An Assignment on the Topic FUNCTIONS OF RETAILING AND FRANCHISING SYSTEM IN RETAIL

For the subject of

Retail Marketing mba - 904

SUBMITTED TO: Dr. Rajan Sharma (Assistant Professor)

SUBMITTED BY: Harshul Nagpal Roll No. - 50 9th Semester Batch 2008-13

Institute of Management Studies, Kurukshetra University, Kurukshetra CONTENTS

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1. Retailing and its Functions

a) Introduction to Retailing b) Functions of Retailing

2. Franchising System in India

a) Introduction to Franchising b) Global Retailers c) Franchising in India d) Franchising Potential in India e) Regulation f) Rise of Franchising in Retail

3. Major Retailers in India

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REFERENCES13

RETAILING AND ITS FUNCTIONS

Meaning and Introduction
Retail is the sale of goods and services from individuals or businesses to the end-user. Retailers are part of an integrated system called the supply chain. A retailer purchases goods or products in large quantities from manufacturers or directly through a wholesaler, and then sells smaller quantities to the consumer for a profit. Retailing can be done in either fixed locations or online. Retailing includes subordinated services, such as delivery. The term "retailer" is also applied where a service provider services the needs of a large number of individuals, such as a public utility, like electric power. Shops may be on residential streets, streets with few or no houses or in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing. Shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase.

Functions of Retailing
Retailers provide important functions that increase the value of products and services they sell to consumers and facilitate the distribution of those products and services for those who produce them. Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and consumers. In this context, they perform various functions like sorting, breaking bulk, holding stock, as a channel of communication, storage, advertising and certain additional services. 1. Sorting / Providing Assortments
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Manufacturers usually make one or a variety of products and would like to sell their entire inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer a large variety of goods and services to choose from and usually buy them in small quantities. Retailers are able to balance the demands of both sides, by collection an assortment of goods from different sources, buying them in sufficiently large quantities and selling them to consumers in small units. 2. Breaking Bulk Breaking bulk is another function performed by retailing. The word retailing is derived from the French word retailer, meaning to cut a piece off. To reduce transportation costs, manufacturers and wholesalers typically ship large cartons of the product, which are then tailored by the retailers into smaller quantities to meet individual consumption needs. 3. Holding Stock Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an inventory that allows for instant availability of the product to the consumers. It helps to keep prices stable and enables the manufacturer to regulate production. Consumers can keep a small stock of products at home as they know that this can be replenished by the retailer and can save on inventory carrying costs. 4. Additional Services Retailers ease the change in ownership of merchandise by providing services that make it convenient to buy and use products. Providing product guarantees, after-sales service and dealing with consumer complaints are some of the services that add value to the actual product at the retailers end. Retailers also offer credit and hire-purchase facilities to the customers to enable them to buy a product now and pay for it later. Retailers fill orders, promptly process, deliver and install products. Salespeople are also employed by retailers to answer queries and provide additional information about the displayed products. The display itself allows the consumer to see and test products before actual purchase. Retail essentially completes transactions with customers. 5. Channel of Communication
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Retailers also act as the channel of communication and information between the wholesalers or suppliers and the consumers. From advertisements, salespeople and display, shoppers learn about the characteristics and features of a product or services offered. Manufacturers, in their turn, learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can then modify defective or unsatisfactory merchandise and services. 6. Transport and Advertising Functions Small manufacturers can use retailers to provide assistance with transport, storage, advertising and pre-payment of merchandise. This also works the other way round in case the number of retailers is small. The number of functions performed by a particular retailer has a direct relation to the percentage and volume of sales needed to cover both their costs and profits. 7. Increasing the Value of Products and Services By providing all the above mentioned services of sorting, breaking bulk, holding inventory and many more, retailers increase the value of products and services for the consumers. Here, the value of the product or service is related to the additional benefits provided by the retailer through which a customer feels more connected, satisfied and value the product or service being received.

FRANCHISING SYSTEM IN RETAIL

Meaning
Franchising is a contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor.

