast

Indian market of over 1000 million people and growing

at a rate of 1.9% p.a. There is an ever-growing

demand of goods and services such as fast food and

beverages, clothing, electronic goods, computer

hardware and software and professional services. The

infrastructure is poor, however, and operating a

corporately owned distribution system that fully

exploits the geographical expanse of the country is

extremely difficult and inefficient. Empowering

participants in the distribution system by granting

them an equity interest in it (i.e. by granting a

franchise) can substantially improve the efficiency in

the distribution system.

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Cultural Empathy: Franchising well suits the

entrepreneurial side of Indian culture. Indian business

people are fiercely proprietary and feel a need to have

ownership and control over their business operations

which they can pass on to future generations.

However, at the same time they are keen to benefit

from the goodwill and technology that can be provided

by the foreign franchiser. Franchising allows them to

reconcile these conflicting ambitions.

Harnessing local market knowledge: Indian

master franchisees offer the foreign franchisers direct

access to substantial market knowledge and a

considered and sophisticated approach to its

exploitation. A company needs a great deal of

knowledge of the different regional markets in India.

What holds good for Punjab may not be relevant for

Kerala. Franchising provides a sure and easy way of

accessing the right level of relevant local market

knowledge.

- 45 -


5.2 BASIC NORMS TO BE FOLLOWED WHILE

FRANCHISING IN INDIA

Permission of the Central Bank in India- The Reserve

Bank of India is required to bring in capital and set up

a base for carrying on such activities. The standard

method of setting base in India would be to depute a

foreign national to India as an advisor or make him

take up employment in the Indian partner. This cuts a

lot of red tape as there would be no burden of

remitting foreign exchange to the franchiser’s country

and the concerned foreign national may earn his pay

in Indian currency and utilize it in India itself. All

expenses of the concerned foreign national will also be

borne by the Indian partner in local currency.

A foreign franchiser not wishing to make a direct

investment but merely intending to render technical

assistance for a recurring franchise fees will have to

secure the Reserve Bank of India's approval. The

Master Franchise agreement has got to be approved

by the apex bank, which regulates the inflow and

outflow of foreign investments.

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A foreign franchiser can generally own upto 51% of the

share capital leaving the rest to the Indian side. There

is an automatic approval mechanism to enable such

investments. Since the apex bank's permission is

required to repatriate profits, this matter should be

clearly incorporated in the Master Franchise

agreement.

Foreign technicians can visit India to train Indian

partners for an initial period of three months. This can

be extended to a further period of three months.

Indian visas can be obtained from the Indian embassy

and Consulates in the franchiser’s country.

Remuneration to such foreign technicians has also to

be incorporated in the Master Franchise Agreement so

that it can be approved up front. All payments made to

foreign technicians will bear an additional of 5% under

the Indian Research & Development Act.

- 47 -


6. FRANCHISING OF FOOD AND RESTAURANTS SECTOR

IN INDIA

The franchise economy is heating up India. A new breed

of players is moving in with an exciting array of business

concepts. This grounds well of activity is throwing up new

opportunities for entrepreneurs and also creating new jobs.

Although in a nascent stage, franchising is gaining

popularity in the retail segment in India, more particularly in

the areas of food products, drinks and fast food chains.

The food services and products franchise industry has

dramatically increased its presence within the world of

franchises over the past decade. Contributing to its growth is

the rampant expansion of food –related franchises

throughout the nation. The number of fast food chains,

restaurants, coffee shops, and hotels is huge. The hospitality

business records billions of dollars annually in beverage

sales and there are thousands of new establishments

opening every day. Franchising is one of the most effective

systems for the distribution of goods and services.

There are a number of homegrown & foreign brands

that are developing in India under the food and beverage

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industry some of the well-known brands which have adopted

franchising as a mode of business are Pizza Hut, McDonalds,

Domino's Pizza, Hot Breads, Barista, Qwiky's Nirulas, Sagar

Ratna, Pizza Corner etc and among these there are many

international brands which have fast food chains like Taco

Bell, Subway, McDonald’s, Domino’s Pizza, and Kentucky

Fried Chicken.

Food segment has always been the favorite franchisees

in India and it is expected that roughly USD 2.5 million will

flow into this sector in this year, through franchising. The

potential is immense in the specialized food segment.

