Franchise Accounting: A Case Study of Mr. Puff
Baking has been a traditional activity, since ages, people have baked food for consumption and storage. It holds an important place in the food processing industry. Bakery products are becoming hot favourite these days due to increased nutrient value, easy availability and reasonable price. Some factors that contribute to this significant growth in the trajectory of bakery industry are ever increasing population and foreign influence. An increasing number of working women can also be a factor as they have started choosing easier options for snacks and quick bites rather than traditional cooking, creating fluctuating eating habits among people. Today, it’s easy to find a young lad returning from his tuition classes and a young man aged 40 returning from office at a Bakery having a puff or pastry.Demanding consumers have motivated traditional bakers to experiment with newer healthier options of baking. It has also served as a force to bakers to come out with a whole new platter of baked products....................
Indian Scenario
India and Baking have an old relationship, the people in India are fond of varieties of naankhatai’s and breads. Many Bollywood movies have plots where the hero’s or the heroine’s father or mother owns/runs a bakery. A quick recall can be from some of the movies such as “Josh” (2000), and “All is well” (2015). The bakery industry is one such industry in India, which is growing like never before. With market size of INR1500 billion in 2014-2015, the industry is growing at CAGR of around 12-15%. It is mostly dominated by unorganised players which accounts for 90% of the total share...............
Mitesh Food Products Pvt. Ltd.
History
Established in 1950 by Shri Dholandas Thadani (Dholandas), Mr. Puff was originally known as Shree Gandhi Bakery. It is a leading brand in the bakery business in Gujarat, India. With a legacy of more than 65 years in baking the finest of products, Mr. Puff is today an institution that has maintained its distinctive flavour and quality. It is an ISO 22000:2005 company.
The very first production unit of Mitesh Food Products Pvt. Ltd. then Shree Gandhi Bakery was located in the old city area, adjacent to widely known Khanderao Market in Vadodara. The story of this bakery and its founder is a story of strong ethics, values and integrity............
Present
Mr. Puff has around 30 outlets in Ahmedabad, Anand, Baroda, Godhra and Halol. Nationally, the company has a network of super stockists, distributors and retailers in over 200 cities in India. While in overseas, they have a presence in more than 20 countries, through their trade associates (Exhibit VI).........
Products
Product categories under Mr. Puff brand includes an assortment of cakes, fast food, biscuits, dry munchies, chocolates and gift packs (Exhibit VII)..............
Group Companies
The “Mr. Puff ” brand is owned by the parent company, Mr Puff Bakers Pvt. Ltd. This company advances the brand across the globe by developing manufacturing locations, retail outlets as well as marketing and distribution networks.
There are two associate companies under the umbrella..............
Challenges and Opportunities
Increasing growth prospects also bring in many obstacles, one of them being the implementation of different norms that are to be stringently followed in food industry. Implementation of packaging standardisation, Human resources specifications, labour laws and other related norms appears to be the big challenge...............
Franchise Accounting at “Mr. Puff ”
Franchise has been the growth engine for Mr. Puff, but still strategic decisions like revenue sharing and pricing decisions at franchised outlets has been a challenge. Franchisees and franchisors usually tend to have different views on what the optimal prices should be at a given outlet. Some of the factors that Mr. Puff considers before setting a franchise are the location and population of the area. The experience and age of the franchise owner are secondary in nature for the decision to enter into the agreement.............
Revenue from Franchise
Starting Franchise Fees: The franchisee typically invests a lump sum amount of money to the franchisor when starting the franchise. This would include all required help the franchisor provides the franchisee to start the business. For accounting purposes the present value of the amount paid is considered as an intangible asset on the balance sheet...........
Not everything is so good of a Franchise
A common malpractice found in franchise is sale of local bakery products under the brand name. So as to increase the sales and profit margin, the owner may be tempted to keep a product of lower quality and cheaper price and sell it as a product of Mr. Puff. Such practices would damage the brand name thus incurring cost to the company. Another challenge that Mr. Puff faces is the cost of bakery items available in local retail stores and eateries. It can be found that franchisees generally offer products at higher prices than non-franchisee stores thus making it more difficult for a franchisee to sustain............
Exhibits
Exhibit I: Cookies
Exhibit II: Suggestive List of Companies in Baking Industry
Exhibit III: Image from Mr. Puff Website
Exhibit IV: Old Baking Facilities
Exhibit V: An Outlet of Mr. Puff
Exhibit VI- List of Countries (Mr. Puff’s Global Presence)
Exhibit VII: Product Categories
Exhibit VIII: Excerpt from Franchise Agreement
Exhibit IX: Franchise Models at Mr. Puff
Exhibit X: Sample ROI Receipt
Exhibit XI: SWOT Analysis of Franchises
