Sectoral Outlook: New Sectors that are now emerging on the Forefront of Franchising
The recent demographic transformation in India has led to a consumption boom, meaning that there is now an identifiable section of the population with high disposable incomes, evolving lifestyles and an appetite for western goods. In this scenario, sectors like retail, food service and health and wellness contribute almost 60% to the overall franchising industry in India. Sectors like education and business services are also catching up fast. The rising purchasing power of the Indian middle class coupled with an increase in brand awareness has created a substantial market demand for international brands that retail primarily through the franchise system. In addition, being a country of over a billion people, the Indian market provides huge numbers in sales simply because the numbers of consumers are so high. Here are the sectors which are top scorers when it comes to franchising:
Food and Beverage
Food services have consistently dominated the franchise industry in India. One-third of new food outlets in India are established through franchise systems. India is home to the world’s largest millennial population, which has lifted the average frequency of eating out or ordering-in to 6.6 times per month and average spending of Rs 2,500 per person per month. With food and beverages estimated to account for 42% of the Indian household expenditure by 2021, the trends are indeed positive for food service franchises. The industry, which is 35% organised, is expected to reach Rs 5,99,782 crore by FY 2022-23 from Rs 4,23,865 crore in FY 2018-19, as per a recent NRAI report.
The largest markets for food services are cities like Bengaluru, Mumbai and Delhi with average spending of Rs 3,586, Rs 2,890 and Rs 1,381 respectively, per household per month on eating out. Mumbai contributes highest to the organised food service market with Rs 41,000 crore followed by Rs 31,132 crore from Delhi and Bengaluru adding Rs 20,014 crore. Further, the organised food service market is driven by casual dining with share of 55%; QSR at 20%; pubs, clubs and bars at 12%; cafes adding 7% and full-service restaurants contributing 2%. In fact, small format QSRs are proving themselves as highly profitable ventures with low infrastructure and maintenance costs.
Some of the emerging food trends include:
- Healthy Food: Food products promoting health are going beyond the temporary ‘good for you’ claims. High-protein diets including meat alternatives and low fat foods are the choice of millenials. This is giving birth to vegan and organic restaurants.
- Asset-Light Models: Low-cost food franchises including QSRs and dark kitchens are the most preffered formats of millennials. Most of the investors are looking for robust models with investment of less than Rs 25 lakhs.
- Snacking: As consumers pursue more active lifestyles, they want foods that can be consumed on the go. Sugar-laden options are out and snacks making health claims are in. While more than half of consumers report eating three or more snacks per day, 66% of them do so to gain nutritional benefits. High-protein bars, in particular, are seeing an increasing appeal among average consumers, foregoing the typical bodybuilder stereotypes of the past.
- Single Ingredient Concepts: Single-ingredient restaurants, cafés and pop-ups are a growing trend on the global food scene, with star products getting their own dedicated eateries.
- Liquid Diet: Juicing and tes/coffee have grown in popularity.
The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. This trend is further fortified by the government’s decision to allow 51% FDI in multi-brand retail and 100% in a single brand. The consumption pattern of Indians is expected to grow the retail market from an estimated USD 672 billion in 2017 to USD 1,200 billion in 2021. The grocery market accounts for more than 66% of the total retail market in the country. Grocery retail has experienced sea-change with new players opening stores in self-service mode and older players adopting the new format.
Franchising in the grocery market is still in its nascent stage with few regional players leading the space. Hence, there is lot of space for new organised players to collaborate with a huge footprint of ‘mom and pop’ stores. In addition, pharmacy retail is a segment which never goes out of demand and is completely recession-free. The segment is growing at 18% per annum and is expected to reach Rs 2,900 crore by 2022 from Rs 2,600 crore currently. Further, mobile phone and accessories stores like MI Stores are expanding their footprint aggressively.
Some of the emerging trends in retail include:
- From We to Me: Hyper-personalisation is the next step in retail franchise. Now, consumers have become price savvy and prefer personalized over off-the-shelf experience. The function of brick and mortar stores must change in step with consumer demands.
- Planet-Friendly: Social responsibility is no longer just an option and retailers are using it as a social currency.
The boom in fashion retail across the country is all too visible with estimates indicating that spending on clothes has grown about 181% during 2010 to 2018. While men’s clothing continues to be the biggest chunk of the apparel market at 41%, women’s wear contributes almost 38%, and is largely dominated by ethnic apparel such as sarees and suits. Kids’ wear with 21% of the overall market is a fast-growing segment and has lot of space for organised players. However, the apparel business is still largely unorganised with formal retail accounting for just 35% of sales. Nevertheless, organised retail is likely to reach an estimated 45-50% by 2025.
