HI Rodinhooders,
As I keep on reading about my dream project (a QSR) and its surrounding on various blogs, I came across this wonderful post on yourstory.in. It was about two guys named David Grifftih and Gaurav Jain, both of them are based in Bangalore.
They gave me quite a few points to discuss about, the former started his entrepreneur career by taking up franchisee of Subway and Wangs Kitchen, while the latter started up with his own brand called “MAST KALANDAR“.
They both had their view points about entering the food and beverage sector, from which I have induced certain points which I wish to share out here. I will be taking it one-by-one, as to what the difference is between the franchise based start-up and the other creating your own brand.
David Griffith’s views about a franchise are :
” A lot of people partner a big brand thinking the brand will take care of everything, which is not really true. The brand will provide you with the food and the basic framework of business, but most of the work has to be done by you,” says David
This is a true case, in Vile Parle (Mumbai) where I live all the major brands like Mc Donald’s, Dominos, Subway, Gelato and others are out here.
But due to unhygienic and non-maintenance concerns and poor management Subway had to shut down. the reasons were that the staff weren’t taking care of the store and neither were the owners. A lot of start-ups who tie up with major brands fall prey as they think the brand name will be enough to create a successful business, but it is not the case, a lot of ground level work needs to be done.
FRANCHISE SET-UP AND RUNNING COSTS :
It cost Rs 40-60 lakhs to start a Subway chain based on the location selected to setup shop. Griffith also says keeping a six-month buffer of working capital is a good idea to ensure day-to-day operations are not affected.
Every month the franchisee has to pay a percentage of the revenue back to the franchise. This is over and above the money spent on acquiring franchise rights. The royalty charged is 5 to 7 percent of monthly net sales.
As stated above a franchise cost lot and usually start-ups are not highly funded, thus this route is a big no way. As the amount of deposit or royalty cost as you may wish to call it as, is usually really high, this can be the amount equal to starting up your own brand. In addition there is a burden of every month royalty payments, this impact your bottomline profits, as this could be a huge chunk of your net take home profits, for example :
Net Sales : Rs. 10,00,000/-
Monthly Running costs : 2,50,000/- ( it includes rent, salaries, electricity bill, taxes, maintenance, etc)
Raw Material Cost : 6,00,000/-
ROYALTY : 7% X 10,00,000 = 70,000/-
NET PROFIT = 10,00,000 – 2,50,000 – 6,00,000 – 70,000 = 80,000/-
This is a pure assumption.
N Manikantan, GM marketing of Nandos says :
Nandos looks for partners who can afford capital, have an interest in the food industry and are ready to be a working entrepreneur. “We make sure all Nandos franchise owners work at the restaurant every day,” says Manikantan.
It clearly shows that a successful brand name may help attract customers to the store, but it doesn’t guarantee repeated customers, this is purely based on the entrepreneur who takes up the franchisee, has to nurture the store and work for it.
Being the owner : Gaurav Jain (Mast Kalandar)
Gaurav and Pallavi Jain
Gaurav Jain, the founder of Mast Kalandar, who took the non-franchise route invested Rs 18 lakhs to start their restaurant in the outskirts of Bangalore two years back – which was all his life savings till that point.
Mast Kalandar is their first venture and started as a small restaurant on the outskirts of Bangalore. But today they are a successful chain of over 40 restaurants across four cities. Things picked up for Gaurav after they got their funding, which also gave them access to expert advice through the advisory board who joined them.
If you see above this amount is equivalent to the deposit amount given to the franchise, and out here there is no royalty on monthly sales, this means another monthly benefit of Rs. 70,000/- (approx).
WHAT’S THE BEST :
Well since I’m creating my own brand, by bootstrapping it, thus I would end it by saying for me and those with a limited budget it is best to create your own brand, and launch, though marketing expenses will be a bit higher than any normal franchisee, as the brand name needs to be created.
Working with a franchise also has an additional setback that you won’t be known by your name but by your brand which you run, where as in an own brand people will know you as you are the founder, this is my view.
Yet David Griffith in the end says :
“For someone who’s just entering the business, its a great idea to start with a reputed franchise, just to get an idea of how to work in the business. It’s worked for me.”
Image Courtesy : Yourstory.in