Introduction
In a franchise contract, the franchisee pays a lump sum plus a royalty on all sales for the right to operate a store in a specific location. The franchisee also agrees to operate the outlet in accordance with procedures prescribed by the franchisor. The franchisor provides assistance in locating and building the store, developing the products or services sold, training managers, and advertising. To maintain each franchisees reputation, the franchisor also makes sure that all outlets provide the same quality of services and products. The franchise ownership format attempts to combine the advantages of owner-managed businesses with the efficiencies of centralized decision making of chain store operations. Franchisees are motivated to make their store successful because they receive the profits (after the royalty is paid). The franchisor is motivated to develop new products and systems and to promote the franchise because it receives a royalty on all sales. Advertising, product development, and system development are efficiently done by the franchisor, with costs shared with all franchisees. Retailers Using Franchise Business Model Food Retailers Haldiram Baskin Robbins Dominos Pizza Subway India Vadilal KFC
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Services Retailers Air Hostess Academy Lakme Beauty Salon Shahnaz Herbal Wind Shield Experts Aptech Computer Education VLCC Healthcare

Merchandise Retailers Good Things Maspar Ddmas The Ceat Shoppe Koutons Reynolds Ebony Lilliput

Reliance World Sharekhan Ferns N Petals Big Flix Reliance AutoZone ADLABS Blue Dart GATI

Franchising in India
Franchising is one of the fastest growing and ever changing industry in India. Though at a nascent stage, the industry has witnessed 30 to 35 per cent growth in the last 4-5 years. Home to over a billion people, including a flourishing class of urban consumers possessing considerable amounts of disposable income together with the continued growth of the economy have strengthened Indias claim to be a viable and beneficial destination for a foreign franchisor. In the USA, almost a third of the retail sales come from franchised outlets, with sales of trillions of dollars while in India, the industry is few million. An important aspect which determines the feasibility of any franchising business in a country relates to the class of consumers it caters to. India is a multi ethnic country with the second largest population in the world. Indian consumers have experienced the standard of services offered overseas and have sufficient exposure through media, which has further fuelled their expectations. There are approximately 1150 national and international business format franchise systems in India in 2007. Around 8 to 10 per cent Indian franchise systems have entered international markets. There are an estimated 70, 000 units operating in business format franchises. The growth rate in franchised units from 2005-06 to 2006-07 was 30 to 35 per cent.
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Some 500000 persons are employed in business format franchise organizations. Franchising contributed less than 4% to Indias Gross Domestic Product (GDP) in 2007. Annual turnover is approximately US$ 4 billion.

Almost every product or service has a market in India but sometimes, innovative strategies like Indianisation of its products and marketing techniques must be employed by a foreign franchisor to further access the sizable market of India. In a franchised business, over 90 per cent succeed. This success rate usually lures entrepreneurs with no experience but with a surplus capital and a will to succeed towards franchising. The franchisee benefits from a tried tested and proven business concept, which can dramatically reduce the chances of failure.

Franchising Potential in India

Though the Franchising in India is at a very nascent stage, but this industry has clocked the growth rate of 25-30 per cent, the second fastest growing industry. Organized retailing though only at 6 per cent of the retailing, will take off in a very big way. The Indian middle class is slowly expanding and now buys consumer appliances with more disposable income. India offers lot of potential for the franchising community. Apart from Indians being very entrepreneurial, franchising as a way of doing business has been well accepted.

Regulation
The franchising of goods and services foreign to India is in its infancy. The first International Exhibition was only held in 2009. India is, however, one of the biggest franchising markets because of its large middle-class of 300 million who are not reticent about spending and because the population is entrepreneurial in character. In a highly diversified society, McDonald's is a success story despite its fare's differing from that of the rest of the world. So far, franchise agreements are covered under two standard commercial laws: the Contract Act 1872 and the Specific Relief Act 1963, which provide for both specific enforcement of covenants in a contract and remedies in the form of damages for breach of contract.

