Franchise Business

Vikram's ₹18 lakh decision

Vikram had always wanted to start a food business. He had the capital — ₹18 lakh saved over five years working in hospitality in Gurugram. He had the energy. He had a location scouted in Dehradun near Clock Tower.

But he didn't have experience running his own kitchen. He didn't have a brand name. He didn't know how to build a menu, negotiate with suppliers, or set up delivery partnerships from scratch.

Then he saw the franchise opportunity. A well-known biryani brand — 120+ outlets across India — was looking for franchise partners in Uttarakhand. The pitch was compelling:

"We give you the brand. We give you the menu. We give you training, supply chain, marketing, and technology. You invest the capital and run the outlet. We both make money."

Vikram invested ₹18 lakh. The brand gave him 10 days of training, standardized recipes, a Swiggy/Zomato onboarding kit, marketing materials, a POS system, and a dedicated area manager who visits monthly.

But there's a catch. Actually, several catches. Monthly royalty: 8% of revenue. Marketing contribution: 4% of revenue. That's 12% off the top, every month, before Vikram sees a rupee of profit.

Is the franchise worth it? That's what this chapter is about.

What is a franchise?

A franchise is a business model where one company (the franchisor) allows another person or company (the franchisee) to operate a business using the franchisor's:

• Brand name and logo
• Business systems and processes
• Products or menu
• Training programs
• Marketing and advertising
• Supply chain (sometimes)

In exchange, the franchisee pays:

• An upfront franchise fee (one-time, for the right to use the brand)
• Monthly royalty (percentage of revenue, for ongoing support)
• Marketing contribution (percentage of revenue, for brand-level advertising)
• Setup costs (build-out, equipment, inventory — sometimes from mandated suppliers)

Think of it this way: you're buying a proven system instead of building one from scratch.

When you walk into a Domino's in Dehradun or a Chai Sutta Bar in Haridwar or a Lenskart in Haldwani — most of those outlets are not owned by the parent company. They're owned by local franchise partners who paid for the right to operate under that brand.

The fundamental trade-off of franchising: You give up freedom and a share of your revenue. In return, you get a tested model, reduced risk, and a brand name that customers already trust. Whether that trade-off is worth it depends entirely on the specifics.

Types of franchise models

There are three main models. The names are industry jargon, but the concepts are simple:

FOFO — Franchise Owned, Franchise Operated

The most common model. You (the franchisee) own the outlet and operate it. You invest the capital, hire the staff, manage daily operations. The franchisor provides the brand, systems, and support.

Example: Vikram's biryani franchise. He owns the outlet, he runs it, he bears the profit and loss. The brand provides recipes, marketing, and supervision.

Your role: Owner + Operator Your investment: High (full setup cost + franchise fee) Your control: Medium (must follow brand guidelines, but you manage day-to-day) Your risk: High (you bear all operational and financial risk)

FOCO — Franchise Owned, Company Operated

You invest the capital and own the outlet, but the franchisor runs it for you. They hire the staff, manage operations, handle everything. You're essentially an investor.

Example: Some hotel chains and premium retail brands use this model. You put in ₹50 lakh, they run the outlet, and you get a percentage of revenue or profit.

Your role: Investor Your investment: High Your control: Low (company makes all operational decisions) Your risk: Medium (operational risk is lower, but financial risk remains — if the outlet doesn't perform, your investment suffers)

COCO — Company Owned, Company Operated

This isn't a franchise at all — the company owns and runs the outlet itself. Mentioned here for completeness. When a brand has both COCO and FOFO outlets, the COCO outlets often serve as flagship/training locations.

Your role: None (this is the company's own outlet)

For most franchise opportunities in India, especially in food, retail, and education, the model is FOFO. You're the owner and operator. The brand is the partner. This chapter focuses primarily on FOFO because that's what you'll likely encounter.

The economics of a franchise

Let's get into the numbers. This is where most franchise pitches get vague, and where you need to be most careful.

