Franchines Food and Restaurant McDonal-1

Franchising in Food and Restaurant Sector
UNIVERSTITY OF MUMBAI
PROJECT ON
FRANCHISING IN FOOD AND RESTAURANT

SECTOR
2008
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INDEX
Sr.no
CONTENTS
Pg.n
o
Introduction
Emergence of Franchising
3-4
Introduction to Franchising
5-15
Concepts of Franchising
16-35
Franchising in India
36-43
Franchising of food and Restaurant Sector

in India
44-50
McDonalds Franchising
51-63
Statistical Data
64-69
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1. INTRODUCTION TO THE PROJECT

Franchising business has already proven to be one of
the fast growing areas of development for entrepreneurs in
India as well as abroad. There is a growth in the nontraditional areas such as professional services and hair care
services. Franchising is growing because the system provides
self-employment with less capital.
Franchising permits businesses to grow more rapidly
than other method. By increasing the efficiency by which
goods and services are distributed, it brings impressive gains
to any economy. On a cultural level, franchising is one of the
few developments that generate employment, earnings and
entrepreneurship
at
the
same
time.
It
disseminates
ownership rights and decision-making power to thousands of

small unit operators. For developing countries, or countries
shifting to a market economy, franchising has the effect of
creating relationships between one economy and another. It
promotes sharing of technologies, trademarks, marketing,
intellectual property and even architectural designs.
My aims of studying Franchising in the food and
restaurant sector is to learn the various policies and
procedures that are followed while setting up a franchise and
ho far has this business the development of economic
growth in India.
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1.1 OBJECTIVE OF THE STUDY

The subject of franchising is generally obscure to
many people in India. We can no longer afford to be ignorant
of the dimensions of the topic or its implications for the
Indian economic development. Hence the main objective of
the study is to gain an insight into the various aspects of
franchising in the food and restaurant sector
1.2 METHODOLOGY
Secondary data collected from libraries like IMC British
council in the form of articles from newspaper, magazines,
websites, books and various publishes data found were
useful for the study.
Primary data obtained from the authorities of the
various outlets of McDonalds and by the means of a survey
through Questionnaires and interview sessions with the
people who frequently visit McDonalds helped to study the
to her details of the topic in depth which wouldnt have been
possible with secondary data alone.
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2. EMERGENCE OF FRANCHISING
2.1 INTRODUCTION
Franchising is one of the methods of marketing a
proven business concept. In order to understand the role
played by franchising, one has to look at the marketing
organization. There are several options open for marketing
channel decisions. One of them is Branchising. Branchising
in turn leads to franchising. The areas of operations of
franchising, nature of its operation and management is given
here. In addition, one can see the recent trend of American
and other franchisers expanding their operations overseas.
There are different modes of internationalization. Some of
them are successful and some unsuccessful.
2.2 HISTORICAL PRECEDENCE OF FRANCHISING

The franchise model is traced to the practice of Roman
Catholic Church, which used to grant local clergy the right to
collect tithes (church taxes) in exchange for passing a
portion of it to Rome. This implied that the Catholic Church
was franchising the right to run a parish.
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During the middle ages, there was feudalism where

noblemen were the landowners and peasants were the
slaves of the noblemen. Some serfs were given additional
rights subject to fees paid to nobles. These fees were called
Royal Tithes which is the root of modern royalties. These
serfs were granted the status of freemen. In France, they
were called Francis. The French word Francis modified into
the English term to efranchise.
Similarly,
colonialism
based
on
the
traditions
of
feudalism European monarchs gave, what may be described

as franchises to commercial ventures. These ventures
agreed to establish colonies under the protection of the
monarch in the exchange for payment or royalties.
Franchising started as a form of dealership. The
franchiser owned the trademark for a product and for a fee
produced and distributed the product to the dealer. In the
1950s, business format franchising becomes popular. This
is
governed
relationship.
by
The
some
rules
franchiser
relating
first
to
creates
the
a
business
successful
business relationship and creates a format, which can be

duplicated.
The franchiser grants rights to the franchisee to engage
in the business of distributing the franchisers products or
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services using the franchisers trademarks, trade names and

marketing systems.
3. INTRODUCTION TO FRANCHISING
3.1 WHAT IS FRANCHISING?

When we talk about franchising, it covers a very broad
term, and covers various aspects of collaborations and
investments, which we have had in this country for various
manufacturing processes and for making various products.
We also have had various investments coming along with us
various technology transfers for the last four decades and
which is generally called Industrial Franchising. But, the
generally accepted term or word Franchising, which is
being used today, relates to certain business techniques that
even have been quite recent, and what is generally called as
business format franchising. Franchising in general means
granting of certain rights by one party (the franchiser) to
another (the franchisee) in return for a sum of money. The
franchisee then exercises those rights under the guidance of
the franchiser.
The International Franchise Association (IFA)
defines franchising as a continuing relationship in which
the franchiser provides licensed privilege to do business,
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plus assistance in organizing, training, merchandising and

management in return for a consideration from the
franchisee.
Franchising
is
vertical-cooperatively
organized
paragraph system of legally independent enterprises on the

basis of a contractual continuous obligation. This system
arises at the market uniformly and coined/shaped by the
arbiters the performance program of the system partners as
well as by an instruction and a control system to the safety
device of a system-conformal behavior.
The performance program of the franchise giver is the
franchise package. It consists procurement of paragraph and
organization concept, the right to use the patent rights, the
training of the franchise taker and the obligation of the
franchise giver to support the franchise taker actively and
constantly and constantly develop the concept further.
The franchise taker is active on own names and for his
own account; it has the right and the obligation to use the
franchise
package
against
payment.
As
achievement
contribution it supplies work, capital and information.
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Within
franchising,
relatively
more
fully
short
described
period,
as
modern-day
"business
format
franchising" which was basically adopted in the western

world, mostly after World War II thus, making it the most
popular concept all over the world. Essentially, franchising is
a marketing and distribution system. It has its roots in the
United States, where it has been in evidence since the early
1950's and now commands a market share approaching 50%
of all retail sales. Although other parts of the world lag
somewhat behind, franchising is well established in every
free market economy across the globe, and with good
reason. Statistics show that the success chances of any
small business operated under franchise are infinitely higher
than those of a business that is operated by a lone
entrepreneur in isolation.
In the words of Bill Cherkasky, past president of the
International
Franchise
Association
(IFA),
perhaps
franchising is not perfect, but it is the best method known to

mankind to put people with no prior experience into a
business of their own and help them to succeed." As with
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most things in life, careful preparation and meticulous

execution is the key to success.
Franchising has served as a vehicle for small businesses

to grow successfully into national chains and as a way for
individuals to win their own businesses. There is a shift in the
traditional economic paradigm, which is giving support to
the franchise movement. Retro franchising is used to
transform traditional company owned retailers and service
providers into franchisers. The established retailers are
considering franchising as a means of entering overseas
markets.
Franchising provides goods and services varying from
hotels, convenience stores, travel agencies, auto dealership,
residential real estate brokers, gas stations, hair salons, etc.
This has become the single most successful marketing
concept ever; its the wave of the future. The success
of franchising depends on the relationship between the
corporation, supplier and franchises. Ones success depends
on the success of all. Franchising is an effective way for
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individual businesses to grow while providing mutual selfhelp and support.
3.2 MODES OF FRANCHISING

The following are basically 5 types of international
franchising mediums:
Direct Franchising:
Under this system, the franchiser grants franchises
to individual franchisees in the foreign country through
the execution of an international contract. The main
problems associated with this type of franchising is the
difficulty of franchisers to control the performance of the
franchisees as these are located in another country, the
assistance to be provided to the franchisee during the
operation of the contract. The question of intellectual and
industrial property rights in the foreign country also needs
to be considered. There is a tendency for franchisers to
want their own domestic law to apply to the agreement,
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even if the franchise is exploited in another country.

