Thirst For Growth
Shiv Shivakumar is better known to be turnaround man in corporate circles. As the Chairman & CEO of PepsiCo, India, he wears an entrepreneurial hat and plays it hard in a competitive market.
Last month, he completed two years at PepsiCo India. His team at PepsiCo is a big fan of his leadership style, which is relaxed and un bureaucratic but his sharp vision to see the macro and micro of a business picture together sets him apart as a leader.
His acute understanding of consumer market in India makes him a visionary. Shivakumar believes that the Indian middle class segment is likely to become the largest segment at 109 million households.
This means we need to start thinking differently not only in terms of goods and services, but also in terms of programs and policies, he shares.
He is a great believer in franchising strategy and feels it is the most potent distribution strategy to have the right reach in India.
Shivakumar is a great believer in the franchise model, which as per him can play a major role in expanding a business. He aims to build the franchise model into a powerful entity.
5 Musts To Be Successful in Franchising
According to him, there are five musts for a successful franchise operation. The first in his list is the brand. “In India, people trust brands so this is the first rule for franchising. The second vital area is the location. The third is the design or format. Fourth is the IT system. Finally, it comes to capability. People’s capability is of utmost importance. The combination of all these can attract customer.”
He said for over 100 years, franchising has been a fundamental driver of PepsiCo’s success, which today covers more than 120 countries. It has built strong partners across the country in the last 25 years. That’s why, he feels franchising will continue to be a powerful enabler in PepsiCo India’s growth story.
A Big Market For Franchising
Around 1.2 billion people will move out of subsistence poverty by 2020. They’re the world’s newest consumers, and the annual disposable income of those living in households will surpass $5,000 for the first time. It will be their initial experience with discretionary income and they’ll have distinct ideas about how they want to spend it.
India has 15 million retail outlets, 9,600 modern trade outlets and 570 malls, out of which, 225 are profitable. “We are a nation of shops. Less than 5 percent retail is franchised today.”
That’s where the opportunity lies. There are enablers – FDI in multi-brand, infrastructure and technology – that will add to the opportunity.
“By 2017, the market for franchise business model in India would be $50 billion, and the big ones would be in sectors, such as apparel, consumer deliverables, electronics and mobile,” said Shivakumar at the World Franchise Congress 2015.
Elaborating on sectors which would contribute majorly, he singled out apparels, with $11 billion, followed by consumer deliverables, electronics and mobile ($11 billion), furniture and furnishings ($5.3 billion), and pharmacy and jewelry with $4 billion and $3 billion, respectively. You add these five, it will be $34 billion.
Getting It Right
A franchisee is an entrepreneur and a franchisor’s team is a professional – both should respect each other. We need to marry the entrepreneurship with the professionalism. The fusion of two makes and develops the ecosystem.
A franchisee should think about capital base. He should focus on where the money is coming from and long-term viability of a business. In a lighter vein but on a serious note, he shares that a right investor can lead you to QSQT (Quarter-Se-Quarter-Tak).
“Every quarter, you need to churn out something. You have to be careful about the long-term viability of your business. You have the owner mentality. Other people, who are investing, might not have that mentality. Be clear where you are sourcing your money from. A franchisor owns the strategy because he owns the brand,” says Shivakumar.
On the other hand, a franchisor owns the process, capability, brand and strategy. A positive franchisor-franchisee relationship turns franchising into a great model.
In an interaction with Entrepreneur, Shiv Shivakumar, Chairman & CEO, India Region, PepsiCo, shares how he is rejuvenating PepsiCo India and his plans to pep up the bottlers.
How do you see franchising market growing in India five years down the line?
Franchising industry in India can reach $50 billion by 2017 and create 11 million jobs. The industry, estimated to be around $30 billion currently with an annual growth of 30 per cent, could create 47,000 new companies by 2017 as a new breed of entrepreneurs is coming up in India. According to KPMG and Franchise Association of India’s report on Franchising Industry in India, Franchising industry is expected to contribute almost 4 percent to the Indian GDP in 2017.
What is your franchising size, strength and model in the Indian market?
In India, we constantly look at strengthening the capabilities of our bottling network and evaluate what works best for any one market at a particular time. We are focused on strengthening both COBO (company-owned bottling operations) and FOBO (franchise-owned bottling operations). PepsiCo India’s north and east operations are franchisee operated, and the company works closely with various bottlers to build a strong footprint of brands.
India has the correct franchise business environment, and we believe that the franchise model is the future business model of the industry.
How do you hand-hold your partners?
At PepsiCo India, the relationship between a franchisor and franchisee is that of a partner where both parties collaborate for mutual success/benefits. PepsiCo’s expertise lies in building strong brands that consumers love while complementing the local market knowledge and execution capabilities of franchise partners.
Why do you feel restaurant and food service industry has not maximized franchising as a business strategy in India, while it is globally the biggest industry to be franchised?
As per estimates, Quick Service Restaurant (QSR) business line will continue to be among the growth leaders, ranking second in employment growth and third in output growth. It is a strong indicator of growth that lies ahead for food service industry. The signs of it can already be seen in metros with growing penetration of food aggregators operating on the Internet and mobile formats. Franchising in food segment with the introduction of mobile food trucks is expected to be an upcoming trend.
How do you perceive franchising as a business model?
Franchising as a concept is picking up dramatically. Earlier, only distribution was considered franchising. The QSR segment is witnessing the boom as there is a rise in QSR brands coming to the country. The next one would be sporting events like IPL was the first, and now ISL, and other leagues are getting franchised. Franchising model is here to stay. You no more need to explain it to people.
According to you, what is the ethos of a strong business?
The key aspect of any business is you need a strong brand in order to meet the needs, desires and wants of consumers. And you need great people to execute your plan. Strong brands are built on consumer insights and being regularly and repeatedly with those and taking the right kind of bets.
You need to invest in people all the time. Communicate openly and consciously. And build the trust of people. While doing all this, you need to do it in a manner, which is cost efficient and you are putting back every single rupee you save or earn to build the trust of consumers. That’s my simple philosophy.
How can one become a better leader?
In terms of delivery, the company comes first, the team comes second and the individual comes third. If you make your decision based on that filter, you will win. That’s what we tried to do with PepsiCo because we always tried to do what is right for the company.
How do you maintain a long-lasting franchisor franchisee relationship?
The franchisee by definition is an entrepreneur. The brand and other stuff are owned by the franchisor. What a
franchisee fully owns is the execution of a brand and the way the brand is treated in the marketplace. So he/she puts in his/her own capital or family capital or a bank loan. In that sense, he carries lesser of the risk compared to the brand.
Equally, the brand carries lesser of the risk in terms of assets on the ground. A franchisee is the one who has invested his hard-earned money in our brand and in our ideas, so we always ensure that we are fair to him/her and they are getting good returns.
You are taking a wonderful initiative of being the Founding Partner of World Franchise Congress in India? What is your vision behind it?
We strongly believe there is a compelling need for businesses to come together and share knowledge and ideas to fuel the growth of the Indian franchise industry. We are committed to supporting this growth and will be happy to contribute to the industry’s cause.
(This article first appeared in the Indian edition of Entrepreneur magazine (January 2016 Issue).