FAQs related to Food and Beverage Franchise business
What is the meaning of Franchise Fee and Royalty? Why does Royalty charge every month?
Royalty: When you explore at investing in franchise business, one thing you research is Royalty- how much to pay and the process to pay royalty. The amount varies with each brand and it becomes easy to decide your business plans-if it fits your budget.
Royalty helps the entire process of franchise to work smoothly and systematically.
Franchisors make money through Royalty fees. This is re-invested in the business further to provide time to time assistance and support to the franchisee and growing the brand.
Royalty are either paid on a monthly basis or quarterly basis. Royalty is calculated as a percentage of gross sales.
Some of the common structures of Royalty used by franchisors are:
Gross Sales: Gross sales is one of the most commonly used structure of Royalty fee. In this structure, franchisors charge a percentage of franchisee’s gross sales. This helps the franchisors in continuous assisting the franchisee in their business process to gain the growth and profit.
There are few types of Gross Sales:
1. In Fixed Royalty, the franchisee has to pay a fixed (as decided) percentage of sales to the franchisor. This percentage is fixed regardless of the franchisee’s sales or income.
2. Increasing Percentage: Here franchisors charge a premium to franchisees who is willing to set up in the prime location. Locations holds a vital role in the success or failure of the franchise business.
3. Decreasing Percentage: In this model, the franchisee pays a lower percentage of the gross sales (decided by both franchisor and franchisee) as in when the total gross sales increases. It is beneficial for both the parties.
4. Percentage Per Transaction: In this model, franchisors charge an amount based on the sale of each product or transaction made. This is widely used in hospitality or automobile industry.
5. Split Profit: Here the total profit of the franchisee is split between the franchisor and franchisee at an agreed percentage by both parties. Say,40/60 or 30/70, though this process is not beneficial to the franchisee, hence used very less.
No Royalty: In this structure, the franchisors do not charge any royalty fee from the franchisees, rather earns its revenue exclusively from the sale of products to the franchisees and from the manufacturer or supplier that has established the franchise channel as a capture retail chain to sell their products
The royalty fee of the most of the Premium food chains in India varies from 8%-12%, Restaurants 5%-10%, and Fast food and Juice, beverage chains are 3%-8%.
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Franchise Fee: Franchise fee is different from Royalty. Franchise fee is the one-time payment made at the initial stage to become a member or part of that particular Franchise.
Usage of Franchise Fee: The franchise fee paid is used to cover the franchisor’s set up cost. It includes training and development, recruitment of new staffs, marketing, advertising, site selection, leasing. Franchise fee should be 10 to 15% of total Investment.
What is the meaning of these licenses “Fssai”, Gumasta”?
FSSAI: The FSSAI has been established under the Food Safety and Standards Act, 2006. FSSAI Certificate and FSSAI License both ensures the quality, purity and credibility of different things as below
FSSAI has been created to regulate food product’s manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption.
To run a food product business, you have to register under Food Safety and Standards Authority of India (FSSAI), for carrying out the manufacturing, transporting and distributing of food or food products.
You can register through https://foscos.fssai.gov.in/
https://foscos.fssai.gov.in/assets/docs/KindofBusinessEligibilityLatest.pdf
Eligibility criteria of FSSAI is in the above link.
FSSAI has been mandated by the FSS Act, 2006 for performing the following functions:
1. Framing of Regulations to lay down the Standards and guidelines in relation to articles of food and specifying appropriate system of enforcing various standards thus notified.
2. Laying down mechanisms and guidelines for accreditation of certification bodies engaged in certification of food safety management system for food businesses.
3. Laying down procedure and guidelines for accreditation of laboratories and notification of the accredited laboratories.
4. To provide scientific advice and technical support to Central Government and State Governments in the matters of framing the policy and rules in areas which have a direct or indirect bearing of food safety and nutrition.
5. Collect and collate data regarding food consumption, incidence and prevalence of biological risk, contaminants in food, residues of various, contaminants in foods products, identification of emerging risks and introduction of rapid alert system.
6. Creating an information network across the country so that the public, consumers, Panchayats etc receive rapid, reliable and objective information about food safety and issues of concern.
7. Provide training programmes for persons who are involved or intend to get involved in food businesses.
8. Contribute to the development of international technical standards for food, sanitary and phyto-sanitary standards.
9. Promote general awareness about food safety and food standards.
NB: INFORMATION CREDIT: GOVERNMENT SITE (www.fssai.gov.in)
GUMASTA: In the State of Maharashtra, if you engage or involve in any kind of business, Gumasta license is necessary. It is basically a registration required for doing any kind of business. Gumasta license is governed by the Municipal Corporation of Mumbai under the Maharashtra Shops and Establishment Act.
Gumasta license is recognised by Government as well as Banks. To carry out business operations, be it single handedly or joint, or multiple bodies, this license is mandatory.
GST registration is not possible until you have a Gumasta license under the Maharashtra Shops and Establishment Act. For loan process and other bank transactions, Current Account opening is mandated.
ADVANTAGES OF GUMASTA LICENSE
For availing all the benefits and tax subsidies from Maharashtra State Government, Gumasta license is needed.
It is a valid proof of document which gives you the permission to carry any kind of business operations in legal capacity.
When you are into transaction process, a current account is required in Bank. This account can be opened if you have a valid Gumasta license.