Rise of Franchising in Retail

Even as retailers shelved their expansion plans last year and struggled to keep company-owned stores running, they figured out a way to multiply their stores and sustain business through franchising. Franchise India Holding Ltd, a counselling and partnering firm for the franchise industry, estimates a rise in the adoption of franchise model by small-format retail players in the country since the slowdown last year. As per its estimates, 85% of all small-format retail business in India now operates on the franchise model. Earlier, only 50% of small-box retail companies in India operated through franchise model, while the rest is operated only through company owned stores. This is a very significant growth from what it used to be a year or two ago, Gaurav Marya, president, Franchise India Holding said. During the recession, most retailers were starved of capital for expansion. Franchising offered a model to sustain their business. That was when we saw the growth in retail and companies that were earlier not franchising started looking at the model, Marya said. Brands such as Koutons, Levis, Reebok and Adidas, which were traditionally not franchising, have lately started looking at the model. So much so, the retail format ratio for most brands now stands at 80% dedicated to franchising and 20% for company run at strategic locations. According to Franchise India, large-box retailers typically desist from taking the franchise route, although some, like Trents Westside chain, are franchised. Videocon India, which runs two types of retail formats Next (electronics chain) and Planet M (music and departmental chain) is now starting to franchise Planet M, which was earlier being expanded through company-run stores. Bata India, the largest retailer and manufacturer of footwear in the country with 1,200 stores, is starting its own franchise network to expand retail presence in a few months, Marcelo Villagran, managing director and chief executive officer of the company, had told DNA Money in October. Bata is looking at opening 60 flagship stores every year
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and tapping the franchise model will help the brand accelerate further in the market that is getting highly competitive. Cookie Man, the retail chain store owned by Australian Foods Ltd, which runs over 50 stores across India, is looking at reaching a total of 250 stores through franchising in another 5-6 years. Not only does the franchisee bring in the capital, but also, the retailers are able to save 4-8% on the point of sales, Marya of Franchise India said. Currently, 45% of organised retail sales in India are through franchised outlets. This is in line with the developed world countries like US and Europe, where these models are well incepted in the business world. As per Franchise India estimates, the fashion retail industry in the country is pegged at $29 billion and growing at 12% per annum. India is now opening up as a competitive apparel retail market. The market potential for footwear is 1.1 billion pairs and it is estimated to be a $2 billion sector. The jewellery market is estimated at $9.7 billion, with gold contributing 98% to retailing. And the industry is touting retail franchising as the best mode of tapping the markets potential.

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MAJOR INDIAN RETAILERS

Indian apparel retailers are increasing their brand presence overseas, particularly in developed markets. While most have identified a gap in countries in West Asia and Africa, some majors are also looking at the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well. Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end. The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra Group is the fourth largest Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and Bharti Enterprises Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both. REI AGRO LTD Retail: 6TEN and 6TEN kirana stores Future Groups-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc. Raymond Ltd.: Textiles, The Raymond Shop, Park Avenue, Park Avenue Woman, Parx, Colourplus, Neck Ties & More, Shirts & More etc. Fabindia: Textiles, Home furnishings, handloom apparel, jewellery RP-Sanjiv Goenka Group Retail-Formats: Spencers Hyper, Spencer's Daily, Music World, Au Bon Pain (International bakery cafeteria), Beverly Hills Polo Club The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Croma. Reliance Retail-Formats: Reliance MART, Reliance SUPER, Reliance FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance Jewellery, Reliance Trends, Reliance Autozone, iStore Reliance ADAG Retail-Format: Reliance World K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper City, Inorbit Mall Nilgiris-Formats: Nilgiris supermarket chain
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Marks & Spencer: Clothing, lifestyle products, etc. Shri Kannan Departmental Store (P) Ltd ., : Groceries, Clothing, Cosmetics [Western Tamilnadu's Leading Retailer] Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores. Pyramid Retail-Formats: Pyramid Megastore, TruMart Vivek Limited Retail Formats: Viveks, Jainsons, Viveks Service Centre, Viveks Safe Deposit Lockers PGC Retail -T-Mart India, Switcher, Respect India, Grand India Bazaar,etc., Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom discount chain. Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket chain Vishal Retail Group-Formats: Vishal Mega Mart BPCL-Formats: In & Out German Metro Cash & Carry Shoprite Holdings-Formats: Shoprite Hyper Paritala stores bazar: honey shine stores Aditya Birla Group - "More" Outlets Kapas- Cotton garment outlets AaramShop - a platform which enables hybrid commerce for thousands of neighborhood stores. Nmart Retails with 131 operating Stores till now and total 287 Stores in India and 1 to open in DUBAI Shortly and many more in Process Globally (ZAMBIA, BANGLADESH, SRI LANKA etc.).

Gitanjali- Nakshatra, Gili, Asmi, D'damas, Gitanjali Jewels, Giantti, Gitanjali Gifts, etc.

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REFERENCES

Books

Levy, M. et.al: Retailing Management, 6th Ed.; Tata McGraw-Hill, New Delhi, 2008; pp 5, 6, 7, 75

Web Sites
http://www.franchiseindia.net/franchising-in-india.php http://www.dnaindia.com/money/report_rise-in-franchising-in-smallformat-retail_1329544

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