Another vital point to be kept in mind is the law relating to
transfer of technology that may be applicable. Keeping
the above problems in mind, it is observed that direct
franchising is not used extensively internationally.
Subsidiary or Branch Office:

Franchising through a subsidiary or a branch office
are two methods, which are often treated together,
although there are differences, which derive from the fact
that a subsidiary, albeit controlled by the franchiser, is a
separate legal entity whereas a branch office is not.
Whatever be the difference, an advantage of this
approach is that the franchiser is present in the foreign
country as a corporate body. The contract will in this case
be a domestic contract and thus subject to local
legislation.
The problems associated with this type are similar to
direct franchising. In addition, the franchiser will be
required to send his personnel to the foreign country for
the start up operations thus involving work permit and
residence formalities.
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Area Development Agreements:

Such
agreement
traditionally
involves
an
arrangement whereby the developer is given the right to

open a multiple number of outlets to a predetermined
schedule and within a given area. These arrangements in
the past have been used mostly in domestic franchising,
but are now being used increasingly in international
franchising.
Items that are to be considered here include the
number and density of the outlets to be opened, detailed
development schedule and the consequence of noncomplying of the schedule. In such arrangements, the
developer
will
need
to
have
substantial
financial
resources so as to be able to open the required number of

outlets.
Master Franchise Agreements:
In the international scenario, this is widely used. In
respect to such agreements, the franchiser grants a
person in another country, the sub-franchiser, and the
exclusive right within a certain territory to open franchise
outlets itself and/or to grant franchises to sub-franchisees.
In this case, there are two agreements involved: an
international agreement between the franchiser and the
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sub-franchiser (the master franchise agreement) and a

national franchise agreement between the sub-franchiser
and each of the sub-franchisees (the sub-franchise
agreement). The franchiser transmits all its rights and
duties to the sub-franchiser, who will be in charge of the
enforcement of the sub-franchise agreement and of the
general development and working of the network in that
country. All the franchiser will be able to do is to sue the
sub-franchiser in case of breach of obligation to enforce
the sub-franchise agreement as laid down in the master
franchise agreement.
The advantages of this system are that the subfranchiser is familiar with the local habits, tastes, culture
and laws of its country and that it will know ways about
the local bureaucracy for necessary permits as and when
necessary. The disadvantages include that the financial
returns of the franchiser will be reduced by the amount
due to the sub-franchiser and also that the franchiser will
have to rely on the sub-franchiser for the performance of
the franchise system.
Joint Ventures:
In the case of joint ventures, the franchiser and a
local partner create a joint venture. This venture then
enters into a master franchise agreement with the
franchiser, and proceeds to open franchise outlets and to
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grant sub-franchises just as a normal sub-franchiser would

do.
An arrangement such as this will have to consider
legislation on joint ventures in addition to all the other
legalities that are involved. Problems may also arise with
the fact that the double link may create conflicts of
interest for the franchiser. The advantages accruing from
this arrangement may include that it could be a way to
solve the problem of financing franchise operations in
countries where financial means are scarce.
Miscellaneous forms:
There is no limit to the refinement that can be made
to the above forms of franchising to accommodate the
differing
demands
of
potential
franchiser
and/or
franchisee. New forms of franchising, or combinations of

different forms of franchising, appear at regular intervals.
Examples of these are stated as follows:
Multi-unit Franchising
Affiliation or conversion Franchising
Franchise within a Franchise
Subordinated Equity Arrangements
Management Agreement
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Franchise Buy-ins
3.3 MARKETING ORGANIZATION:

The decision regarding marketing channels is similar to
make versus buy decisions. The make decision relies in
the marketing channels is similar to vertical integration and
buy decision on independent agencies. The vertical
integration depends on the transaction cost analysis, which
emphasizes the importance of the product/service to the
company and the nature of the service required.
Conventional: In this, the membership is diffused.
Coordination is normally achieved through bargaining
and negotiation. There is easy entry and exit of the
members. The network is unstable.
Administered: Autonomous units agree for ad hoc
division of labor. This started with the programmed
merchandising agreement. Manufacturing companies
who have developed a programmed system normally
starts this. Examples of such systems adopted are
General Electric Credit Corporation for its financing
plans for wholesalers.
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Retailers: McDonalds purchasing arrangements with

its suppliers, etc. This system is based on trust of the
administrator and his expertise.
Contractual: The locus of decision is done at one level
and is ratified by other units. The vertical integration is
done through contractual agreements. There are many
variations. Some of the more common and widespread
systems are wholesaler sponsored voluntary groups,
retailer sponsored cooperative groups and franchise
system.
3.4 BRANCHISING
David. D. Salts use the term Branchising as a generic
term, which includes franchising. Branchising covers many
methods used by the company to expand its operations. This
is the method for rapid market dominance, with minimum
capital outlay and results in immediate and ongoing cash
flows. It adopts the OPM (Other Peoples Money) principle of
financing.
Branchising is a method of rapid expansion of market
for goods and services. The term Branchising is generic. It
comprises various methods of expansion such as direct
sales, leasing, joint ventures, franchising, etc. Franchising is
one of the options of Branchising i.e.; is expansion.
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4. CONCEPTS OF FRANCHISING
4.1 FRANCHISER
Franchising transactions can involve different levels in the
manufacture and distribution of goods and services. In this
respect, there are four types of franchisers:
1. Manufacturers and wholesalers

2. Manufacturers and retailers
3. Wholesalers and retailers
4. Retailers and retailers
Coca-cola and Pepsi can note the manufacturers and
the
wholesalers
franchising
in
the
case
of
bottling
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arrangements.
The
manufacturers
and
the
retailers
arrangements are typical in the arrangements between

petrol companies and their filling station proprietors or motor
vehicles manufacturers and their dealers. The arrangement
between wholesalers and retailers is more popular in the
motor vehicle accessory in U.S.A.
The franchiser is the grantor (giver) of the franchise. To be

deserving of the title, the franchiser should: Know every facet of the business and have a hands-on
approach to problem solving.
Be honest and forthright in all dealings.
Have operated the business he wishes to franchise for a
reasonable period. Agreement exists that the minimum
period should be one to two
Years but research has shown that most companies wait
for six years or more before they roll out a franchise.
Have adequate financial resources to develop the
concept and make the necessary investment into the
brand.
Want to grow through others, and be prepared to share
the rewards resulting from teamwork with franchisees.
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Strive for excellence in every facet of the business and

determined to grow.
4.2 FRANCHISEE
Franchisee is the one who is willing to invest money and
time on the proven concept of the franchiser. A franchisee
(recipient of a franchise) is an individual with a burning
desire to succeed in a business of his own but reluctant to
operate in isolation, more often re-inventing the wheel in the
process as it was. Franchisees should be: Capable of absorbing new concepts quickly.
Willing to follow the franchisers blueprint to the letter.
Positive people-persons imbued with the necessary
enthusiasm to market the business and motivate staff.
Adequately resourced to meet the initial (capital
investment) and ongoing (working capital) financial
requirements of the business.
Able to manage and control the business, and willing to
drive the brand at local level.
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Prepared to co-operate with the franchisers team as

