If you are a junk food fan, out of the top 5 places you name, at least 1 will surely be a restaurant franchise. Go on, think about it!
Restaurant franchising is a very popular concept in India. They were first introduced in the mid to late 20th century.
With Indians known to be foodies and a variety of food cultures prevalent across the country, there are innumerable restaurants – both national and international – that have proven to be successful franchise models. Off the top of my head, Domino’s, Pizza Hut, McDonald’s, Moti Mahal Delux Restaurants, Sankalp, and Mr & Mrs Idly are names of some of the profitable franchises that have been running successfully around the globe for a long time!
Ravi Jaipuria, chairman of the privately held RJ Corp has a fortune estimated at Rs 8,250 crore. He has built this through being a franchisee for brands like Pepsi, Pizza Hut, KFC and Costa Coffee.
Moreover, more and more restaurant franchises are marking India as a prime market for establishing a large network of food chains through franchising. In fact, some of them are going as far as revamping their menus to accommodate Indian tastes to be able to reach a wider and more diverse audience. Big brands like Tim Hortons, Sbarro, and Wendy’s are all playing against each other to capture a foreign market with money being thrown to attract prospective franchise owners and invest in their business.
According to Restaurant India, the Indian franchising industry is estimated at $35 billion and is growing at 30-35% year-on-year and is pegged to touch $100 billion by 2024.
However, owning a restaurant franchise is no piece of the cake. There are formalities, legalities and permissions to be taken and standards and regulations to conform to before setting up and running a franchise.
For the unversed, let us first cover some basics.
Granting rights for another entity to use your name, recipes, look & feel, and trademarks to conduct business.
The entity that purchases the rights to the business and runs its day-to-day operations.
The entity that owns the intellectual property.
A franchise agreement is a legal, binding contract between a franchisor and a franchisee.
There is no requirement to register franchise offerings or to provide franchise disclosure documents. There is no specific law dealing with franchise agreements and their aspects such as termination, non-disclosure, and other clauses.
The first step in acquiring a restaurant franchise is to first know the kind of franchise models that you are interested in running. Following are the types of food franchise models:
- Master Franchising
- Area Development Franchising:
- Company-Owned Franchising:
- Single-Unit Franchising
- Multi-Unit Franchising
To learn more about them, read this blog discussing the various types of franchise models!
The next step is to sort out the financials. It is no small feat, to acquire a restaurant franchise. You are not just paying for the name, brand and food, but also, the hired staff, furniture, rent, bills etc.
A few other charges, which go towards the franchisor are the royalty fee or a commission on the sale charged by the franchisor. This varies from 5-30%, depending on the restaurant and can be paid quarterly, monthly, annually or only once.
How Much Does A Food Franchise Cost?
For opening and operating a franchise, a one-time investment is a coalition of various charges. It includes setting up the required infrastructure, from the seating area to the billing software, to the hiring of staff and their uniforms. It also includes a franchise fee and a refundable security deposit.
QSR or Casual Dining
For a fast food chain or a casual diner, the ideal amount for investment would range between Rs. 35 – 50 lacs. You would be able to break even within 2 to 5 years.
Bar, Lounges or Fine-Dine
Opening a bar or a dine-in with a bar is always a long drawn out and tedious process. This is because of the stricter laws surrounding alcohol and the difficulty in procuring a license to operate a bar. The investment required is over Rs. 50 lacs and the average break-even period is of around 4-6 years.
The same also stands true for fine dining. Fine dining requires more investment in the finer details and fancier crockery and settings. The quality of ingredients used is also higher and there is no room for compromise anywhere.
Kiosk or Outlet at a Food Arena
This is the easiest form of outlet that you could franchise. This is ideal for someone who is interested in a restaurant franchise but does not want to go big or wants to do it with minimal investment.
The investment required is Rs. 5 to 15 lacs and it’s the fastest way to recover since you break even within 2 years.
How To Acquire A Restaurant Franchise
1. Carry Out A Thorough Market Research
The first step is in fact the most crucial step in deciding the success and failure of your dream venture. It is recommended that you survey the market first and check out what would work and what would not. For eg., if the area you are thinking of opening your franchise is dominated by people refraining from non-vegetarian food, then opening a KFC there would be stupid.
Moreover, apart from market research, you should also check whether you will be comfortable operating a franchise in compliance with the rules and regulations set up by the franchisor. Franchisors are very stringent in ensuring that all outlets look alike and uniformity is the key to a successful franchise model. Uniformity not just in food taste, but interiors, operations, inventory management etc.
Therefore, before signing on the dotted line of the contract, scan the market, and the locality, ask all the right questions to the franchisor and conduct exhaustive research on the project.
2. Choose A Suitable Model
There are various restaurant franchise models to choose from. As mentioned above, each model costs different and requires varying amounts of investment depending on the type of model you choose.
While deciding this, what can help is the location where you will be setting up your franchise.
Thinking of setting up a shop in a mall?
Independent kiosks or a smaller outlet in the food court may be your best option.
Thinking of starting a bakery?
Then choose a residential area where the need for bread and sweet delicacies arises on a daily basis.
3. Consult Your Financial Manager And Create A Business Plan
It would be highly important to consult a financial manager about your situation before drawing up a contract and especially before signing it. Discuss your budget with him. Check out your past finances and accordingly estimate how you will be able to handle your spending and budget in the future.
Get a long-term plan in place in case any emergencies or indemnity occurs. Discuss all your constraints and put a small amount of money aside as a safety net.
When you acquire a restaurant franchise, the business plan will already be in place as per the franchisor. Creating a business plan for yourself will assist you in setting clear goals and getting a complete idea of how the business will function.
4. Lock In A Franchisor And Draw Up A Fair Contract
Once you are done with all the above steps, the last step remaining is to lock in a franchisor. The franchisor will already have a ready contract format in place which they will expect you to sign. However, that is not at all the case.
Feel free to suggest changes to the contract if you feel that it is unfair in any manner or if you might have something better to offer. Get your contract vetted by a lawyer and ensure all clauses are in place and intact and there are no loopholes for the franchisor to wiggle into or from.
There are a lot of aspects that need to be taken care of and financials to be sorted in order to start a restaurant franchise business. Licenses must be acquired, clearances and permissions must be obtained and the project must be green-lit by all the parties involved without any legal or financial discrepancies.
But, if you are a big foodie and are looking to start something in that area, then a restaurant franchise would be a dependable path for you.
For more information and updates about franchises, follow us on Instagram!