Starting a food business is one step. But building a recognizable brand name that attracts customers everywhere takes years of work.
If you’re looking to enter the restaurant industry, franchising might be a logical option for you to start with. It fast tracks your journey by attaching a well-known brand name.
Confused about where to start? In this blog post, we’re answering all questions related to food franchising in India. So that you are equipped with all the knowledge to start your journey.
Is taking a food franchise profitable in India?
Here’s a success story:
As shared on the Economic Times, Ravi Jaipuria, chairman of the privately held RJ Corp is India’s newest billionaire, with a fortune estimated at Rs 8,250 crore. He has built through being a franchisee for brands like Pepsi, Pizza Hut, KFC and Costa Coffee.
While this might be a unicorn example. There are a lot of other small business owners that have benefited from restaurant franchising.
According to Restaurant India, the Indian franchising industry is estimated at $24 billion with an expectation to reach $35 billion by 2020
Angad Singh who has been successfully running franchises of New York Pizza and Fried Chicken in Chandigarh explains in an interview – “Both my father and I are passionate about food, but neither of us had the expertise to set up and run a business. Taking a franchise was the logical answer.”
So how does a food franchise work?
The basic franchising terminology:
Franchisee: The entity that purchases the rights to the business and runs its day-to-day operations.
Franchisor: The entity that owns the intellectual property.
Franchise: Granting rights for another entity to use your name, recipes, look & feel, trademarks to conduct business.
Entering into a franchise agreement means that you – the franchisee – purchase the right to sell goods or services using the franchisor’s trademark or trade name for a specified period of time.
While there are different franchise models followed by different brands, the core concept is: investors pay a franchise fee to unlock access to a brand. Everything from menu items to design and layout is carefully prescribed, and franchisees are expected to follow the given protocol. Doing so ensures the brand is easily recognizable and brings in business from Day 1.
Types of food franchise models
It’s a franchising contract in which the master franchisor (the owner of the restaurant) hands over the control of the franchising activities in a specified territory to a person or entity, called the ‘master franchisee’. And then, with respect to regional issues, the franchisee will assume the role of the franchisor.
Examples: Taco Bell, Papa Johns, Yo China
These are ‘owner-operators’, i.e. in addition to being the owner, you have to work as the primary operator or the manager for your restaurant. Single-unit franchising is also known as direct franchising. It is one of the most popular franchising types in India.
Examples: Moti Mahal, Pind Balluchi, Sagar Ratna
In this type, a franchisee purchases more than one franchise from a franchisor. The franchisee takes up the ownership and responsibility to grow the business for all these units.
Examples: Nirula’s, Subway
The key difference in this model is that the brand establishes its own representative office in the country and helps the franchisee in setting up a business. The representative office has a team to work closely with the franchisee and is responsible for creating the brand image and consumers’ connect with the brand.
Examples: Pizza Hut, Berco’s
Area Development Franchising:
Area development franchising is quite similar to multi-unit franchising. The difference is that it typically involves a greater number of units encompassing a larger territorial area. Area developers have the opportunity to raise brand awareness quite rapidly.
Example: Opening up a Dubai brands’ franchise units in India
How much does a food franchise cost?
The one-time investment of opening a franchise is a collation of various charges. It includes the setting up of the required infrastructure, from couches to software, to the hiring of staff and their uniforms. It also includes a franchise fee and a refundable security deposit.
According to the Economic Times, the investment and average break even period for different types of restaurant models is as follows:
Kiosk or Outlet at a Food Court:
This is ideal for someone who wants to test the waters and start small.
Investment required: 5-15 lacs
Average break even period – 0.5-2 years
Dessert Parlour or a Bakery
If you have always had a passion for desserts and baking but need brand support to start, choose this type.
Investment required: 15-35 lacs
Average break even period – 2-3 years
QSR or Casual Dining
If you want to start off with a fast food chain or casual dine-in, these will be the approximate commercials involved:
Investment required- 35-50 lacs
Average break even period – 2-5 years
Bar, Lounges or Fine-Dine
A bar or dine-in property requires more investment than the other models. Pick your choice of brand wisely.
Investment required – More than 50 lacs
Average break even period – 4-6 years
Other charges in running a food franchise include:
Either a 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. Most franchisees consider it a small cost to pay for the training, brand value and support that the parent restaurant brand offers.
How to get a food franchise
Get an understanding of your budget and knowledge
Starting any new business requires a significant financial investment. You need to analyze the budget you have, the ROI you are expecting, and the time you’ll need to break even. On this basis, you can further decide on a model and a brand.
Highlight and bookmark our franchise costs section above to get an idea about the investment you would need to make.
Find your franchise match
You can directly contact a restaurant brand or find listings on third-party websites like Franchise India. Ask fellow restaurant owners who have already taken a franchise.
It is good to have a consultant with you during this process. They can help you in getting in touch with different franchisors, creating a business plan, and figure out investment areas. You’ll have a second pair of hands to work with on this crucial task.
Things to consider while selecting a brand:
- What cuisine is popular in your desired location?
- What famous restaurant brand is missing from that area?
- What’s the financial stability of the particular franchisor?
- Is the brand fit for your vision of a restaurant?
- Do the franchisor and you share similar values?
- How involved is the franchisor going to be?
- What type of franchise model do you want to go ahead with?
Ask them questions
Buying a food franchise is a huge investment and commitment. Make sure you ask all the right questions to the franchisor. No question is too small or too big! A few to begin with are:
- Are payments royalty based or commission based?
- What level of support and training will you get from them?
- What are the terms and conditions?
- What is their Standard Operating Procedure? (SOP)
- Who is their competition?
- Who are their partners or allies?
- What is the restaurant brand’s long term vision?
Get a lawyer on board
When buying a franchise, there’s going to be a lot of paperwork and negotiation. Make sure you have a lawyer on board to help you navigate the details and cross-check paperwork. The less you have to worry about the legal work, the more you can concentrate on getting other resources (such as locations, staff, funds) in action.
Get into negotiations & finalise the deal
This is the time to ask any final questions before making things official. Further with legal assistance and a consultant to support you, you can put forward arguments to get the best deal.
Now get ready for the action mode as all that’s left is to set up and open the doors for your customers.
Starting a new food business vs. franchising
Getting a restaurant franchise is definite yes for those who don’t have the time, budget or experience to start from scratch. Here’s why:
The minimum amount that you can start with is rupees 5 lakh. This gives you a neat window to enter the market and expand as you grow. Whereas, setting up your own brand requires a significant more investment especially in developing a menu, marketing, and advertising.
Your franchisor already has established brand value, that’s what they charge royalty fee or commission for. They’re easily recognizable and have an existing demand that you can build on in your area.
Sales from the start
With operational support, a strong existing menu and marketing strategy. Your franchisor can set you up for orders since Day 1. Though growing from there on will require your hard work too.
Support from experts
When taking up a food franchise, most franchisors provide you with training support, operational guidelines and sometimes even with equipment and other brand requirements. So that you work on a formula that’s already hit in the market and have experts to reach out to in case of queries.
Here are some questions that can help you decide:
- Are you up for a big financial risk?
- Do you have good marketing support?
- Do you have the patience to wait for positive results?
- Do you like taking risks?
- Do you have a concept that will stand out?
- Do you have a dedicated team to build something from the ground up?
If these answers are mostly yes, then you are ready to start a restaurant. Otherwise, taking up a franchise will be your safest option with a guarantee of steady income.
The next steps
We hope this guide answered your questions with food franchising. And that you’re all set to make a well-informed decision. Need help in contacting a brand or have further questions? We’d be happy to help you on your journey.
Good luck in your search!