well as with fellow franchisees, and play an active part
in programs offered by the network.
Determined to build the business into the best and
most successful in the territory.
Convinced of the merits of the franchise and the brand,
and prepared to defend both against possible attack by
competitors or others.
Depending on the rights granted, franchisees can be
classified into:
Unit Franchisee: This is the simplest and most
common form of franchising. This franchisee is granted
the right to operate one unit or outlet of the franchised
business.
Master Franchisee: He is generally granted the right
to a substantial territory. It will then grant unit
franchises to unit franchisees throughout the territory.
The Master Franchisee needs to have sufficient drive
and resource to fully exploit the territory and control
the unit franchisees territory.
Regional Franchisee: In a geographically large area a
franchiser, or a Master Franchisee may decide that it is
commercially appropriate to further divide the territory
up with separate regions and grant a Master Franchise
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for each separate region. These franchises are known

as regional franchises or sometimes area franchises.
Multiple Franchises: Some unit franchisees operate
not just one unit, but also several. These are referred to
as multiple franchises and usually have a large number
of individual unit franchise arrangements one for each
unit.
Developers: Large Corporations sometimes prefer to
exploit their territory by opening outlets themselves.
These are known as developers. They have a single
developer agreement, which allows them to open many
units.
4.3 WHAT IS FRANCHISE FEE?
A fee paid by franchisee to a franchiser. US standard
accounting practice requires that franchise fee revenue
should be recognized when all material service or conditions
relating to the sale have been substantially performed or
satisfied by the franchiser.
4.4 PRODUCT AND BUSINESS FORMAT FRANCHISING
In practice, franchising has become synonymous with
two specific ways of doing business, namely product
franchising and business format franchising.
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A product franchise, as the name suggests, focuses

almost exclusively on a product or service. The franchiser
offers the product and some corporate identity, but in
conducting the business, the franchisee is largely left to its
own devices.
Format Franchising: Under this the franchiser can
enter the market rapidly at relatively low cost using
motivated
entrepreneurs.
And
the
franchisee
has
an
opportunity to enter a business with a proven product,

service or brand name at less cost.
The first generation business franchisees are known as

tied-house systems. It started among German brewers
who contracted with taverns to sell their brands
exclusively.
The second-generation business franchisees started
when
Singer
Sewing
Machine
Company
sold
its
products to its sales force in the 19 th century. This is

known as product-trademark. This pattern is adopted in
automobiles
sales,
retail
gasoline
and
soft
drink
distribution.
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The third-generation of franchising is known as the

business
format
franchise
developed
by
A&W
Restaurants in the 20th century. This entails replication

of an entire business including product or service, trade
name and methods of operation.
Under business format franchise, the franchiser can
enter the market rapidly at a relatively low cost using
motivated
entrepreneur.
And
the
franchisee
has
an
opportunity to enter a business with a proven product;

service or brand name at less cost although it is based on a
product or service, revolves around the way the business is
conducted.
The
franchiser
will
have
developed
comprehensive blueprint for the successful operation of the

business. The franchisee will receive initial and ongoing
training and strict adherence to the blueprint will be
mandatory, so much so that the franchiser will carry out
regular inspections to ensure that all facets of product and
service delivery conform to prescribed standards.
The franchisers close ongoing involvement enhances
the franchisee's success chances considerably. Furthermore,
an increasing number of product franchises have recognized
that business format franchising is the better way, and are
converting to this concept.
There is a difference between business format and
product franchisees. A product manufacturer needs to
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develop a distribution network to sell his products. Gasoline

service stations were purely product franchisees. One can
ascertain a product franchise through its quality of the
product, its availability and its value. Business format
franchisers are marketing a style of doing business; this is
based on the quality of the trademark, the reputation for
quality and service, the quality of training and support
provided by the franchiser as well as the amount of royalties
and other fees.
TYPES OF FRANCHISING
Territorial Franchising: In this the franchisee has the
authority over a territory, which may be a city, state or a
country.
Operating Franchising: This refers to an independent
business, which has a franchise.
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Mobile Franchise: It is a type of franchise for selling

products on moving vehicles.
Distributorship: An exclusive coverage of a geographical
area for distributing the products and also acts as a supply
house for the franchisees.
Co-Ownership: Here, both the franchiser and the franchisee
share in the investment and form partnership.
Co-Management: In this the franchiser has a majority of
investment and he/she and the partner manager share
profits proportionately.
Leasing: The franchiser can lease the land, building and
equipments to the franchisees.
Licensing: In this the franchise has a license to use the
franchisers trademarks and business techniques.
Manufacturing:
The
franchisee
has
license
to
manufacture and distribute the franchisers product.

Service: in this type, the franchiser provides a pattern of
professional service, which a franchisee supplies.
4.6 ADVANTAGES AND DISADVANTAGES OF

FRANCHISING
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Advantages for the franchisee

One of the main advantages for the franchisee is the
fact that it enters into a business, which already has a
well-known trademark or trade name. The franchisee in
other words does not have to spend time, money and
efforts trying to make it known and appreciated in the
market. In effect the franchisee already has a potential
clientele.
As the franchisee is not required to invest to make an
entirely new trademark known and profitable, the
investment it has to make will normally be of an
advantageous size, as compared with the investment,
which would be required for an entirely new business.
Of particular importance for franchisees who enter a
business with which they are completely unfamiliar is
the training and assistance provided by the franchiser.
The franchiser will provide initial training in the
business method it has elaborated, but often in basic
business skills such as accountancy. Furthermore, for
the whole term of the agreement it will provide any
assistance that the franchisee might need to solve the
problems, which the running of the business gives, rise
to. Some large franchisers will infact have a twenty-four
hour service at the disposal of the franchisees of the
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network.
Advertising is an effective means to spread a unitary
image of the network and, at a national level, is
therefore often conducted by the franchiser for the
whole franchise network, the expense being shared by
all participants.
Local advertising is often left the local franchisees, even
if there is a certain co-ordination and it sometimes has
to be approved by the franchiser.
Lastly, in some businesses a network can obtain
preferential rates for bulk purchases.
Disadvantages for the Franchisee

To be weighed against the advantages described above
is the fact that the franchisee is not completely
independent and is therefore not in a position always to
decide the policy of the business. Any major decisions
will be taken either by the franchiser or by the
franchiser in concert with the whole network of
franchisees.
- 29 -
Furthermore, the control exercised by the franchiser

might appear to be excessive, indeed might on
occasion be excessive. This will weigh heavily on the
franchisee once it begins to know the business and to
feel that it can manage without the franchiser.
The franchise is granted for a fixed period of time,
which normally is renewable. There is, however, no
absolute guarantee that the contract will always be
renewed upon expiry. The franchisee therefore runs the
risk of setting up an effective and profitable business
only to see it being taken over by the franchiser at the
expiry of the agreement.
It is very difficult to estimate what the financial return
of the business will less than expected. Added to this
fact the fees that the franchisee has to pay to the
franchiser might be considerably huge and can also
reduce at times.
To be reiterated is the consideration that the franchisee
has to bear the financial risk of the activity; if it fails it is
the franchisee that loses the money it has invested.
Advantages for the franchiser
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For the franchiser the main advantage is the possibility

to expand the business over a relatively short period of
time without having to make direct investments in a
new place of business, and also without being liable for
the acts of the franchisee as the two are and remain
independent entrepreneurs.
Disadvantages for the franchiser

If the relationship does not work the damage suffered
by the franchiser, indeed by the whole network, could
be quite considerable. In fact, as the owner of the
trademark
or
the
trade
name
the
franchiser
is
ultimately the one who will suffer (by, for e.g. a

reduction in sales throughout the network) if any of the
outlet does not conform to the quality standards set.
A disadvantage of the franchise agreement is that the
degree of control the franchiser has over the unit is less
than if they were company owned outlets.
Lastly, the financial returns of the franchiser will be
lower than would be the case with a subsidiary or a
wholly owned outlet, as it will not receive all the
financial returns of the enterprise but only a percentage
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thereof.
4.7 FRANCHISING AGREEMENT:

