The Goldman Sachs and Norwest Venture Partners-backed Pepperfry has partnered with Franchise India to expand its offline presence through a franchise model in FY17-18.
Currently, Pepperfry is having 18 studios and is planning to expand to 46 studios in 15 cities by the end of this year. While the franchisees will own and operate the studios, Pepperfry will train the staff and ensure the order completion from the booking stage onwards. An additional feature that the franchise studios will provide to consumers is the booking and payment for an order from the studio itself. The franchise studios will operate on per sale commission-based revenue model with margins spanning 8-13%.
A key driver for this initiative is the company’s strategy to cut cost even as it maintains the pace of offline expansion. “Studios are working for us as a model and therefore we want to expand in this direction. Lesser capital requirement and the idea of empowering entrepreneurs is what led us to this model. We invest Rs 70 lakh in capex per studio even as we incur an operating cost of Rs 6-7 lakhs per studio. The franchise model will help the company cut costs by over Rs 20 crore for FY18,” stated Ashish Shah, COO of Pepperfry.
For FY18, the company is looking to grow between 70% and 100%. To achieve the targeted growth, the company has introduced two new services that will enhance its revenue model. Pepperfry has tied up with interior designers and architects as channel partners for leads and order fulfillment. For every order received through these partners, the company will offer a 5-10% commission. The two week-old pilot will see a 10x jump in the number of channel partners with a target of 300 designers and architects to be on boarded by the end of the quarter. Pepperfry is also building a community of real estate builders starting with Pune, where builders will earn a similar commission on every order they direct to the company from a home buyer.
The current contribution of offline studios is around 22-25% of the company’s overall sales and the anticipated share of offline sales by FY18 is 35%.