1. Franchise fee (one-time)

The upfront cost for the right to use the brand. Varies wildly.

What you get: The right to use the brand name, initial training, operations manual, sometimes initial marketing support.

What you don't get: A guarantee of success. The franchise fee is non-refundable in most cases.

2. Setup cost (one-time)

Building out the outlet — interiors, furniture, equipment, signage, technology, initial inventory. Often, the franchisor mandates specific vendors for these, which can be more expensive than market rate.

Vikram's setup breakdown:

3. Monthly royalty

An ongoing percentage of your gross revenue (not profit) paid to the franchisor. This is the franchisor's primary revenue from you.

Typical range: 5-10% of revenue.

Critical point: This is on revenue, not profit. If your monthly revenue is ₹4 lakh and royalty is 8%, you pay ₹32,000 — whether you made a profit or a loss that month.

4. Marketing contribution

A separate percentage for brand-level advertising and marketing. You pay it, but you don't control how it's spent.

Typical range: 2-5% of revenue.

5. Raw material/supply chain markups

Some franchisors require you to buy ingredients or products only from them or their approved suppliers. If those prices are higher than market, that's a hidden cost.

Vikram discovered that the proprietary spice mix he must use costs 20% more than a comparable local alternative. Over a year, that's an extra ₹1.5 lakh in costs he can't avoid.

Vikram's real P&L: month by month

Let's look at what actually happens in Vikram's franchise over a typical month:

VIKRAM'S FRANCHISE — MONTHLY P&L (AVERAGE MONTH)
=================================================

REVENUE
  Dine-in sales:              ₹1,80,000
  Delivery (Swiggy/Zomato):   ₹2,00,000
  Direct/takeaway:               ₹40,000
  ─────────────────────────────────────
  TOTAL REVENUE:               ₹4,20,000

COSTS
  Food cost (31%):             ₹1,30,200
  Staff salaries (4 + Vikram):    ₹62,000
  Rent:                           ₹40,000
  Electricity + Gas:              ₹24,000
  Packaging:                      ₹18,000
  Delivery commissions (~24%):    ₹48,000
  Franchise royalty (8%):         ₹33,600
  Marketing contribution (4%):    ₹16,800
  Maintenance/repairs:             ₹5,000
  Accounting/compliance:           ₹3,000
  Miscellaneous:                   ₹5,000
  ─────────────────────────────────────
  TOTAL COSTS:                 ₹3,85,600

NET PROFIT (before tax):         ₹34,400
Vikram's effective salary:            ₹0
  (He works 12+ hours daily but
   doesn't draw a separate salary)

Effective monthly income for Vikram: ₹34,400 — for 12-14 hour days, 7 days a week, with the stress of managing staff, maintaining ratings, and repaying his initial investment.

At this rate, his ₹18 lakh investment will take about 4.4 years to recover (not accounting for any months with losses, equipment replacements, or rent increases).

"When the franchise consultant showed me the projections, monthly profit was ₹65,000-80,000," Vikram says. "Nobody mentioned that delivery commissions would eat 24% of delivery revenue. Nobody mentioned the mandatory spice supplier markup. Nobody mentioned that the 'marketing contribution' would be spent on Instagram ads for the brand nationally, not for my specific outlet."

Evaluating a franchise opportunity: the due diligence checklist

Before investing in any franchise, investigate these areas thoroughly:

1. Talk to existing franchisees

This is the most important step. The franchisor will give you success stories. You need the full picture.

• Visit 5-10 existing outlets (not just the ones the franchisor recommends)
• Ask: "What is your actual monthly profit after ALL costs?"
• Ask: "Would you do this again?"
• Ask: "What did the franchisor promise vs what actually happened?"
• Ask: "What's your biggest challenge?"

If the franchisor won't give you franchisee contact details, that's a red flag.