It is a written agreement that details the expectations
and
requirements
of
the
franchiser.
It
describes
the
franchisers commitment to the franchisee and includes

information about territorial rights of the franchisee, location
requirements, training schedule, fees, general obligations of
the franchisee, general obligations of the franchiser, etc. It is
usually set up for a fixed period, which requires renewal after
expiry. The agreement should however include the following:
The rights granted by the franchiser.
Rights granted to the individual franchisees as
against the corporate franchisees.
The goods/services to be provided with manuals and
also guidelines for dissemination.
Obligations of the franchiser.
Obligations of the franchisee.
Terms of payment after fixing the fees by the
franchiser
Duration of agreement.
Basis of renewal and/or termination.
The nature and usage of brand name of the
franchiser by the franchisee.
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Provisions relating to the pre-emption rights in

respect of franchising.
Adaptation of franchise systems to the environment.
Surrendering terms in case of termination.
Additional legal points for successful running of this
business.
4.8 SOURCES OF REVENUE
The different sources of revenue available for the franchiser
are:
Initial franchise fees.
Royalty fees.
Advertising fees.
Sales of products.
Rental ad lease fees.
License fees.
Management fees.
4.9 FRANCHISING PACKAGE
There are three types of franchising packages available
to an entrepreneur who decides to enter into a franchising
agreement:
The first package: The franchiser is interested in supplying
- 33 -
equipment or part of the product. He provides his trade

name and offers some services including training. The
franchisee is free to run the business. There is independence
for the franchisee.
The second package: The franchiser is interested in selling
his products/services on a continuing basis. The franchisee
depends on supply of services from the franchiser who will
have
centralized
purchasing,
product
development,
information flow, ongoing training and guidance. There is

interdependence between franchiser and franchisee.
The third package: The units operate under a single trade
name.
There
is
more
interdependence
between
the
franchiser and the franchisee; and also among franchisees.
4.10 FINANCING AND PLANNING

Franchising is a viable route to have an independent
business. It is devoid of the usual risks and pitfalls of starting
a new business. The franchisee, in effect, is buying a
business concept, which is established and proved. Financers
consider
the
following
criteria
for
evaluating
loan
application of franchisees:
- 34 -
Capital: Kind of capital required and sources

Capacity: Leadership and experience of the people in
business.
Character:
Entrepreneurial
bent
of
the
person,
whether proactive or reactive

Commitment: Loyalty and dedication to the business.
Customers: Competition, the image of the business
and market share.
Community: Business in relation to the community
particularly job creation or environmental impact.
Collateral: Protection for the financer.
The plan will have the following parts:
Business objectives
Business description
Franchise description. This will give:
The number of franchisees sold
The terms of the franchise
- 35 -
Training program
Product description. This will provide the
Product/service mix by range and category
List of precise categories, revealing the income derived
out of individual businesses.
Customer description would clarify the:
Market category, whether consumer, commercial and
institutional.
4.11 EXPANSION ARRANGEMENT

There has been a definite shift from owning a single unit
franchise to multi unit, area development and master
franchise agreements to multi concept arrangements. These
provide expansion opportunities for all franchisees. The
common growth strategies employed are:
Multi-unit Franchise: In this, the franchise acquires
one or more units of a single franchise concept. This
- 36 -
enables
the
franchisee
to
have
control
over
its
operation and cost structure.

Area
Development
and
Master
Franchise
Arrangements: This allows the franchisee to quickly

develop the business concept in a wide area. The
franchisee will have exclusive rights to develop a
specific number of units within an area in a given time
frame.
Franchisees
themselves
or
sub-
can
either
franchises
open
them
the
units
to
other
franchisees.
Multi-concept Arrangements: The franchise would
have compatible concepts. This benefits both the
franchiser as well as the franchisee. The franchiser, on
the other hand, benefits having a franchise that is
already in business. While the franchisees benefit by
combining complementary concept.
Currently, the successful multi-unit and multi-concept
franchisees are in the food sector. The food sector gives
opportunities of building an infrastructure similar to the
franchiser. It also makes it possible to have multi-unit
operation through alternative distribution methods such as
Kiosks and mini-shops. The expansion is possible in places
where customers are saying in supermarkets, gas stations,
- 37 -
sporting events or retail stores. However, it is estimated that

there is scope such development in industries that specialize
business-to-business
services,
childrens
services,
and
computers.
4.12 MYTHS
Some franchises operate under certain myths such as:
Conflicts
can
be
avoided
through
effective
communication. The arrangement is based on contract,

and problems should be addressed quoting the contract
and proposed legal action.
Good franchises are those who follow the system and
bad ones are those who always call the corporate office
questioning the policies and practices.
Franchisers should take a position and stick to it.
Franchisers never do something without receiving
something in detail.
4.13 PROBLEMS
It is assumed that the franchisee benefits as an
entrepreneur in a pre-packaged program, a super efficient
distributor of services and goods through a decentralized
network. The franchise has the freedom to evolve new
methods and headquarters will provide data and support to
- 38 -
fellow franchisees. Many franchisers like Alpha Graphics and

Taco John have created a new co-operative relationship with
franchisees.
The International Franchise Association claims that only
5% of franchisees are terminated annually. But some think
that the failure rate is far higher and touch almost 35%.
There are attempts in reducing the troubles through the
setting up of franchisee advisory council and improving
communication between the franchiser and the franchisees.
4.14 FRANCHISEE ADVISOR COUNCIL
It is formed by a group of franchisee owners who meet
regularly to discuss among themselves and with company
executives. Franchisees need to start a FAC as soon as there
are 50 to 100 of them in business. This will allow franchisees
to affect constructively the way a company interacts with its
franchisees. FACs are valuable when they encourage joint
decision
making,
encourage
feedback
from
all
the
franchisees, and open two-way communication. The success

of FACs depends on some key factors such as - follow-up,
effective communication, accountability, and positive team
attitude.
5. FRANCHISING IN INDIA
Executives of western franchise companies immediately
become excited over the numbers of potential customers
- 39 -
and franchise owners possible in India. The reality is that

franchising has only begun to take hold in India, the largest
democracy in the world with over 1 billion people.
Franchising is not a new concept in India. Soft drinks
and hotel franchises arrived in India in the 1960s, but in the
1970s and 1980s, the government expelled foreign brands
from India. Some international franchises have recently
come back to India and are doing well. Hotel business like
Best Western Group and the Quality Inn Group have
established
themselves.
Also,
Walt
Disney
has
been
successful in having its label in all sorts of goods for children,

whether they are clothing, toys, and school equipments. Fast
food chains like McDonalds, Slice of Italy, Dominos, Taco Bell
have also come in. Pepsi and Coke have re-captured the soft
drinks market. Raymond has used franchising extensively to
reach the market place - so has Titan more recently. The
recent entry of a host of multinationals has seen franchising
gain prevalence. More and more companies seem inclined to
go in for the let someone do your business for you.
Given the diversity of existing formats in India, there is

some confusion as to which ones can be termed to fall under
the definition of a franchise. While Bata, which has only a
handful of their 1,500-odd stores, franchised, McDonalds
operates through a JV and Color Plus has all almost all of its
- 40 -
retail outlets franchised. However, the following issues are

broadly agreed upon as forming the heart of franchising:
The principle of standardization.
The principle of formalized revenue sharing.
The principle of operational control.
The principle of continuity typically, a franchiser
perfects a business system, develops a product or a
marketing mix, and then franchises it. Franchisers
provide
supports
such
as
training,
management
system, advertising and marketing.
5.1 FRANCHISING: A TOOL FOR ECONOMIC GROWTH IN

