Two decades since it first started operations from a 160 square feet outlet outside Mumbai’s Malad railway station, JumboKing now has over 103 stores across India. Its founder, Dheeraj Gupta, is confident of taking this up to 180 by March 2022, and putting the brand on the maps of 11 cities in the country. And his mantra for this expansion is sticking to the franchise model.
Gupta outlines why adopting franchising is the best way to success.
FRANCHISE, ALL AROUND?
Franchising is all around us, though we may not recognise it. Car dealerships are probably the most popular facet of franchising known to many Indians.
Tech businesses like OYO and Uber first built a technology platform and then used franchising for last mile execution. Household brands like Bata and 7-Eleven are also franchising success stories. Or take the case of brick and mortar businesses, like McDonalds and Subway. They use supply chains as value add to build their franchising story.
It has evolved as a business as more serious players get into the fray. There’s only one definition of serious-adding genuine value to your franchisee! As business models are getting more and more refined, there are 100% franchise focused brands that have advantages over hybrid business models.
Most of the companies I have mentioned above succeeded because at its core, franchising offers them the benefits of entrepreneurial energy of the franchisee. They can leverage the collective might of hundreds of entrepreneurs and offer value to the end consumer, in addition to benefitting from economies of scale, which normally only big businesses enjoy. Moreover, franchising is one business model that bypasses the high costs of initial customer discovery and conversion.
LEAN AND AGILE
JumboKing already follows a lean structure. Everything is outsourced, so it doesn’t have any additional flab to prune. In terms of data and savings, let’s examine the percentage cost savings from franchising.
EMPLOYEE COST: These include the salaries of employees in the restaurant, including servers, hosts, kitchen crew, and management. They can be roughly divided into the back end staff involved in production and front end staff involved in service. Each contributes to 10 % of the restaurant running cost.
In a franchise business, the back end operation is centralised, technology is employed to create better schedules and a more efficient kitchen and costs are distributed over many stores. Hence, this is reduced to 15%.
OCCUPANCY COSTS: This includes rent, property taxes, and utilities. Typically, you can split a restaurant location into 40% to 50% of kitchen area and the remainder as service area.
In a standalone set up, the requirement for the kitchen area is higher. It includes segregated areas for preparation, storage, cooking, cleaning and staff.
In a franchising set up, the kitchen area can be reduced to 20%. This is significant because location is a big consideration while opening any restaurant. Buildings with higher foot traffic may be much more expensive, and you don’t want to tie up expensive real estate in activities like cooking and preparation. This particular operating expense takes a lot of thought as it can potentially make or break your business.
RAW MATERIAL COST: The cost of goods sold includes all food and beverage sold at your restaurant. This is a no-brainer. A standalone restaurant will order at retail prices while a franchise central kitchen will order at wholesale prices.
Also, the discipline of a centralised system naturally ensures labelling items by date and using older items first and minimum overstocking. The menu is created to uses more of the same ingredients. The menu is also tracked to replace low-performing items with continuous innovation.
One of the key factors in reducing the money spent on goods is food waste management. The less you waste, the more you typically save. In a franchise business, this contributes to 5% to 7% to the bottomline. Besides, a franchise can offer better value in terms of larger portion sizes.
MARKETING EXPENSES: These have been close to nought for most restaurants through the pandemic. Yet, as a part of the franchise system- restaurants benefit from better deals that the franchisor is able to negotiate; whether through delivery channels or digital media. As markets recover, franchises will have access to a more robust centralised marketing budget and social media presence which will be critical to thrive against competition.
ADMINISTRATIVE COSTS: Standalone restaurants are not able to invest in technologies that assist customer database management, inventory management or even basic fiscal discipline. Also, the manager may not be a trained resource. Pilferage, customer service management are all a huge question mark. In a franchising system, there are several added benefits such as new product development, regular training and audits which also add their intangible efficiency to the P&L.
Hence, one could conservatively estimate an overall cost saving of between 30-35% in a franchising set up. The head office cost in a franchise system is offset by the efficiency lapses in a standalone restaurant.