6.1 STUDY OF THE FOOD & RESTAURANTS SECTOR

Introduction

It has been proven that franchise, if administered in an

appropriate package can help rapid growth of business. Mc

Donald's, Dominoes, Pizza Hut, etc., are live examples of

stupendous growth through franchise. The following

statistics, relating to the year 2002, give an idea of the

magnitude of their businesses.

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Fig: - 1

Firm No. Of UnitsSales in $

millions

Mc Donald's 11,120 17,535

Dominoes 7,945 4.900

Pizza Hut 7,684 3,330

Source: S.Shiva Ramu, Franchising, Wheeler Publishing Co., New Delhi, 2004.

6.2 PEPSI AND COCA-COLA

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We find that both Pepsi and Coca-Cola, franchise giants

in the domain of food and beverages, found India to be a

potential market. They launched vigorous advertising

campaigns with a view to increase the market share. In

1993, after a sixteen-year absence from India, Coca-Cola re-

entered the Indian market for soft drinks via Parle, which

accounted for 60% of the $400 Million Indian soft drinks

market. A joint venture agreement ensured for Coco-Cola

that Parle would make available to Coca-Cola all of its 60

franchises for production, bottling and distribution. As of the

first quarter of 1997 Coke had a 13% market share in the

cola segment and Pepsi had 27%. These two companies by

now have a substantial presence in India, thanks to the

aggressive advertising, which they do especially during the

increasingly popular cricket events. Incidentally, the

competition between Coke and Pepsi led to a revitalization of

the local Cola brand ie Thumps- Up.

According to the US dept. of Commerce, the retail sales

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of the franchised companies amounted to about $2.1 Billion

in 1991 thus increasing the sales of the franchised

companies almost by three times.

6.3 DOMINOS

Domino’s Pizza, which opened a small restaurant in one

of the New Delhi’s drive areas in 1996, serves pizzas and

cokes. The right to open Domino’s franchises in India

belongs to the Bhartiya family, the industrialists who are

better known for chemicals and fertilizers.

It was opened on New Years Eve with no advertising,

has helped domino’s escape confrontation with fast food

critics. Domino has omitted pepperoni, the beef-based

topping popular with Americans, from its menu here.

Vegetarian offerings dominate non-vegetarian ones in the

menu.

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6.4 AMERICAN TRICON RESTAURANTS AND YUM RESTAURANTS INTERNATIONAL

The first outlet of Pizza Hut was set up in India in 1996,

and Global Investment Partners, a retail-

focused investment firm based in Bangkok

and Geneva, set it up but the company found

the going tough initially. Things eased out

when Pizza Hut, similar to other fast food

restaurants like McDonalds and Dominoes, started

Indianising the menu. Hence, first in its history, a 100-per

cent vegetarian restaurant was established in Ahmedabad,

with plans for similar all-veggie ones in other cities.

At present, Tricon operates about 29 Pizza Hut outlets

across 11 cities and has a single KFC restaurant, in

Bangalore, in India. Among Tricon’s three brands, Pizza Hut

has the maximum number of outlets worldwide, followed by

KFC and Taco Bell Mexican food outlets. The company

believes that India, owing to its size and growing aspirations

of an upwardly mobile middle class, is a critical market in its

overall scheme of things. The main the focus for Tricon is the

growth of the Pizza Hut chain of restaurants, and then it will

soon introduce the Taco Bell chain of Mexican restaurants

here and focus on expanding the Kentucky Fried Chicken

(KFC) chain of outlets. It is also planning to have about 100

- 53 -


Pizza Hut restaurants, across 20 cities in India by 2004. Pizza

Hut marks its presence in fresh markets like Surat and

Baroda.

Today, the Pizza Hut chain operates through four

franchisees — Devyani International in the north, Favorite

Food India in Mumbai, Dodsal Indmag in Gujarat, Andhra

Pradesh and Karnataka, and Pizzeria Pure Foods Restaurants

in Tamil Nadu and the rest of Maharashtra. Tricon provides

the marketing support and supply chain management.

- 54 -


7. MCDONALD’S FRANCHISING

7.1 INTRODUCTION

“We have an obligation to give back to the

communities that gives us so much” – Ray Kroc, 1955.