INDIA
Franchising permits businesses to grow more rapidly
than any other method. By increasing the efficiency by which
goods and services are distributed, it brings impressive gains
- 41 -
to any economy. On a cultural level, franchising is one of the

few developments that generate employment, earnings and
entrepreneurship
at
the
same
time.
It
disseminates
ownership rights and decision- making power to thousands

of
small-unit
operators.
For
developing
countries,
or
countries shifting to a market economy, franchising has the

effect of creating relationships between one economy and
another. It promotes sharing of technologies, trademarks,
marketing, intellectual property and even architectural
designs.
Franchising is a particularly good developmental tool in
any part of the world where financial resources are short and
the need to stimulate individual initiative is acute. There are
no tariff barriers to be dealt with. It puts little strain on the
receiving
country's
balance
of
payments.
Thus,
not
surprisingly, awareness of the benefits of this business

formula is growing at an international level.
Franchising is one of the world's fastest growing and

most lucrative industries. Franchise businesses will be
turning over an estimated $ 1 trillion (which is roughly
equal to ten times the size of Indias current GDP). Today,
there are over 40,000 franchisees existing in India. The
- 42 -
annual turnover of these franchisees is between Rs.8, 00010,000 crores.

Franchising awards India an opportunity to build its
commercial infrastructure and develop its domestically
oriented businesses in an efficient and profitable manner. It
also offers India the opportunity to import and develop
foreign concepts in away, which ensures that the equity of
the business remains in India, so avoiding the politically
desirable
situation
whereby
foreign
corporations
own
successful domestic businesses.

Franchising in India is dominated by the IT education
sector, which alone accounts for 40 per cent of the Indian
franchising business. According to Gaurav Marya, CEO of The
Franchising World, IT education can be termed the pioneers
in the franchise industry in India. NIIT and Aptech are two
Indian
IT
franchise
companies
that
have
successfully
expanded to 2400 outlets and they have a presence in

almost 52 countries.
The key attractions of franchising in India are as

follows:
Lower capital Requirements: Franchising is an
- 43 -
excellent way for both Indian and foreign corporations

to expand their businesses and make their brand
names known in India without having to risk large
sums of money by Way of direct investment. The
franchisees finance the expansion of the business in
India. In return they have the opportunity to make
substantial income and capital profits.
Geographical extent of the country: Franchising
can enable a company to take advantage of the vast
Indian market of over 1000 million people and growing
at a rate of 1.9% p.a. There is an ever-growing demand
of
goods
beverages,
and
services
clothing,
such
electronic
as
fast
goods,
food
and
computer
hardware and software and professional services. The

infrastructure is poor, however, and operating a
corporately
owned
distribution
system
that
fully
exploits the geographical expanse of the country is

extremely
difficult
and
inefficient.
Empowering
participants in the distribution system by granting

them an equity interest in it (i.e. by granting a
franchise) can substantially improve the efficiency in
the distribution system.
- 44 -
Cultural
Empathy:
Franchising
well
suits
the
entrepreneurial side of Indian culture. Indian business

people are fiercely proprietary and feel a need to have
ownership and control over their business operations
which
they
can
pass on
to
future
generations.
However, at the same time they are keen to benefit

from the goodwill and technology that can be provided
by the foreign franchiser. Franchising allows them to
reconcile these conflicting ambitions.
Harnessing
local
market
knowledge:
Indian
master franchisees offer the foreign franchisers direct

access
to
considered
substantial
and
market
sophisticated
knowledge
approach
and
to
a
its
exploitation. A company needs a great deal of

knowledge of the different regional markets in India.
What holds good for Punjab may not be relevant for
Kerala. Franchising provides a sure and easy way of
accessing the right level of relevant local market
knowledge.
- 45 -
5.2
BASIC
NORMS
FRANCHISING IN
TO
BE
FOLLOWED
WHILE
INDIA
Permission of the Central Bank in India- The Reserve

Bank of India is required to bring in capital and set up
a base for carrying on such activities. The standard
method of setting base in India would be to depute a
foreign national to India as an advisor or make him
take up employment in the Indian partner. This cuts a
lot of red tape as there would be no burden of
remitting foreign exchange to the franchisers country
and the concerned foreign national may earn his pay
in Indian currency and utilize it in India itself. All
expenses of the concerned foreign national will also be
borne by the Indian partner in local currency.
A foreign franchiser not wishing to make a direct

investment but merely intending to render technical
assistance for a recurring franchise fees will have to
secure the Reserve Bank of India's approval. The
Master Franchise agreement has got to be approved
by the apex bank, which regulates the inflow and
outflow of foreign investments.
- 46 -
A foreign franchiser can generally own upto 51% of the

share capital leaving the rest to the Indian side. There
is an automatic approval mechanism to enable such
investments. Since the apex bank's permission is
required to repatriate profits, this matter should be
clearly
incorporated
in
the
Master
Franchise
agreement.
Foreign technicians can visit India to train Indian

partners for an initial period of three months. This can
be extended to a further period of three months.
Indian visas can be obtained from the Indian embassy
and Consulates in the franchisers country.
Remuneration to such foreign technicians has also to

be incorporated in the Master Franchise Agreement so
that it can be approved up front. All payments made to
foreign technicians will bear an additional of 5% under
the Indian Research & Development Act.
- 47 -
6. FRANCHISING OF FOOD AND RESTAURANTS SECTOR

IN INDIA
The franchise economy is heating up India. A new breed
of players is moving in with an exciting array of business
concepts. This grounds well of activity is throwing up new
opportunities for entrepreneurs and also creating new jobs.
Although in a nascent stage, franchising is gaining
popularity in the retail segment in India, more particularly in
the areas of food products, drinks and fast food chains.
The food services and products franchise industry has
dramatically increased its presence within the world of
franchises over the past decade. Contributing to its growth is
the
rampant
expansion
of
food
related
franchises
throughout the nation. The number of fast food chains,

restaurants, coffee shops, and hotels is huge. The hospitality
business records billions of dollars annually in beverage
sales and there are thousands of new establishments
opening every day. Franchising is one of the most effective
systems for the distribution of goods and services.
There are a number of homegrown & foreign brands
that are developing in India under the food and beverage
- 48 -
industry some of the well-known brands which have adopted

franchising as a mode of business are Pizza Hut, McDonalds,
Domino's Pizza, Hot Breads, Barista, Qwiky's Nirulas, Sagar
Ratna, Pizza Corner etc and among these there are many
international brands which have fast food chains like Taco
Bell, Subway, McDonalds, Dominos Pizza, and Kentucky
Fried Chicken.
Food segment has always been the favorite franchisees
in India and it is expected that roughly USD 2.5 million will
flow into this sector in this year, through franchising. The
potential is immense in the specialized food segment.
6.1 STUDY OF THE FOOD & RESTAURANTS SECTOR

Introduction
It has been proven that franchise, if administered in an
appropriate package can help rapid growth of business. Mc
Donald's, Dominoes, Pizza Hut, etc., are live examples of
stupendous
growth
through
franchise.
The
following
statistics, relating to the year 2002, give an idea of the

magnitude of their businesses.
- 49 -
Fig: - 1
Firm
No. Of Units
Sales in $
millions
Mc Donald's
11,120
17,535
Dominoes
7,945
4.900
Pizza Hut
7,684
3,330
Source: S.Shiva Ramu, Franchising, Wheeler Publishing Co.,

New Delhi, 2004.
6.2 PEPSI AND COCA-COLA
- 50 -
We find that both Pepsi and Coca-Cola, franchise giants

in the domain of food and beverages, found India to be a
potential
market.
They
launched
vigorous
advertising
campaigns with a view to increase the market share. In

