There are some significant advantages to operating a franchise, compared to other types of food business ownership. Brand name recognition is a huge factor: most franchisees in India and anywhere else in the world automatically benefit from it. With global food trends changing, there are more and more international food chain franchises opening in India. It is the third-largest consumer market in the world with its fast food industry alone being estimated to be worth around $27.57 billion in 2020. In 2021 it is estimated that the food industry in India, restaurants and cloud kitchen models alike, should cross over INR 23000 crores. Due to growing wages, increased urbanization and rising populations more Indians are dining out. This makes opening a restaurant franchise in India a very good opportunity with potentially high profits if organized and operated properly.
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Why Open a Franchise?
Let’s begin with a success story of a restaurant franchise in India for your motivation. Ravi Jaipuria, the chairman of the privately held RJ Corp, has become India’s newest billionaire, with a worth estimated at Rs 8,250 crore. This was achieved through being a franchisee for brands like Pizza Hut, Costa Coffee and KFC.
With this example in mind, here are a couple of reasons why you might consider opening a franchise restaurant business in India.
Logistics: Setting the restaurant menu and marketing it, along with employee handbooks, standards is tricky. But it’s a crucial factor to successfully operate a restaurant. With franchises all these things are taken care of by the franchisor.
Established Customer Base: Another big advantage of restaurant franchises is that compared to independent restaurants customers already know and trust franchise restaurants thanks to the brand name.
The Process of Opening a Restaurant Franchise in India
Before opening a restaurant franchise in India, a couple of factors need to be considered. First of all, you need to decide what type of franchise model works best for your restaurant. Here are the brief descriptions.
Types of Restaurant Franchise Models
It’s a franchise agreement in which the master franchisor (the restaurant’s owner) transfers control of franchising activities in a specific territory to a person or entity known as the “master franchisee.” The franchisee will then assume the function of the franchisor when it comes to regional issues.
These are ‘owner-operators,’ which means that in addition to being the owner, you must also act as the restaurant’s primary operator or manager. Direct franchising is another name for single-unit franchising. In India, it is one of the most popular franchising models.
In this case, a franchisee buys multiple franchises from the franchisor. For all of these units, the franchisee assumes ownership and accountability for the business’s growth.
This approach differs in that the brand establishes its own representative office in the country and assists the franchisee in establishing a business. The representative office has a team that works closely with the franchisee and is in charge of developing the brand image and connecting with consumers.
You may read also our guide: How To Start A Restaurant Business In India In 2021
Area Development Franchising
The concept of area development franchising is similar to that of multi-unit franchising. The main distinction is that it usually entails a bigger number of units and a larger territorial area. Area developers have the opportunity to raise brand awareness quite rapidly.
Get an Understanding of Your Budget
After deciding on the type of franchising agreement you want to enter, it’s time to think about finances. With all the benefits they offer, franchise restaurants in India and anywhere in the world aren’t cheap to open. Whether you’re financing the business with personal assets, loans, third-party investments or a loan, it is very important to analyze your budget, the ROI (return on investment) you are expecting, and the time you’ll need to break even. On this basis, you can further decide on a brand.
You’ll have to pay a fee to the franchisor in addition to the fee to get your restaurant up and running. This includes leasing or purchasing a property that meets your franchisor’s criteria, purchasing restaurant equipment, and obtaining licenses and permits from your municipality in India.
Initial franchise fee
This is the cost you’ll pay the franchisor directly for the opportunity to operate a franchise under their brand. The price varies depending on the franchise. The first franchise cost for a Kentucky Fried Chicken franchise is $45,000, whereas the franchise charge for a Dunkin’ Donuts store starts at $40,000 and can go up to $90,000 depending on the location in the world. Note that franchise fees are typically non-refundable.
To keep your franchise up and running, you’ll have to pay some additional fees. This includes payroll as well as business tool subscriptions such as a good restaurant management software. Some franchisors also ask franchisees to contribute to an advertising fund that is used to promote national campaigns and attract new investors.
Royalty fees are the recurring payments you’ll pay out of your profits to your franchisor in order to stay connected to the brand and receive services and support. The typical royalty fee is between 4% and 6% of your monthly revenue.
Finally, franchisors have some stringent criteria regarding who they will do business with. There are usually minimum requirements for the franchisee’s liquid assets and net worth. Panera Bread, for example, requires investors to have at least $7.5 million in net worth and $3 million in cash assets. Pizza Hut requires a net worth of $700,000 and liquid assets of $300,000. Before you apply, make sure you know what your franchisor’s financial criteria are. There are many food franchise options available, but you may need to do some research to find the ones that are right for you and your budget.
Evaluate Your Market and Select Your Franchise Match
Before applying for a franchise, assess your market to see what type of franchise restaurant would be the best fit. This entails assessing your local competition as well as the local economy and preferences. For example, if your neighborhood is overrun with donut shops, a Dunkin’ Donuts franchise might not be the ideal fit. You should also investigate why other franchises in your area have closed their doors. Do your homework to learn more about your market, your target customers, and what they really want.
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Another factor to consider is the location. You’ll want to locate your franchise in a high-traffic area so that people are aware of its presence. Take some time to consider potential locations, rental pricing, and other factors.
Here are a few things to consider while choosing a franchise brand:
• What food is popular in the area you want to visit?
• What well-known restaurant chain isn’t represented in that area?
• What is the financial stability of the franchisor in question?
• Does the brand align with your restaurant’s vision?
• Do you and the franchisor share comparable values?
• What level of involvement will the franchisor have?
Get All the Licenses Required To Start a Restaurant Business in India
After you’ve figured out the money, the franchise brand, and the plan, you’ll need to apply for government licenses to operate a restaurant in India. The price of obtaining these licenses varies according to the size of your business. It is best to apply for the permits as soon as possible, as they may take a long time to be issued. The following is a list of important licenses required to open a restaurant in India.
- FSSAI– To operate a food business, one must first obtain a license from the Food Safety and Standards Authority of India (FSSAI). An FSSAI license costs between Rs 5000 and 10000 depending on the size of your business, turnover, installed capacity, and location. You can use this guide to learn more about FSSAI Registration.
- Trade license from the municipal corporation – Depending on the size of the restaurant, it will cost from Rs 10,000 to 1 lakh. The actual license fee, however, ranges from Rs 5000 to 10,000 for a small restaurant and increases according to the size. The licenses are valid for a financial year and need to be renewed in March every year.
- Professional Tax license- Employing salaried staff requires a professional tax license. All restaurant employees earning more than Rs 10,000 must pay this on a monthly basis.
- GST Registration- Restaurants must register with the GST and obtain a GSTIN number. Because GST registration is state-specific, if your restaurant has locations in multiple states, you’ll need to register for each one separately. Read more about GST Registration for Restaurants here.
- Business Registration- Your company must be registered in India as a partnership firm or a Pvt Ltd corporation. You’ll have to file annual returns, conduct financial audits, and so on.
- Liquor License- Obtaining a liquor license is the most difficult and expensive of all. If the franchise brand you have selected sells alcohol, it is best to apply for a liquor license as soon as possible, as this permission takes a long time to process.
There are also a few other licenses required as well such as pollution control license and fire safety certificate.
Now you have all the information needed to open a successful and profitable food franchise chain in India.
Get in touch with Eagle Owl to consult about your franchise food business operations.