McDonald’s started in 1931 and today has a franchisee

network spanning across the globe. Today McDonald’s

international presence is such that the Big Mac Price is

based on the price of the Big Mc Burger.

McDonald’s has accomplished its vision of providing

quality, service, cleanliness and value, which would be a

dream of every organization. It focuses on continuous

process and product innovation. McDonald’s has carved a

niche for itself in the global market and has built up the

reputation of being one of the most prestigious MNC’s in the

world. It has today a franchise network of more than 30,000

outlets across the globe.

- 55 -


The phenomenal growth for a firm which had modest

start as a drive-in restaurant promoted by Dick & Mac in

1940 goes to prove that franchise is the sky rocketing path

to attain rapid growth in business. Their motto of “In

business for you, not by yourself “ is the watchword in these

days of intense competition and huge requirements of

capital to be invested.

Their business principles are:

Quality

Service

Cleanliness

Values

Being in vast fast food business, they gave priority to

the aforesaid four principles, which include cleanliness,

which is perceived by many a customer to be a very

important pre-requisite for them to eat at a restaurant.

McDonald's success is often attributed to the unique

partnership among the "McFamily" - frequently described as

a three-legged stool. This means that the company, the

franchisees and the suppliers each support the weight of

McDonald's system equally.

- 56 -


7.2 MCDONALD'S COMMITMENT TO THEIR EMPLOYEES

- FIVE PEOPLE PRINCIPLES

McDonald's and its independent owner/operators have

made a commitment to our employees that we strive to

achieve with our actions every day. And to make sure we

deliver on this promise, we have in place five people

principles. These people principles reflect McDonald's values

and describe the culture we embrace.

To the 1.5 million people who work at McDonald's in

119 countries around the world, and to all future employees,

we want you to know that: "We Value You, Your Growth and

Your Contributions", this is their People Promise they believe

in:

1. Respect and Recognition

Managers treat employees, as they would want to be

treated.

Employees are respected and valued.

Employees are recognized formally for good work

performance, extra effort, and teamwork and customer

service.

2. Values and Leadership behaviors

All of us act in the best interest of the Company.

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We communicate openly, listening for understanding

and valuing diverse opinions.

3. Competitive Pay and Benefits

Pay is at or above local market

Employees value their pay and benefits.

4. Learning, development and Personal Growth

Employees receive work experience that teaches skills

and values that last a lifetime.

Employees are provided the tools they need to develop

personally and professionally.

5. Resources to Get the Job Done

Employees have the resources they need to serve the

customer.

Restaurants are adequately staffed to allow for a good

customer experience as well as to provide schedule

flexibility, work-life balance and time for training.

- 58 -


7.3 MCDONALD'S COMMITMENT TO QUALITY AND SAFETY

Over the years, McDonald's has been a leader in setting

and strictly enforcing high quality and safety standards-often

exceeding those established by industry and governments.

Quite simply, quality and safety are the most important

items on their menu, so their customers can have confidence

in McDonald's. They are aligned with world-class suppliers

that share their high standards, and the restaurant staffs are

equipped to deliver on them every day.

7.4 FOOD QUALITIES AND SAFETY

McDonald's Quality Assurance Board, along with the

Global Safety and Security Department, provides strategic

global leadership for all aspects of food quality and safety.

Further, their quality assurance and supply chain, and safety

specialists around the world, work with the McDonald’s

suppliers to ensure compliance with their standards. They

operate quality assurance labs around the world, where

ongoing product reviews and enhancements take place. In

addition, they work closely with their suppliers to encourage

innovation, assure best practices and drive continuous

improvement. Further reinforcing their commitment to

quality, they have been recognizing exceptional excellence

among their suppliers since 1990 with the Sweetney Quality

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Award. This award was named in honor of a supplier who

exemplified a commitment to their high standards. Clearly,

their criteria for recognizing excellence has been validated

by the fact that their Sweeney Quality Award winner in 1998

Sunny Fresh Foods, a supplier of egg products to the

McDonald's System-won the prestigious Malcolm Baldrige

National Quality Award the following year.

High standards also are essential to the operations of

their restaurants. Proper food storage, handling and cooking

practices are an integral part of their training materials and

a food safety check list is used daily in their restaurants to

validate that food safety standards and procedures are in

place. In addition, their restaurants are inspected for safety

compliance.