1993, after a sixteen-year absence from India, Coca-Cola reentered the Indian market for soft drinks via Parle, which
accounted for 60% of the $400 Million Indian soft drinks
market. A joint venture agreement ensured for Coco-Cola
that Parle would make available to Coca-Cola all of its 60
franchises for production, bottling and distribution. As of the
first quarter of 1997 Coke had a 13% market share in the
cola segment and Pepsi had 27%. These two companies by
now have a substantial presence in India, thanks to the
aggressive advertising, which they do especially during the
increasingly
popular
cricket
events.
Incidentally,
the
competition between Coke and Pepsi led to a revitalization of

the local Cola brand ie Thumps- Up.
According to the US dept. of Commerce, the retail sales
- 51 -
of the franchised companies amounted to about $2.1 Billion

in
1991
thus increasing the
sales
of the
franchised
companies almost by three times.
6.3 DOMINOS
Dominos Pizza, which opened a small restaurant in one

of the New Delhis drive areas in 1996, serves pizzas and
cokes. The right to open Dominos franchises in India
belongs to the Bhartiya family, the industrialists who are
better known for chemicals and fertilizers.
It was opened on New Years Eve with no advertising,

has helped dominos escape confrontation with fast food
critics. Domino has omitted pepperoni, the beef-based
topping popular with Americans, from its menu here.
Vegetarian offerings dominate non-vegetarian ones in the
menu.
- 52 -
6.4
AMERICAN TRICON RESTAURANTS

RESTAURANTS INTERNATIONAL
AND
YUM
The first outlet of Pizza Hut was set up in India in 1996,

and Global Investment Partners, a retailfocused investment firm based in Bangkok
and Geneva, set it up but the company found
the going tough initially. Things eased out
when Pizza Hut, similar to other fast food
restaurants like McDonalds and Dominoes, started
Indianising the menu. Hence, first in its history, a 100-per
cent vegetarian restaurant was established in Ahmedabad,
with plans for similar all-veggie ones in other cities.
At present, Tricon operates about 29 Pizza Hut outlets

across 11 cities and has a single KFC restaurant, in
Bangalore, in India. Among Tricons three brands, Pizza Hut
has the maximum number of outlets worldwide, followed by
KFC and Taco Bell Mexican food outlets. The company
believes that India, owing to its size and growing aspirations
of an upwardly mobile middle class, is a critical market in its
overall scheme of things. The main the focus for Tricon is the
growth of the Pizza Hut chain of restaurants, and then it will
soon introduce the Taco Bell chain of Mexican restaurants
here and focus on expanding the Kentucky Fried Chicken
(KFC) chain of outlets. It is also planning to have about 100
- 53 -
Pizza Hut restaurants, across 20 cities in India by 2004. Pizza

Hut marks its presence in fresh markets like Surat and
Baroda.
Today, the Pizza Hut chain operates through four
franchisees Devyani International in the north, Favorite
Food India in Mumbai, Dodsal Indmag in Gujarat, Andhra
Pradesh and Karnataka, and Pizzeria Pure Foods Restaurants
in Tamil Nadu and the rest of Maharashtra. Tricon provides
the marketing support and supply chain management.
- 54 -
7. MCDONALDS FRANCHISING
7.1 INTRODUCTION
We
have
an
obligation
to
give
back
to
the
communities that gives us so much Ray Kroc, 1955.
McDonalds started in 1931 and today has a franchisee

network spanning across the globe. Today McDonalds
international presence is such that the Big Mac Price is based
on the price of the Big Mc Burger.
McDonalds has accomplished its vision of providing
quality, service, cleanliness and value, which would be a
dream of every organization. It focuses on continuous
process and product innovation. McDonalds has carved a
niche for itself in the global market and has built up the
reputation of being one of the most prestigious MNCs in the
world. It has today a franchise network of more than 30,000
outlets across the globe.
- 55 -
The phenomenal growth for a firm which had modest

start as a drive-in restaurant promoted by Dick & Mac in
1940 goes to prove that franchise is the sky rocketing path
to attain rapid growth in business. Their motto of In
business for you, not by yourself is the watchword in these
days of intense competition and huge requirements of
capital to be invested.
Their business principles are:
Quality
Service
Cleanliness
Values
Being in vast fast food business, they gave priority to

the aforesaid four principles, which include cleanliness,
which is perceived by many a customer to be a very
important pre-requisite for them to eat at a restaurant.
McDonald's success is often attributed to the unique

partnership among the "McFamily" - frequently described as
a three-legged stool. This means that the company, the
franchisees and the suppliers each support the weight of
McDonald's system equally.
- 56 -
7.2 MCDONALD'S COMMITMENT TO THEIR EMPLOYEES

- FIVE PEOPLE PRINCIPLES
McDonald's and its independent owner/operators have
made a commitment to our employees that we strive to
achieve with our actions every day. And to make sure we
deliver on this promise, we have in place five people
principles. These people principles reflect McDonald's values
and describe the culture we embrace.
To the 1.5 million people who work at McDonald's in 119
countries around the world, and to all future employees, we
want you to know that: "We Value You, Your Growth and Your
Contributions", this is their People Promise they believe in:
1.
Respect and Recognition

Managers treat employees, as they would want to be
treated.
Employees are respected and valued.
Employees are recognized formally for good work
performance, extra effort, and teamwork and customer
service.
2.
Values and Leadership behaviors

All of us act in the best interest of the Company.
We communicate openly, listening for understanding
and valuing diverse opinions.
- 57 -
3.
Competitive Pay and Benefits

Pay is at or above local market
Employees value their pay and benefits.
4.
Learning, development and Personal Growth

Employees receive work experience that teaches skills
and values that last a lifetime.
Employees are provided the tools they need to develop
personally and professionally.
5. Resources to Get the Job Done

Employees have the resources they need to serve the
customer.
Restaurants are adequately staffed to allow for a good
customer experience as well as to provide schedule
flexibility, work-life balance and time for training.
- 58 -
7.3 MCDONALD'S COMMITMENT TO QUALITY AND

SAFETY
Over the years, McDonald's has been a leader in setting
and strictly enforcing high quality and safety standards-often
exceeding those established by industry and governments.
Quite simply, quality and safety are the most important
items on their menu, so their customers can have confidence
in McDonald's. They are aligned with world-class suppliers
that share their high standards, and the restaurant staffs are
equipped to deliver on them every day.
7.4 FOOD QUALITIES AND SAFETY
McDonald's Quality Assurance Board, along with the
Global Safety and Security Department, provides strategic
global leadership for all aspects of food quality and safety.
Further, their quality assurance and supply chain, and safety
specialists around the world, work with the McDonalds
suppliers to ensure compliance with their standards. They
operate quality assurance labs around the world, where
ongoing product reviews and enhancements take place. In
addition, they work closely with their suppliers to encourage
innovation, assure best practices and drive continuous
improvement.
Further
reinforcing
their
commitment
to
quality, they have been recognizing exceptional excellence

among their suppliers since 1990 with the Sweetney Quality
Award. This award was named in honor of a supplier who
- 59 -
exemplified a commitment to their high standards. Clearly,

their criteria for recognizing excellence has been validated
by the fact that their Sweeney Quality Award winner in 1998
Sunny Fresh Foods, a supplier of egg products to the
McDonald's System-won the prestigious Malcolm Baldrige
National Quality Award the following year.
High standards also are essential to the operations of
their restaurants. Proper food storage, handling and cooking
practices are an integral part of their training materials and
a food safety check list is used daily in their restaurants to
validate that food safety standards and procedures are in
place. In addition, their restaurants are inspected for safety
compliance.
7.5 SAFE FUN FOR CHILDREN