2. Understand the unit economics

Don't trust the franchisor's "projected P&L." Build your own from scratch:

• Verify actual food cost/product cost
• Get real rent quotes for your target location
• Calculate delivery commissions (not just food cost + royalty)
• Add EVERY cost: maintenance, compliance, insurance, replacement staff costs
• Build three scenarios: optimistic, realistic, pessimistic

3. Check the brand's track record

• How long has the brand been franchising?
• How many outlets exist? How many have closed?
• What is the outlet closure rate? (If 30 out of 100 outlets closed in 3 years — that's a warning)
• Is the brand growing or shrinking?
• Check online reviews of multiple outlets (not just the best ones)

4. Understand territory protection

• Do you get exclusive rights to your area? How is "area" defined?
• Can the franchisor open another outlet (or sell another franchise) 500 meters from yours?
• What happens if a competing brand is already present?

5. Review the franchise agreement with a lawyer

Not a CA, not a friend — a lawyer who understands franchise agreements. This is non-negotiable. We'll cover key clauses in the next section.

6. Calculate your break-even period

How many months until your total earnings equal your total investment? If the answer is more than 3 years, think carefully. More than 5 years? Walk away unless you have very strong reasons.

The franchise agreement: clauses that matter

The franchise agreement is a legal contract, typically 20-50 pages. Most franchisees sign it without reading carefully. Don't be one of them.

Clause 1: Term and renewal

• How long is the agreement? (Typically 5-10 years)
• Can you renew? At what cost?
• What happens at the end of the term? Do you lose everything you built?

Clause 2: Territory exclusivity

• Is your territory defined and exclusive?
• Can the franchisor put another outlet nearby?
• Does "territory" include online delivery (which has no geographic boundary)?

Clause 3: Exit and termination

• Can you exit the agreement early? What's the penalty?
• Under what conditions can the franchisor terminate you?
• If terminated, what happens to your setup, equipment, inventory?
• Can you sell your franchise to someone else? Does the franchisor have first right of refusal?

Clause 4: Supply chain obligations

• Are you required to buy from specific suppliers?
• What if those suppliers are more expensive?
• Can you negotiate or switch if you find better deals?

Clause 5: Fees and increases

• Can the royalty percentage increase over time?
• Can the marketing contribution increase?
• What happens if the franchisor raises product/ingredient prices?

Clause 6: Operational restrictions

• Can you add items to the menu?
• Can you set your own prices?
• Can you choose your own delivery platform strategy?
• Can you run local promotions?

Clause 7: Performance requirements

• Are there minimum revenue targets?
• What happens if you don't meet them? (Some agreements allow termination for underperformance)
• Are the targets realistic for your location?

Clause 8: Non-compete

• During the agreement: Can you run another food business?
• After the agreement: Is there a non-compete period? (Some agreements prevent you from opening a similar business for 2-3 years after exit)

Vikram's lesson: "My agreement has a clause that says the franchisor can terminate with 90 days notice if I fall below 4.0 rating on delivery apps for three consecutive months. I didn't even notice this clause when I signed. Now it keeps me up at night."

Advantages of franchising

Despite the costs and restrictions, franchising has real advantages:

1. Proven model

Someone else has already made the mistakes, tested the menu, refined the operations. You're starting at version 5.0, not version 1.0. The learning curve is dramatically shorter.

2. Brand recognition

Customers already know the brand. They trust it. They search for it on Swiggy. You don't need to spend years building awareness from zero. On day one, people walk in because they recognize the name.

3. Training and support

Most franchisors provide initial training (1-2 weeks) and ongoing support. Vikram learned kitchen management, food costing, staff scheduling, and hygiene protocols during his training. Without the franchise, he would have learned these through expensive mistakes.

4. Marketing at scale

The brand runs national or regional campaigns that benefit all outlets. Vikram benefits from TV ads, influencer campaigns, and Swiggy promotions that he couldn't afford individually.

