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Franchise Businesses Offer Entrepreneurship Opportunities In Tier-II And III Cities

There is a whopping 30% to 35% growth in franchise businesses in India year on year
Franchise Businesses Offer Entrepreneurship Opportunities In Tier-II And III Cities
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India has a huge pool of untapped consumers and is increasingly becoming the most attractive investment destination for investors globally. There is a whopping 30 per cent to 35 per cent growth in franchise businesses in India year on year. The rapid growth of affluent consumers and the increased demand for products and services in India have made it favorable for entrepreneurship through the franchise model.

This has become all the more favorable with the Tier II and Tier III cities, also rapidly coming into the franchise bracket. Many retail outlets and businesses are also finding the conditions in these cities more and more conducive for development and growth of their business. According to industry experts smaller cities generally give greater profits and returns for a business.

Franchising ideally refers to the practice of using the business model of a brand for a certain period and is a win-win deal between two parties — the franchiser, who wants to expand his business and the franchisee, who requires a brand name to support his business. This model is increasingly getting popular as is seen as an asset-light model and enables rapid growth of a business through multiple partners.

Current Scenario And Market Forecast

According to a market forecast by Ernst and Young, India’s projected consumer expenditure is expected to hit USD 6 trillion by 2025. This is in addition to the fact that India is already the third largest market for retail businesses and offers a wide range of retail investment prospects for entrepreneurs. As the consumer demand is increasing and the demand for luxury and non-essential products are also on the rise, businesses are focusing on the lesser penetrated tier II and tier III cities like Ludhiana, Kochi, Aurangabad, and Jaipur, paving way for modernization and rapid development in these regions as well.

Scenario Positive For Education Sector

With more and more non-metro people becoming aware of various brands and products, an eagerness and interest have been observed in splurging money on them. However, non-availability of stores and retail outlets selling them has been a constant cause of concern. The case is bright for the education sector also with many education brands opening their franchise in Tier II and Tier III cities. One such example is that of Acadgild which has set up its franchise model with RajagiriProacademy Kerala, where it is successfully running three online courses and one offline course. The academy has seen an overwhelming response which is proof enough for the success of such ventures in non-metro cities.

A survey points out that these cities provide enormous investment possibilities and returns with a 20% to 30% increase in spending power by 2025. With an increase in infrastructure and the current low competition environment prevalent in Tier II and Tier III cities, these locations tend to have a high degree of investment appeal to franchisors.

Untapped Population  

It has been observed that the urban areas account for 30% of the total population in India and the rest of the population has remained untapped till now. Around 100 million, of the total population of middle-class people in India, reside in these non-metro Tier II and III cities. With the recent digitalization and the movement of MNC culture towards the non-metro cities, the general consumer behavior pattern is gradually shifting making it a more promising place for the franchise. An estimate points out that by 2026, the market size in these Tier II and III cities will grow to over USD 80 billion from the current USD 5.7Billion.

Advantages Of Franchise Model In Tier II And III Cities

This model is growing year on year with more standardization and normalization of policies and rules governing it making franchise model of entrepreneurship highly lucrative for start-ups and small businesses to adopt and practice.

There is an opening in FDI in India, making it easier for foreign businesses to franchise. The added benefit of a high degree of penetration of the banking infrastructure in Tier II and Tier II cities has widened the possibilities of franchise business in India.

At the nascent level, this model of business is catching up with the other modes of business set-ups and is gaining more popularity year on year smoothing up the challenges faced by the businesses. Certain institutions are promoting young minds with technology and provide management courses to help them start their business with a thorough understanding of the technical aspects involved.

The risk-reward ratio is considerably more favorable in these smaller cities and hence is a safer alternative for young entrepreneurs.

Conclusion

Franchise business is a very lucrative and profitable option for young entrepreneurs who are looking at starting their own business but are also skeptical about the risks involved. As they are leaning on an already established brand name, such businessesrequirelesser amount of marketing campaigns and brand management. This reduces the initial glitches of starting and setting up the business.

Also, as the Tier II and Tier III cities have recently started booming, there is huge market potential and very less competition to worry about, making it a very potential and lucrative place to start up a business. Though there are certain challenges involved initially such as getting tax clearance and licenses, getting approvals and permissions from various government bodies, the aftermath of this is completely profitable and in favor of both the franchisor and the franchisee.

 
Edition: August 2017

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