And since there is huge scope for organised fashion retail to multiply manifold, it is a great opportunity for investors. While metro and Tier I cities have always been the hub of fashion fiesta, contributing majority of the revenues, Tier II and Tier III cities are fast emerging as the preferred choice for brands which are into an expansion mode. Upcountry markets make real business sense for fashion retailers as real estate costs in these markets are 30-40% lower than those in metros and Tier I cities.
Some of the emerging trends in fashion retail include:
- Blurring of Seasons: The Indian market is showing higher propensity towards fast-fashion models that introduce a greater number of designs in shorter seasons. While the fashion retail market comes alive during the festive seasons, retailers and brands manage to sell their products all year round.
- Value Fashion Retail Boom: Aligned with the latest global trends, shoppers in India are shifting to value-for-money fashion. People no longer consider apparels as a durable item, to be shopped seasonally; instead, they are now chasing the latest trends and hunting for bargains.
- Ethnic at Heart: Indians are still traditionalists at heart when it comes to dressing up for festivals and weddings. Hence, ethnic wear continues to be contemporary and interesting.
- Men’s Fashion Making Waves: Men were once hesitant to spend money on clothing, but today they are willing to pay a premium for high-quality products. The coming-of-age masculine men are starting to make fashion a priority.
- Online to Offline: Fashion retail players are increasingly adopting the online-to-offline (O2O) model. Many of the pure-play e-commerce fashion brands are establishing their offline presence in a bid to chase profitability and build trust among consumers. Global Fashion Arena: Customers in India are well-travelled and vastly exposed to the international fashion brands, which makes India one of the most important markets for American and European apparel brands.
Beauty and Wellness
In a country where more than 47% of the population is under the age bracket of 25 years, beauty solutions and wellness initiatives are experiencing a ‘healthy’ boom that is shaping the ever-growing industry like never before. In fact, the India beauty and wellness industry is growing twice as fast as markets in the US and Europe. According to a KPMG report, India’s beauty and wellness market was estimated at Rs 80,370 crore in 2018. The sector has the potential to create over 3 million job opportunities.
Some of the emerging trends in beauty and wellness include:
- Going Organic: Organic products and products produced in a sustainable i.e. environmentally conscious manner are witnessing increased growth.
- Elderly Buyers: With growing population of retired and aged people, products and services focused on the ageing population are seeing ample growth.
- Millennial Moms: These are mothers who are willing to pay a premium to make sure their kids have the proper grooming and skin protection.
- Exclusively for Men: The trend towards men’s products and services is still relatively new but is expected to drive growth for years to come. It is estimated that 75% of men are not using any sort of facial skin care, but interest continues to grow.
- Preventive Healthcare: This segment is expected to fuel the growth of the fitness equipment market. Growing health consciousness and the rise in healthcare costs are encouraging people to be more healthy and active. To this end, consumers are focusing on consuming healthier foods and engaging in daily workouts to stay fit and manage weight.
- Increasing Awareness: In order to curb lifestyle diseases, governments and fitness equipment manufacturers worldwide are initiating various programs to spread awareness about the need for healthy lifestyles. This awareness will also bring about increased inclination toward workouts and remain healthy and fit.
The education sector is poised to witness major growth over the next few years. India has the world’s largest population of about 500 million in the age bracket of 5-24 years, which provides a great opportunity in terms of a large addressable education market. The India education sector, estimated at USD 91.7 billion in 2017-18, is expected to reach USD 101.1 billion in 2018-19. The Indian education sector is still largely unexplored with huge scope for franchising in pre-school, coaching institutes, vocational institutes and after-schools.
Some of the emerging trends in early-years education include:
- Early and Regular Assessment: There is high focus on early and regular assessment of children to recognise a child’s strengths and weaknesses at an early age and concentrate on areas that need special attention. This technique also helps recognise kids with special talent and provide them with the special attention and care they need.
- Play-Based Learning: Keeping in mind children’s short attention spans, playschools have begun to favour play-based learning techniques. Teaching kids through activities and workshops helps increase their attention and involvement.
- Emphasis on Parents’ Involvement: Special care is taken in carrying out activities and workshops where parents participate with their children. Such activities instigate parent-child bonding and also facilitate the emotional growth of the children.
- Integration of Technology: Digital classrooms, well-equipped computer labs are the need of the hour. With technology taking over, it is important that kids are introduced to this at an early age. Teachers and educators need to stay updated with the latest gadgets and have a grasp on computer-based as well as online tools.
The Way Ahead
Research indicates that the next level of franchise growth is expected from segments like specialty retail and service-based formats like cleaning services, home care, elder care and home healthcare services.