5. Supply chain

Bulk purchasing power. The franchisor negotiates with suppliers for 120+ outlets, getting prices that individual outlet owners can't get. (Though sometimes the markup offsets this advantage.)

6. Technology

POS systems, inventory management, CRM tools — provided by the brand. Building these yourself would cost lakhs.

7. Reduced risk (not zero risk)

Statistics show that franchise businesses have a higher survival rate than independent businesses in the first 3 years. Not guaranteed success, but better odds.

Disadvantages of franchising

1. Limited freedom

You can't change the menu. You can't redesign the outlet. You can't run promotions without approval. You can't switch suppliers. You're operating someone else's vision with your money.

"I wanted to add a local pahadi thali option — huge demand in Dehradun," Vikram says. "The brand said no. Menu has to be uniform across India. I lost that revenue to the dhaba next door."

2. Ongoing fees eat into margins

8% royalty + 4% marketing = 12% of revenue, every month, regardless of profit. On ₹4.2 lakh revenue, that's ₹50,400 going to the brand. Over a year: ₹6 lakh. Over 5 years: ₹30 lakh — almost double Vikram's initial investment.

3. Brand risk

If the brand gets into trouble — food safety scandal, social media controversy, founder controversy — every franchise suffers. You have zero control over this.

4. Territory encroachment

Some franchisors, under pressure to grow, sell franchises in overlapping territories. Your customer base gets diluted, but your royalty doesn't decrease.

5. Dependency

If the franchisor goes bankrupt or stops operating, what happens to you? Your brand, your systems, your supply chain — all linked to them.

6. Resale and exit challenges

Selling your franchise isn't like selling your own business. The franchisor usually has approval rights over the buyer, and some take a transfer fee (5-10% of the sale price).

Franchise vs building your own brand: decision framework

This is the real question. Should you franchise, or build independently?

Choose franchise if:

• You have capital but limited industry experience
• You want a proven model and are willing to follow rules
• You value reduced risk over maximum reward
• You want to be an operator, not a creator
• You're entering an industry for the first time

Choose your own brand if:

• You have industry experience and strong ideas
• You want creative control
• You're comfortable with higher risk for potentially higher reward
• You're building for the long term (5-10+ years)
• You have a unique offering that isn't served by existing franchises

The third option: learn, then build

Many successful brand founders started as franchise operators. They learned systems, customer behavior, and unit economics by running someone else's franchise for 2-3 years. Then they built their own brand, armed with practical knowledge.

Ankita considered a franchise for packaged foods but decided against it. "The franchise model didn't make sense for me. My competitive advantage IS the uniqueness — dadi ka recipe, pahadi ingredients, my personal story. A franchise would have taken that away and given me generic products with my investment."

Popular franchise categories in India

Food & Beverage (most popular)

• QSR (Quick Service Restaurants): Domino's, Subway, KFC, McDonald's, Burger King — ₹30 lakh to ₹2 crore+
• Biryani/Indian food chains: Behrouz, Biryani Blues, smaller regional brands — ₹8-25 lakh
• Chai/coffee: Chai Sutta Bar, Chaayos, Third Wave Coffee — ₹10-30 lakh
• Desserts/ice cream: Baskin Robbins, Naturals, Keventers — ₹10-25 lakh
• Bakery: Monginis, Theobroma — ₹8-20 lakh

Education & Training

• Coaching centers: FIITJEE, Aakash — ₹15-50 lakh
• Pre-schools: Kidzee, EuroKids — ₹10-25 lakh
• Skill development: Aptech, NIIT — ₹10-30 lakh

Retail

• Eyewear: Lenskart — ₹25-40 lakh
• Fashion: Being Human, Fabindia — ₹20-50 lakh
• Grocery: More, Reliance Fresh — ₹15-40 lakh

Health & Wellness

• Gym/fitness: Cult.fit, Anytime Fitness — ₹30-80 lakh
• Salon: Jawed Habib, Naturals — ₹15-40 lakh
• Pharmacy: Apollo, MedPlus — ₹10-25 lakh

Note: These investment ranges are approximate and change frequently. Always verify current figures directly with the franchisor and existing franchisees.