7.5 SAFE FUN FOR CHILDREN

Parents can be confident that McDonald’s Happy Meal

toys and Play Places are safe. For years, they have been

using state-of-the-art technology to scientifically analyze the

safety of toys and other promotional items for the

McDonald's System. They also have been working with the

world's leading manufacturers and installers of fun and safe

playground equipment and renowned safety consultants so

that playtime at McDonald's meets their strict specifications.

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7.6 MCDONALD’S COMMITMENT TOWARDS ENVIRONMENT

McDonald’s believes it has special responsibility to

protect the environment for future generations. This

responsibility is derived from their unique relationship with

millions of consumers worldwide- whose quality of life

tomorrow will be affected by their stewardship of the

environment today. McDonald’s have realized that in today’s

world, a business leader must be an environmental leader as

well.

McDonald’s environmental commitment and behavior is

guided by the following principles:

Effectively Managing Solid Waste: They are

committed to taking a “total life cycle” approach to

solid waste, examining ways of reducing materials used

in production and packaging, as well as diverting as

much waste as possible from the solid waste stream. In

doing so, they follow three courses of action: reduce,

reuse and recycle.

Conserving and Protecting Natural Resources:

McDonald’s will continue to take aggressive measures

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to minimize energy and other resource consumption

through increased efficiency and conservation. This

policy is strictly enforced and closely monitored.

Encouraging Environmental Values and Practices:

With the relationship with local communities around the

world, they believe they have an obligation to promote

sound environmental practices by providing educational

materials in their restaurants and working with the

teachers in the schools. They intend to continue to work

in partnership with their suppliers in the pursuit of

these policies. Their suppliers will be held accountable

for achieving mutually established waste reduction

goals, as well as continuously pursuing sound

production practices, which minimize environmental

impact. Compliance with the policies will receive

consideration to other business criteria in evaluating

both current and potential McDonald's suppliers.

Ensuring Accountability Procedures: McDonald's

understands that a commitment to a strong

environmental policy begins with leadership at the top

of an organization. Therefore, their environmental

affairs officer will be given broad-based responsibility to

ensure adherence to the environmental principles

throughout the system. This officer will report to the

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board of directors on a regular basis regarding progress

made toward specific environmental initiatives.

7.7 MAC IN INDIA

India opened its doors to McDonald’s in October 1996.

Ever since, family restaurants in Mumbai, Delhi, Pune, Jaipur,

and many other cities have been developing.

McDonald's India is a synergy of globally acclaimed

skills with Indian expertise. McDonald’s ventures are owned

and managed by Indians namely Amit Jatia with Hardcastle

restaurants pvt. Ltd. owns and manages McDonald’s

restaurants in Mumbai and Pune. In Delhi, Jaipur and

Mathura, i.e.; mainly the northwestern part of India,

McDonald’s is owned and managed by Vikram Bakshi’s

Connaught Plaza Restaurants Pvt. Ltd.

A Recognized Premier Franchising Company

McDonald's continues to be recognized as a premier

franchising company around the world. Perhaps the fact that

McDonald's management listens so carefully to its

franchisees has something to do with McDonald’s is

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perennially named as Entrepreneur Magazine's number one

franchise.

A Partnering Relationship

Our franchising system is built on the premise that the

Corporation can be successful only if our franchisees are

successful first. We believe in a partnering relationship with

our owner/ operators, suppliers and employees. Success for

McDonald's Corporation flows from the success of its

business partners.

7.8 SUPPLY AND DISTRIBUTION OF RAW MATERIALS

TO THE VARIOUS OUTLETS

Supply

McDonald's India's local suppliers provide the highest

quality, freshest ingredients to make their products.

Complete adherence to the Indian government regulations

on food, health and hygiene is ensured, while maintaining

their own recognized international standards.

McDonald's has spent few years setting up a unique

Cold Chain. The Cold Chain is necessary to maintain the

integrity of food products and retain their freshness and

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nutritional value. It refers to the procurement, warehousing,

transportation and retailing of food products under

controlled temperatures. Setting up the Cold Chain has

involved the transfer of state-of-the-art food processing

technology by McDonald's and its international suppliers to

pioneering Indian entrepreneurs, who have now become an

integral part of the cold chain.

