FRANCHISING IN NEPAL : GROWING MARKET, ZERO REGULATION

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FRANCHISING IN NEPAL : GROWING MARKET, ZERO REGULATION

An increasing number of businesses are jumping on franchising brand wagon despite a lack of policy and law to regulate them.

The lifestyle of Nepali people has undergone an immense transformation over the past decade or so. From having meals at home to eating out, Nepali society’s preference for food has changed a lot. Even though Kathmandu saw restaurant chains more than a decade ago, franchise businesses have flourished only recently, especially in the fast-food sector. Few eateries brands have now gone pan-Nepal, thanks to franchising.

Franchising is an agreement where the owner of a brand or business system licences others to use the brand or the business system by charging a certain fee.   It involves a franchisor, who creates the brand's trademark and a business system, and franchisees who pay the franchisor initial fees and annual royalty for the right to conduct business under the franchisor's brand name and business system.

Albeit in its nascence, the franchise business is expanding in Nepal. From restaurants to coffee shops, many local brands have found franchising an easier and the most cost-effective means to expand their brand footprints. Franchising is not limited to a city alone, many brands have opened franchises in different parts of the country. Not only local brands, foreign brands too are making inroads into the Nepali market by adopting the franchising model.

International Franchises In Nepal
According to the International Trade Administration of the USA, a number of US and international brands are present in the Nepali market. Some of these brands include Coca-Cola, Pepsi, KFC, Pizza Hut, Western Union, Hyatt, Radisson, Marriott, DHL, United Colors of Benetton, Cookie Man, Baskin-Robbins, Wimpy, Hot Breads, Bata, Puma, Reebok, and Adidas.  Indian brands like Gini and Jony, Planet Fashion, Raymonds, Angan, Lilliput, Big Cinemas, John Players, Peter England, Provogue, Yana Sizzlers, Kendriya Vidyalaya, Patanjali, Aptech, NIIT, and Eurokids are also doing well in Nepal.

Nepali brands into franchising
The franchise model seems to have worked more in Nepal in the fast-food sector.  In addition to internal brands, a lot of Nepali brands are doing well in the fast-food sector. A lot of these brands have adopted the franchising model to expand their presence in the market. Local brands like Bota Mo:Mo, The Burger House and Crunchy Fried Chicken, Syanko Katti Roll, Himalayan Java and Red Mud are doing well in the franchise market.

Himalayan Java: Himalayan Java started as a small coffee shop in 1999 specialising in handcrafted coffee and bakery items. Over the years, the small coffee shop has grown into an international brand with more than 30 outlets around the world. Himalayan Java is the first specialty coffeehouse in Nepal.

The Burger House and Crunchy Fried Chicken: Seven years back, a chef with several years of experience in different hotels and restaurants started The Burger House and Crunchy Fried Chicken. The fast-food chain expanded like wildlife. It currently has 92 outlets across the country.

Syanko Katti Roll: Syanko Katti Roll is a fast-food outlet serving different varieties of rolls. Syanko Katti Rolls aims to be the healthiest food chain in Nepal. Started several years ago as a small eatery, Syanko today has more than 30 outlets in Kathmandu Valley.

Bota Mo:Mo: Bota Mo:Mo started in 2016 offering different varieties of mo:mos as well as other fast food items. Bota means leaf plates in Nepali dialects. True to its name, Bota Mo:Mo serves cuisines in leaf plates. Bota once had over 20 outlets across the country. It, however, is trimming its outlets.

Jimbu Thakali: Jimbu Thakali is an eatery chain serving authentic Nepali food along with other fast foods items. Currently the restaurant has three outlets in Kathmandu Valley. It is preparing to go international, opening its first franchise outside the country in New Delhi, India.

Chicken Station: Started in 2017 as a small eatery in Jhamsikhel of Lalitpur, Chicken Station has over 50 outlets across the country. It offers a wide range of fast food items specially focused on chicken items.

The expansion of these brands shows franchising business has taken off in a true sense in Nepal. The International Franchising Association also states that franchising businesses continue to grow faster than the rest of the economy of the world and third-world countries like Nepal as well.

Business Models in Nepal
Two types of franchising models can be seen in Nepal. But the popular one among Nepali businesses is the business format franchising. Under this franchising model, the franchisor not only offers its trade name, products, and services to the franchisee, but also provides a full system for operating the business. The franchiser often provides the franchisee with assistance in site selection and decoration, training, brand standards, quality control, and business consulting support. In the traditional, or product distribution franchising model, the franchisor allows the franchisee to use its brand but does not provide its full system for running business.

Current Status
Currently, Nepal is dealing with an industry that is both growing and degrading. While new investors are pouring money into the franchise industry, the established players are staying out of it. The boom that shook the chain restaurant industry appears to be slowing down at the moment. Though businesses, especially eateries, were on an expansion spree through franchising until a few years ago, they seem to have slowed the momentum now.

Araniko Rajbhandari, president of the Restaurant and Bar Association of Nepal, claimed that a lack of consistency in quality is one of the reasons behind the closure of several restaurant franchises in Nepal. "Franchise business is all about the brand. Many new businesses get visitors easily initially if they are associated with the existing brands. However, we have felt that restaurant franchises somehow failed to maintain the service quality," he said, adding: "Once the customer gets disappointed with one outlet, they will never again think of going to any other outlet of that particular restaurant."

The other reason behind restaurant franchising not succeeding in Nepal, according to Rajbhandari, is the absence of risk sharing mechanism for franchisors. “If activities of a franchisee damage the brand, there is no rule to address the problem. That is why oldest restaurant chains in Nepal like Nirula’s, Wimpy and Nanglo which are not expanding their business aggressively,” he said, adding franchise business will continue to see ups and downs until the government brings a policy for the sector.

There is no law that governs franchising business. To guarantee their income, the majority of brands are licensing franchises under business format models. Additionally, some brands sell their franchises for a sizable sum of money, without any rules or follow-ups, according to Rajbhandari. “Negotiation between franchisor and the franchisee is the only thing that matters”.

Shekhar Babu Karki, information officer of the Office of the Company Registrar, said their job is to register the company only. “We just look after the company registration and renewal process. The rest of the things such as the operation of the company comes under the promoters," he added. Meanwhile, the Department of Industry also does not have any policy, rules or regulation to regulate franchise business.

In the lack of regulation, Rajbhandari said, the government lacks exact data on investment made in franchise business as well as the turnover. “At the same time, quality of services offered to consumers is degrading as only few franchisors seem concerned about the service quality,” he added. “If customers find differences in service, taste and hygiene at different outlets of a restaurant, they may stop going to that restaurant. As a result, the franchisor will have to face a huge loss.”

Pramod Kumar Jaishawal, managing director of Mela Restaurant, also feels the industry lacks regulation and policy to promote and protect franchising business. "The increasing number of local franchise businesses is a good sign for the country's economy. However, the government somehow has failed to regulate such businesses," he said. "It is high time the government brought needful policies and regulation to promote and protect such businesses."

Instead of promoting entry of foreign restaurant franchises, it would be better to bring policies to attract local restaurants that can expand their businesses, Jaishawal said. He suggested regulation of such businesses based on quality of service as the supply is more than demand. "Looking at the chain restaurants, I see more supply than demand. People seem to be investing money without doing proper homework by simply seeing others making profit,” he said, adding: “This might lead to deterioration of service quality which will ultimately affect the franchisor as well as the franchising business.”

According to Jaishawal, outlets of eateries started mushrooming after the COVID pandemic. “This will ultimately lead to unhealthy competition,” he said, adding: "To encourage good brands and good service we must have some committing policies."

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