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Franchise Accounting: a Case Study of Mr. Puff*

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases - GSMC, 11 Pages
AUTHOR(S) : Sheetal Thomas, Indukaka Ipcowala Institute of Management, Anil P Dongre, Director, School of Social Science, Head-U.G. Department of Management Studies

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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

Teaching Note Preview

Franchise Accounting: A Case Study of Mr. Puff

 

Case Synopsis

The case study depicts global and Indian bakery industry scenario creating a background to understand the operations and growth of Shree Gandhi Bakery established in 1950 by Shri. Dholandas Thadani (Dholandas). It narrates the changes that occurred during 65 years of its establishment. And its transition from Shree Gandhi Bakery to Mitesh Food Products Pvt. Ltd. and the brand Mr. Puff. The case gives information about the different products offered by the firm and includes the description of the operations of Mr. Puff. It also explains the models of franchising used by the firm.

Pedagogical Objectives

  • • To understand the model of franchise
  • • To discuss the various issues faced in franchise operations
  • • To discuss and debate on revenue recognition models used in franchises

 

Note: Even though the pedagogical objectives are based for teaching Management Accounting, the case study can be equally used in classroom to discuss issues like values in family business, transition in ways of management, difficulties in transition from being run by family members to professionalization of business, challenges in sharing the profit with franchise owners, keeping the brand name alive, and so on.

Case Positioning and Setting

This case study can be used in MBA, Executive MBA or PGDM Programmes, for the following courses:

  • • Management Accounting: To understand concepts such as Revenue Recognition, Accounting of Franchises, etc.
  • • Strategic Management: To understand the concepts scuh as Profit Sharing, Business Expansion, etc.
  • • Family Business and Entrepreneurship: To understand concepts such as Family Owned Business,Building Brand Name, etc.

Assignment Questions

  • 1. How do you understand the model of franchise?
  • 2. Is franchising a viable option for growth of business? What are the strengths and weaknesses of Mr. Puff ’s franchise model.
  • 3. What challenges do you perceive Mr. Puff will have in keeping its franchises?
  • 4. ....................

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Abstract

This case study discusses the franchise model of Mr. Puff (Mitesh Food Products Pvt. Ltd.) which was established in 1950, then known as Shree Gandhi Bakers founded by Shri Dholandas Thadani (Dholandas). They were the pioneers of bread cutting process (i.e. separating the loaf into slices) in Vadodara, Gujarat.

This case study enables the participants to understand the model of franchising, identify and further investigate on the models that would bring in larger revenues to the business. More so, the case would give an insight on the difficulties faced in the franchise models as shown in the pedagogical objectives.With due expansion plans, Mr. Puff would want to improve its franchise models, particularly franchise accounting. Franchises have special accounting problems and hence the case study would help the participants to identify and provide alternatives to the problems that have been identified. These problems ordinarily deal with the recognition of revenue. The case study would examine all of the aspects of franchisee accounting. It aims to instil discussions that may rise to future scope of studies, alternative franchise models and their accounting techniques.



Pedagogical Objectives

  • To understand the model of franchise.
  • To discuss the issues faced in franchise operations.
  • To discuss and debate on the revenue recognition models used in franchise.

Case Positioning And Setting

This case study can be used in MBA, Executive MBA or PGDM Programmes, for the following courses.

  • Management Accounting: To understand concepts such as Revenue Recognition, Accounting of Franchises, etc.
  • Strategic Management: To understand the concepts such as Profit Sharing, Business Expansion, etc.
  • Family Business and Entrepreneurship: To understand concepts such as Family Owned Business, Building Brand Name, etc.


* GSMC 2016, IIM Raipur

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- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)


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