Vital Links in the McDonald’s Cold ChainAll suppliers adhere to Indian government regulations

on food, health and hygiene while continuously maintaining

McDonald's recognized standards. As the ingredients move

from farms to processing plants to the restaurant,

McDonald’s Quality Inspection Program (QIP) carries out

quality checks at over 20 different points in the Cold Chain

system. Setting up of the Cold Chain has also enabled them

to cut down on operational wastage.

Hazard Analysis Critical Control Point (HACCP) is a

systematic approach to food safety that emphasizes

prevention within their supplier’s facility and restaurants.

DISTRIBUTION

Vista Processed Foods Pvt. Ltd.

Supplier of Chicken and Vegetable range of products

(including Fruit Pies)

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A joint venture with OSI Industries Inc; USA,

McDonald's India Pvt. Ltd. and Vista Processed Foods Pvt.

Ltd., produces a range of frozen chicken and vegetable

foods. A world-class infrastructure at their plant at Taloja,

Maharashtra, has:

Separate processing lines for chicken and vegetable

foods.

Capability to produce frozen foods at temperature as

low as 35 degree Celsius to retain total freshness.

International standards, procedures and support

services.

DYNAMIX DAIRYSupplier of Cheese:

Dynamix has brought immense benefits to framers in

Baramati, Maharashtra by setting up a network of milk

collection centers equipped with bulk coolers. Easy

accessibility has enabled farmers augment their income by

finding a new market for surplus milk.

AMRIT FOOD

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Supplier of long life UHT Milk and Milk Products for Frozen

Desserts, Amrit Food is an ISO 9000 Company. The

factory has:

State-of-the-art fully automatic machinery requiring no

human contact with product, for total hygiene.

Installed capacity of 6000 liters/hr for producing

homogenized UHT (Ultra High Temperature) processed

milk and milk products.

Strict quality control supported by a fully equipped

quality control laboratory.

7.9 BUSINESS QUALIFICATIONS MCDONALD’S SEEK IN

ITS POTENTIAL FRANCHISEES:

The following qualifications, among others, are

essential to be considered for a McDonald’s franchise:

High personal integrity.

An entrepreneurial spirit and strong desire to succeed.

A proven ability to motivate and train people.

The ability to manage finances.

A willingness to personally devote full time and best

efforts to the day-to-day operation of the restaurant as

an on-premise owner-operator.

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A willingness to complete a comprehensive training

program and become proficient in all aspects of

operating McDonald’s restaurant business.

7.10 OFFERS GIVEN TO THE FRANCHISES BY

MCDONALD’S:

Support in the areas of operations, training, advertising,

marketing, real estate, construction, purchasing and

equipment.

Personal satisfaction both as an owner/operator and as

a member of McDonald’s worldwide organization.

Personal growth and business knowledge from

McDonald’s extensive training.

STATISTICAL DATA

1) Frequency of visiting McDonald’s

DailyOnce or Twice a

week

Once or Twice a

MonthRarely

0 10 11 9

- 68 -

Frequency of Visiting McDonald's

0%

33%

37%

30%DailyOnce or twice a weekOnce or twice a monthRarely


INTERPRETATION OF DATAFrom the survey it was found that 37% of the people

visit McDonald’s once or twice a month, whereas 33% of the

people visit it once or twice a week and nearly 30% of the

people visit rarely.

2) Service Responsiveness

QuickSatisfactory Slow

20 8 2

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Service with regards to time and timeliness

66%

27%

7%

QuickSatisfactorySlow


ANALYSIS OF THE DATA

McDonald’s is famous for its Fast, Friendly service. The

set up and the distribution of items and their packaging is

such that the customers do not have to wait in long queues

for the service. Also, during weekends when the place gets

very crowded, they have made arrangements to avoid chaos

and ensure prompt and efficient service. The estimated

customer rate at McDonald’s per day ranges from around

250-350 at each outlets.

It is an unflinching ideology that the customer, must

always get quality products, served quickly and with a smile,

in a clean and pleasant environment; and sell at a fair price.

3) Behaviour of staff members

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CourteousNot so courteous Rude

25 5 0

ANALYSIS OF DATA

From the survey it can be seen that the staff‘s behavior

is very courteous. The staff at McDonald’s generally consists

of college students and youngsters; the main reason behind

this is that they can mould the freshers according to the

needs of the organization.

