India Country Market
Insights and Opportunities
Overview: India is witnessing an unprecedented consumption boom, and despite the world wide general slowdown, India is still the second fastest growing economy in the world. India had a dream run of five years during 2003-08 as the GDP growth averaged nearly 9 per cent annually for five years. The Indian economy continues to grow, though the growth rate in the last fiscal year, at 6.7 percent, was not as high as in the previous years.
The growing economy and the resulting improvements in income dynamics are driving consumption demand in India. Favorable demographics and psychographic changes, relating to India's consumer class, international exposure, availability of quality retail space, wider availability of products and brand communication, are some of the factors that drive the retail and franchising sectors in India. There are lucrative opportunities in franchising in various product and service categories.
The Indian franchise market generated sales revenue of an estimated USD 2.7 billion during 2007-08. The Indian franchise industry has been recording an annual impressive growth rate of approximately 30 per cent. According to industry sources, with an investment of $1.1 billion, and a sales turnover of $2.7 billion, over 700 franchise ventures, including over 70 international franchise operations, successfully operate in the country. This trend is likely to continue for the next five years and beyond. Franchising is increasingly becoming the business model of choice, and is no longer limited to metropolitan centers and state capitals.
Opportunities: The top prospects for U.S. firms include: telecom, retail, education, garments and apparel, specialized food services, entertainment, courier services, stationary and gift shops, healthcare, fitness and personal grooming clinics. The top four sectors among these are: telecom, retail, food and education. With India crossing the 100 million mobile subscriber mark, and the Government of India (GOI) setting an ambitious target of creating 250 million subscribers by the end of 2008, the telecom sector is all set to witness a phenomenal growth in the near future. To increase the reach and growth, all the players in these sectors are taking the franchising route to expand.
Private telecom companies and service providers such as Airtel, Hutch, Reliance and Tata Indicom have all located their retail service centers across the country, and are encouraging entrepreneurs to partner with them. Nokia has also started setting up its exclusive franchised outlets across the country. Motorola, Samsung, LG, Spice and I Mate are others planning their exclusive outlets in the near future. A large section of the Indian population lives in the rural areas that have been ignored by many telecom companies so far. Presently, CDMA giant, Tata Indicom, is in talks with the Government to rope in local bodies as their franchisees for rural expansion. Thus, the telecom sector provides huge potential, benefiting professionals and entrepreneurs.
In the retail sector, there has also been a constant flow of real estate projects. With 300 malls and 1500 supermarkets, the Indian retail market will be thriving more than ever before. Many franchise businesses are into retail, contributing to the growth of the franchise sector. The industry expects space for 150,000 new outlets, 100 hypermarkets, 500 department stores, and 2000 supermarkets. By the year 2010-11, the demand for quality retail space grew to 300 million square feet, from 100 million in CY 2008. This will offer business, worth more than $17 million, for design, shop fit and support systems. Apart from retail and telecom, food and education sectors are showing promising trends. India is likely to see the addition of at least 400 restaurants, fast food outlets and coffee joints in the coming years.
Food chains such as Yum Brands, McDonalds, Dominos and Café Coffee Day have earmarked an estimated investment of over $750 million to expand their retail presence across the country. India currently has more than 900 fast food restaurants and coffee shops. Yum Brands, parent of the KFC and Pizza Hut fast-food chains, plans to add 30-40 restaurants in the next 12-18 months. Yum operates around 134 Pizza Hut restaurants in India and plans to scale up to 175 by 2010. Pizza Hut serves over 300,000 customers every week in India. It also runs 30 KFC outlets in the country and intends to add 15-20 new restaurants this year. Yum competes with McDonalds, Dominos, Pizza Corner and local brands such as Nirulas and Haldiram in the $280 million organized food and beverage retail sector, which is growing at around 25-30 per cent annually. Dominos Pizza India has announced an investment of $55 -58 million in India over the next three years for expanding its retail fast food chain and manufacturing capacities.
Like food franchises, the education and training franchise model is a success story in India. Today, franchise options exist for every consumer group from playschools to spoken English, computers to overseas education consulting. Many other areas of education also offer franchise opportunities in India.
In the education sector, education and training have been the favorites of the franchising business in India for several years now. Some experts believe that the real franchising revolution in India started with the emergence of national information technology (IT) education. According to IT magazine Data Quest, the $700 million IT education market in India is growing at 20 percent per year.