Parents can be confident that McDonalds Happy Meal
toys and Play Places are safe. For years, they have been
using state-of-the-art technology to scientifically analyze the
safety
of
toys
and
other
promotional
items
for
the
McDonald's System. They also have been working with the

world's leading manufacturers and installers of fun and safe
playground equipment and renowned safety consultants so
that playtime at McDonald's meets their strict specifications.
- 60 -
7.6 MCDONALDS COMMITMENT TOWARDS

ENVIRONMENT
McDonalds believes it has special responsibility to
protect
the
environment
for
future
generations.
This
responsibility is derived from their unique relationship with

millions of consumers worldwide- whose quality of life
tomorrow will be affected by their stewardship of the
environment today. McDonalds have realized that in todays
world, a business leader must be an environmental leader as
well.
McDonalds environmental commitment and behavior is
guided by the following principles:
Effectively
Managing
Solid
Waste:
They
are
committed to taking a total life cycle approach to

solid waste, examining ways of reducing materials used
in production and packaging, as well as diverting as
much waste as possible from the solid waste stream. In
doing so, they follow three courses of action: reduce,
reuse and recycle.
Conserving and Protecting Natural Resources:
McDonalds will continue to take aggressive measures
to minimize energy and other resource consumption
- 61 -
through increased efficiency and conservation. This

policy is strictly enforced and closely monitored.
Encouraging Environmental Values and Practices:
With the relationship with local communities around the
world, they believe they have an obligation to promote
sound environmental practices by providing educational
materials in their restaurants and working with the
teachers in the schools. They intend to continue to work
in partnership with their suppliers in the pursuit of
these policies. Their suppliers will be held accountable
for achieving mutually established waste reduction
goals,
as
well
as
continuously
pursuing
sound
production practices, which minimize environmental

impact. Compliance with the policies will receive
consideration to other business criteria in evaluating
both current and potential McDonald's suppliers.
Ensuring Accountability Procedures: McDonald's
understands
that
commitment
to
strong
environmental policy begins with leadership at the top

of an organization. Therefore, their environmental
affairs officer will be given broad-based responsibility to
ensure adherence to the environmental principles
throughout the system. This officer will report to the
board of directors on a regular basis regarding progress
- 62 -
made toward specific environmental initiatives.
7.7 MAC IN INDIA

India opened its doors to McDonalds in October 1996.
Ever since, family restaurants in Mumbai, Delhi, Pune, Jaipur,
and many other cities have been developing.
McDonald's India is a synergy of globally acclaimed
skills with Indian expertise. McDonalds ventures are owned
and managed by Indians namely Amit Jatia with Hardcastle
restaurants
pvt.
Ltd.
owns
and
manages
McDonalds
restaurants in Mumbai and Pune. In Delhi, Jaipur and

Mathura,
i.e.;
mainly
the
northwestern
part of
India,
McDonalds is owned and managed by Vikram Bakshis

Connaught Plaza Restaurants Pvt. Ltd.
A Recognized Premier Franchising Company

McDonald's continues to be recognized as a premier
franchising company around the world. Perhaps the fact that
McDonald's
management
franchisees
has
something
listens
to
do
so
carefully
with
to
McDonalds
its
is
perennially named as Entrepreneur Magazine's number one

franchise.
- 63 -
A Partnering Relationship
Our franchising system is built on the premise that the
Corporation can be successful only if our franchisees are
successful first. We believe in a partnering relationship with
our owner/ operators, suppliers and employees. Success for
McDonald's Corporation flows from the success of its
business partners.
7.8 SUPPLY AND DISTRIBUTION OF RAW MATERIALS
TO THE VARIOUS OUTLETS
Supply
McDonald's India's local suppliers provide the highest
quality,
freshest
ingredients
to
make
their
products.
Complete adherence to the Indian government regulations

on food, health and hygiene is ensured, while maintaining
their own recognized international standards.
McDonald's has spent few years setting up a unique
Cold Chain. The Cold Chain is necessary to maintain the
integrity of food products and retain their freshness and
nutritional value. It refers to the procurement, warehousing,
transportation and retailing of food products under controlled
temperatures. Setting up the Cold Chain has involved the
- 64 -
transfer of state-of-the-art food processing technology by

McDonald's and its international suppliers to pioneering
Indian entrepreneurs, who have now become an integral part
of the cold chain.
Vital Links in the McDonalds Cold Chain
All suppliers adhere to Indian government regulations
on food, health and hygiene while continuously maintaining
McDonald's recognized standards. As the ingredients move
from
farms
to
processing
plants
to
the
restaurant,
McDonalds Quality Inspection Program (QIP) carries out

quality checks at over 20 different points in the Cold Chain
system. Setting up of the Cold Chain has also enabled them
to cut down on operational wastage.
Hazard Analysis Critical Control Point (HACCP) is a
systematic
approach
to
food
safety
that
emphasizes
prevention within their suppliers facility and restaurants.

DISTRIBUTION
Vista Processed Foods Pvt. Ltd.
Supplier of Chicken and Vegetable range of products
(including Fruit Pies)
A
joint
venture
with
OSI
Industries
Inc;
USA,
McDonald's India Pvt. Ltd. and Vista Processed Foods Pvt.

Ltd., produces a range of frozen chicken and vegetable
- 65 -
foods. A world-class infrastructure at their plant at Taloja,

Maharashtra, has:
Separate processing lines for chicken and vegetable

foods.
Capability to produce frozen foods at temperature as
low as 35 degree Celsius to retain total freshness.
International
standards,
procedures
and
support
services.
DYNAMIX DAIRY
Supplier of Cheese:
Dynamix has brought immense benefits to framers in
Baramati, Maharashtra by setting up a network of milk
collection
centers
equipped
with
bulk
coolers.
Easy
accessibility has enabled farmers augment their income by

finding a new market for surplus milk.
AMRIT FOOD
Supplier of long life UHT Milk and Milk Products for Frozen
Desserts, Amrit Food is an ISO 9000 Company. The
factory has:
- 66 -
State-of-the-art fully automatic machinery requiring no

human contact with product, for total hygiene.
Installed
capacity
of
6000
liters/hr
for
producing
homogenized UHT (Ultra High Temperature) processed

milk and milk products.
Strict quality control supported by a fully equipped
quality control laboratory.
7.9 BUSINESS QUALIFICATIONS MCDONALDS SEEK IN
ITS POTENTIAL FRANCHISEES:
The
following
qualifications,
among
others,
are
essential to be considered for a McDonalds franchise:

High personal integrity.
An entrepreneurial spirit and strong desire to succeed.
A proven ability to motivate and train people.
The ability to manage finances.
A willingness to personally devote full time and best
efforts to the day-to-day operation of the restaurant as
an on-premise owner-operator.
A willingness to complete a comprehensive training
program and become proficient in all aspects of
operating McDonalds restaurant business.
- 67 -
7.10
OFFERS
GIVEN
TO
THE
FRANCHISES
BY
MCDONALDS:
Support in the areas of operations, training, advertising,
marketing, real estate, construction, purchasing and
equipment.
Personal satisfaction both as an owner/operator and as
a member of McDonalds worldwide organization.
Personal
growth
and
business
knowledge
from
McDonalds extensive training.