They follow a very structured form of training. There

are specific training courses that the trainees have to attend.

The entire staff is provided training on hospitality

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Behaviour of the staff

83%

17% 0%

CourteousNot so courteousRude


management and many other things like maintaining the

stringent quality standards, ensure that all tables, seating,

chairs and trays are sanitized several times each hour.

4) Quality and taste of items

YES NO

27 3


In McDonald’s they take great care to ensure that the

purity, cleanliness, quality and taste is the same in each

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Consistency in the quality & taste of food items

90%

10%

YesNo


outlet. Despite the extensive and meticulous quality tests at

the supplier end, all products are once again carefully

scrutinized at the restaurant.

5) Option to Prefer

McDonald’s

Pizza Hut Dominos

25 3 2


Location: Majority of the people prefer McDonald’s because

it possesses a very high franchising network, and the

locations of these outlets are such that they can be

conveniently accessible by anybody unlike Pizza Hut and

Dominos.

Cost: The second and the most important reason is the cost

factor, McDonald’s has price ranges to suit all pockets. Their

very popular Vanilla softy is just for Rs.7 and McVeggie costs

around Rs. 33, whereas a normal pizza would cost around

Rs. 135 at Pizza Hut and Dominos.

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Variety: The third reason is the variety of food items

available at all the three restaurants.

CONCLUSION

The biggest paradox of franchising in India is its absence

from the Food and Restaurants sector. While in most

countries, food chains are a major growth engine for

franchising activities; the scenario in India could not be

further removed. Food and Restaurants franchising has

never been able to take off in the country because of a

variety of factors:

Firstly, typical food franchises are fairly high on

investments that put them out of the investment

capabilities of ordinary franchisees.

Another major problem is quality. A large number of

franchisees lack the skills & the attitude to manage a

food business. Fearing loss of reputation, many F&B

companies avoid the franchise route to expansion there

is substantial interest from overseas F&B franchisers to

enter the Indian market through the master franchise

route.

And lastly, logistics & supply chain mechanisms in India

are still developing and any food chain aiming to

develop a national presence will have to consider heavy

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investments into setting up its own logistics

infrastructure.

However, there is no doubt that there are still a lot

unfulfilled need gaps in the Indian Food Restaurants sector.

What is needed is a franchise model that takes into account

the nuances of the Indian market and also addresses all the

problems mentioned above. In fact, several domestic

companies are also looking at the franchise route to grow

aggressively in the domestic market. These include brands

across the spectrum including Subway, Qwiky’s, Sagar

Ratna, Movenpick, Amul, The Great Indian Kabab Factory,

Superstar Bar, Cookie Man, Bikano, Rameshwars,

Merrybrown and Wimpy.

Despite being a country of over a billion people, we are

yet to have our first nationwide food chain. There is a lot of

scope in the Indian Food and Restaurants sector as the

success of coffee pubs has amply demonstrated.

Hence to conclude, while franchising, as a way of doing

business, has been known in the country for decades the

concept, until recently, was practiced in a very limited way

and in many cases was something for which one used the

spare real estate. With opening of the economy, the

environment for franchising, has in the last few years,

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undergone a sea change.

With our vast and inherent entrepreneur talent,

franchising is now poised to help spur the economy, as it is

an excellent way of encouraging private enterprise; it fulfills

the growing need for connecting the customer through self-

driven localized business partners called franchisees, and

helps in establishment of global standards for products and

services. The practice of franchising is, thus, fast catching up

as is evident from the increasing number of examples we

see around us in diverse fields such as in Aptech and NIIT in

computer education, McDonald’s and Dominos pizza in Food,

ABF and others in entertainment, DHL and Blue Dart in

couriers and many other examples in healthcare, fitness

centers and the like.

Above all this franchising affords India an opportunity to

build its commercial infrastructure and develop its

domestically oriented businesses in an efficient and a

profitable manner. It also offers India the opportunity to

import and develop foreign concepts in a way, which ensures

that the equity of the business remains in India, so avoiding

the politically undesirable situation whereby foreign

corporations own successful domestic businesses.

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Franchines Food and Restaurant McDonal-1

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