The State of Franchising in India: An Honest Perspective
Franchising in India’s Tier-2 and Tier-3 cities has experienced significant growth over recent years. However, beneath this apparent boom lies a complex landscape that warrants a candid examination. While franchising is traditionally seen as a proven business model, the current scenario suggests that many initiatives resemble a gold rush with limited sustainability or strategic foundation.
The Reality of Brand Recognition
A fundamental aspect of franchising is the association with a strong, recognizable brand that drives customer demand. Unfortunately, many new entrants into the Indian franchising scene lack genuine brand recall. Consumers often visit outlets like Domino’s simply because of brand familiarity, not because of city-specific recognition or unique brand loyalty. What is often passed off as a franchise is essentially a storefront with a name, rather than a brand with established consumer trust.
High Franchise Fees Amid Limited Proven Demand
An analysis of over 68 franchise offerings across India reveals that many charge franchise fees exceeding 25% of the initial setup costs. Such steep fees are concerning, especially when these brands have not demonstrated consistent demand or a solid consumer base. Globally, such models tend to be viable only when the franchisor actively generates customer traffic, which is often not the case in India’s nascent franchise market.
Franchisees as De Facto Marketing Generators
A common trend is to shift the responsibility of market visibility onto franchisees. Instead of the franchisor investing in brand awareness and marketing efforts, new outlets often become the defacto marketing for the brand. This approach transfers the risks and additional marketing burdens onto the franchisees, which can undermine the viability of the franchise model.
Multiple Layers of Cost for Franchisees
Beyond high entry fees, franchisees frequently encounter inflated costs for raw materials — often marked up by 10% or more — and are subjected to ongoing revenue sharing agreements, typically around 6%. Such multiple layers of cost impose considerable financial pressure on franchise owners, especially when the brand’s proven strength and customer base are still uncertain.
Lack of Scale and Proven Success
Many franchisors in India operate only a handful of company-owned outlets before attempting rapid expansion. With the country’s diverse cultural, taste, and behavioral differences across regions, scaling successfully requires thorough testing and validation. Ideally, a franchisor should demonstrate strong, consistent performance across 25–50 company outlets before selling franchises. Skipping this step often reflects either a lack of due diligence or a greed-driven approach.
Reasons Behind Franchise Purchase
Despite these concerns, franchise ownership persists, driven largely by non-business motives such as social standing, family expectations, or herd mentality. Purchasers often buy into the promise of social credibility or because family members have already invested, rather than based on sound economic reasoning.
Regulatory Gaps and Lack of Oversight
The Indian franchising landscape suffers from an absence of comprehensive regulation. There is no clear franchise law governing conduct, no mandatory third-party audits, nor standardized disclosure norms. As a result, many franchise offerings are based on glossy presentations and optimistic projections without rigorous substantiation, increasing risks for prospective franchisees.
Conclusion: An Honest Assessment
Ultimately, much of what is being marketed as franchising in India today resembles licensing arrangements that transfer risk from franchisors to franchisees. Many brands prioritize upfront revenue over long-term value creation and fail to establish authentic demand or scalable business models. For franchising to mature in India, there must be a collective effort to build consumer demand, validate unit economics extensively, and implement transparent, regulatory frameworks that protect all stakeholders. Until then, the current boom may continue to be driven more by hype than by sustainable business principles.