STATISTICAL DATA
1) Frequency of visiting McDonalds
Daily
Once or Twice a
Once or Twice a
week
Month
10
11
Rarely
- 68 -
INTERPRETATION OF DATA
From the survey it was found that 37% of the people
visit McDonalds once or twice a month, whereas 33% of the
people visit it once or twice a week and nearly 30% of the
people visit rarely.
2) Service Responsiveness
Quick
20
Satisfactory
Slow
- 69 -
ANALYSIS OF THE DATA

McDonalds is famous for its Fast, Friendly service. The
set up and the distribution of items and their packaging is
such that the customers do not have to wait in long queues
for the service. Also, during weekends when the place gets
very crowded, they have made arrangements to avoid chaos
and ensure prompt and efficient service. The estimated
customer rate at McDonalds per day ranges from around
250-350 at each outlets.
It is an unflinching ideology that the customer, must
always get quality products, served quickly and with a smile,
in a clean and pleasant environment; and sell at a fair price.
3) Behaviour of staff members
Courteous
25
Not so courteous
Rude
- 70 -
ANALYSIS OF DATA
From the survey it can be seen that the staffs behavior
is very courteous. The staff at McDonalds generally consists
of college students and youngsters; the main reason behind
this is that they can mould the freshers according to the
needs of the organization.
They follow a very structured form of training. There are
specific training courses that the trainees have to attend.
The
entire
staff
is
provided
training
on
hospitality
management and many other things like maintaining the

stringent quality standards, ensure that all tables, seating,
chairs and trays are sanitized several times each hour.
4) Quality and taste of items
YES
NO
27
- 71 -

In McDonalds they take great care to ensure that the
purity, cleanliness, quality and taste is the same in each
outlet. Despite the extensive and meticulous quality tests at
the supplier end, all products are once again carefully
scrutinized at the restaurant.
5) Option to Prefer
McDonald
s
Pizza Hut
Dominos
25

Location: Majority of the people prefer McDonalds because
it possesses a very high franchising network, and
the locations of these outlets are such that they can
- 72 -
be conveniently accessible by anybody unlike Pizza

Hut and Dominos.
Cost: The second and the most important reason is the cost
factor, McDonalds has price ranges to suit all
pockets. Their very popular Vanilla softy is just for
Rs.7 and McVeggie costs around Rs. 33, whereas a
normal pizza would cost around Rs. 135 at Pizza
Hut and Dominos.
Variety: The third reason is the variety of food items

available at all the three restaurants.
CONCLUSION
The biggest paradox of franchising in India is its absence
from the Food and Restaurants sector. While in most
countries, food chains are a major growth engine for
franchising activities; the scenario in India could not be
further removed. Food and Restaurants franchising has
never been able to take off in the country because of a
variety of factors:
Firstly, typical food franchises are fairly high on
investments that put them out of the investment
capabilities of ordinary franchisees.
- 73 -
Another major problem is quality. A large number of

franchisees lack the skills & the attitude to manage a
food business. Fearing loss of reputation, many F&B
companies avoid the franchise route to expansion there
is substantial interest from overseas F&B franchisers to
enter the Indian market through the master franchise
route.
And lastly, logistics & supply chain mechanisms in India
are still developing and any food chain aiming to
develop a national presence will have to consider heavy
investments
into
setting
up
its
own
logistics
infrastructure.
However, there is no doubt that there are still a lot

unfulfilled need gaps in the Indian Food Restaurants sector.
What is needed is a franchise model that takes into account
the nuances of the Indian market and also addresses all the
problems
mentioned
above.
In
fact,
several
domestic
companies are also looking at the franchise route to grow

aggressively in the domestic market. These include brands
across the spectrum including Subway, Qwikys, Sagar
Ratna, Movenpick, Amul, The Great Indian Kabab Factory,
Superstar
Bar,
Cookie
Man,
Bikano,
Rameshwars,
Merrybrown and Wimpy.
- 74 -
Despite being a country of over a billion people, we are

yet to have our first nationwide food chain. There is a lot of
scope in the Indian Food and Restaurants sector as the
success of coffee pubs has amply demonstrated.
Hence to conclude, while franchising, as a way of doing
business, has been known in the country for decades the
concept, until recently, was practiced in a very limited way
and in many cases was something for which one used the
spare real estate. With opening of the economy, the
environment for franchising, has in the last few years,
undergone a sea change.
With
our
vast
and
inherent
entrepreneur
talent,
franchising is now poised to help spur the economy, as it is

an excellent way of encouraging private enterprise; it fulfills
the growing need for connecting the customer through selfdriven localized business partners called franchisees, and
helps in establishment of global standards for products and
services. The practice of franchising is, thus, fast catching up
as is evident from the increasing number of examples we
see around us in diverse fields such as in Aptech and NIIT in
computer education, McDonalds and Dominos pizza in Food,
ABF and others in entertainment, DHL and Blue Dart in
- 75 -
couriers and many other examples in healthcare, fitness

centers and the like.
Above all this franchising affords India an opportunity to

build
its
commercial
infrastructure
and
develop
its
domestically oriented businesses in an efficient and a

profitable manner. It also offers India the opportunity to
import and develop foreign concepts in a way, which ensures
that the equity of the business remains in India, so avoiding
the
politically
undesirable
situation
whereby
foreign
corporations own successful domestic businesses.
- 76 -

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Franchising in Food and Restaurant Sector

FRANCHISING IN FOOD AND RESTAURANT

Franchising in Food and Restaurant Sector

Franchising of food and Restaurant Sector

Franchising in Food and Restaurant Sector

Franchising in Food and Restaurant Sector

1. INTRODUCTION TO THE PROJECT

ownership rights and decision-making power to thousands of

Franchising in Food and Restaurant Sector

1.1 OBJECTIVE OF THE STUDY

Franchising in Food and Restaurant Sector

2.2 HISTORICAL PRECEDENCE OF FRANCHISING

Franchising in Food and Restaurant Sector

During the middle ages, there was feudalism where

feudalism European monarchs gave, what may be described

business relationship and creates a format, which can be

Franchising in Food and Restaurant Sector

services using the franchisers trademarks, trade names and

3.1 WHAT IS FRANCHISING?

Franchising in Food and Restaurant Sector

plus assistance in organizing, training, merchandising and

paragraph system of legally independent enterprises on the

contribution it supplies work, capital and information.

Franchising in Food and Restaurant Sector

franchising" which was basically adopted in the western

franchising is not perfect, but it is the best method known to

Franchising in Food and Restaurant Sector

most things in life, careful preparation and meticulous

Franchising has served as a vehicle for small businesses

Franchising in Food and Restaurant Sector

individual businesses to grow while providing mutual selfhelp and support.

3.2 MODES OF FRANCHISING

Franchising in Food and Restaurant Sector

even if the franchise is exploited in another country.

Subsidiary or Branch Office:

Franchising in Food and Restaurant Sector

Area Development Agreements:

arrangement whereby the developer is given the right to

resources so as to be able to open the required number of

Franchising in Food and Restaurant Sector

sub-franchiser (the master franchise agreement) and a

Franchising in Food and Restaurant Sector

grant sub-franchises just as a normal sub-franchiser would

franchisee. New forms of franchising, or combinations of

Franchising in Food and Restaurant Sector

3.3 MARKETING ORGANIZATION:

Franchising in Food and Restaurant Sector

Retailers: McDonalds purchasing arrangements with

Franchising in Food and Restaurant Sector

1. Manufacturers and wholesalers

Franchising in Food and Restaurant Sector

arrangements are typical in the arrangements between

The franchiser is the grantor (giver) of the franchise. To be

Franchising in Food and Restaurant Sector

Strive for excellence in every facet of the business and

Franchising in Food and Restaurant Sector

Prepared to co-operate with the franchisers team as

Franchising in Food and Restaurant Sector

for each separate region. These franchises are known

Franchising in Food and Restaurant Sector

A product franchise, as the name suggests, focuses

opportunity to enter a business with a proven product,

The first generation business franchisees are known as

products to its sales force in the 19 th century. This is