Common franchise traps and red flags

Red flag 1: "Guaranteed returns"

No legitimate franchise guarantees returns. If someone promises "₹1 lakh profit per month guaranteed" — they're either lying or running a scheme. Business has inherent risk. Anyone who eliminates that risk in their pitch is hiding something.

Red flag 2: Too many closures

Ask directly: "How many outlets have closed in the last 3 years?" If they won't answer, or if the number is above 20% of total outlets, be cautious.

Red flag 3: No existing franchisees to talk to

If the brand won't let you speak to current franchisees, or only directs you to "model" outlets, they're controlling your information. Walk away.

Red flag 4: Pressure to sign quickly

"This territory is about to be taken." "Offer expires this month." "Franchise fee is going up next quarter." Classic pressure tactics. A good franchise opportunity will be available next month too. If they're rushing you, ask why.

Red flag 5: Mandatory vendor overpricing

If the franchise requires you to buy from specific suppliers and those prices are significantly above market, the franchisor may be earning a kickback. Calculate how much this adds to your costs annually.

Red flag 6: Vague territory protection

"You'll have the Dehradun area" is not territory protection. "You have exclusive rights within a 3 km radius of your outlet, and no new outlet will be opened within this radius for the term of the agreement" — that's protection. Get it in writing.

Red flag 7: Hidden costs in the agreement

Setup costs that balloon beyond the initial estimate. "Mandatory refurbishment" every 2-3 years at your cost. Technology fees that weren't mentioned upfront. Read every page of the agreement.

Red flag 8: The franchisor doesn't have COCO outlets

If the franchisor has zero company-owned outlets, ask yourself: why? If the model is so profitable, why aren't they running outlets themselves? Sometimes the answer is legitimate (capital-light strategy). Sometimes the answer is that the real business model is selling franchises, not running restaurants.

The bottom line

Vikram sits with his franchise agreement, 14 months in. He's not losing money — ₹34,000-45,000 profit on good months. But he's not making what he expected either.

He calculates: in 5 years, he'll have paid the brand approximately ₹30 lakh in royalties and marketing fees. Add the ₹18 lakh investment. That's ₹48 lakh committed to someone else's brand.

"What if I had spent that ₹18 lakh on my own brand?" he wonders. "Maybe I'd have failed in year one. Maybe I'd be doing even worse. But maybe — just maybe — I'd have built something that was truly mine."

He doesn't regret the franchise. He learned systems, discipline, food costing, team management. But he knows this isn't forever.

"Two more years," he tells himself. "Learn everything I can. Save enough. Then I build my own brand. And this time, the royalty goes to no one."

A franchise is a tool. Like any tool, it works brilliantly for the right job and terribly for the wrong one. The key is understanding exactly what you're buying, what you're giving up, and whether the math works for your specific situation.

Don't fall in love with a brand name. Fall in love with the numbers. If the numbers work — even in the pessimistic scenario — it might be a good investment. If the numbers only work in the franchisor's optimistic projection, keep your ₹18 lakh in the bank.

Chapter checklist

Before signing a franchise agreement:

• Have I spoken to at least 5 existing franchisees (not recommended by the franchisor)?
• Have I built my own P&L with realistic (not optimistic) assumptions?
• Do I know the exact franchise fee, royalty, marketing contribution, and all hidden costs?
• Have I calculated my break-even period? Is it under 3 years?
• Have I had the franchise agreement reviewed by a qualified lawyer?
• Do I understand the territory protection (or lack thereof)?
• Do I know the exit clause? What happens if I want to leave?
• Have I checked the brand's outlet closure rate?
• Have I considered what I could build independently with the same capital?
• Am I choosing this franchise because the economics work, or because I like the brand?