Franchising continues to grow--not only in size, but in complexity--and in recent years, a huge part of that growth is attributable to multi-brand franchising.
Makes sense. If following the system works for one successful brand, it will most likely work in another, then another--if you choose wisely. And if your unit economics are strong, more profit will flow your way with each passing year and additional brand.
Diversification, a recommended strategy in designing an investment portfolio, is a big part of the thinking behind the growth in multi-brand franchising. As savvy investors know, no matter how good your ROI may be from a single holding, it's not wise to put all your eggs in one basket. And as multi-unit franchisees seek new avenues for growth, an increasing number are adding second, third, and fourth brands to their portfolios.
"There is a definite interest in growth through multi-concept operations," says Darrell Johnson, president of FRANdata. "It's continuing to expand and grow, and we see the trend continuing upward."
Franchise attorney Lane Fisher observes: "From a franchisor's perspective, multi-unit franchising provides opportunities for accelerated growth; a vehicle to penetrate new markets; capitalize on certain market efficiencies; reduce the training, opening, and operational assistance typically provided to single-unit franchisees; and is a means to attract and reward productive franchisees."
One dynamic propelling multi-brand growth is the combination of 1) expansion-minded franchisors seeking multi-unit operators successful with other brands with 2) successful multi-unit franchisees evaluating new concepts to diversify their organization. This alignment of interests has been accompanied by a rise in the number of franchisors offering several concepts from under one corporate umbrella--usually limited to a single industry segment (fast food or home repair services, for example).
For franchisors offering multiple brands, it means working with franchisee organizations they already know, saving countless hours of relationship-building, recruiting, investigation of finances, etc. For franchisees, adding a new brand from their current franchisor does the same. It means working with a known, trusted management team, saves time, helps them open units sooner, and also can mean discounts on franchise fees, sometimes even royalties for a limited time.
Franchisors seeking new multi-unit partners are looking for a proven track record managing multiple units, relevant industry experience, positive cash flow, strong unit economics, and a solid management team and infrastructure. And, of course, signing multi-unit or area development deals also means dealing with fewer franchisees to sell more units. Franchisees seeking a new franchisor partner look for pretty much the same: a solid management team, strong unit economics, a well-known and respected brand name, and an opportunity to develop a territory over the long term.
Taken alone or together, there are many reasons that inspire successful multi-unit franchisees to seek out additional brands:
Multi-brand franchising is a complex business. Done right, it offers great potential to the multi-unit franchisee seeking to diversify their investment, increase their profitability, and build a larger, stronger organization. One caveat: New brands should not (and in many franchise agreements, cannot) be in competition with your existing brands. Check with your franchisor, franchise agreement, and franchise attorney before you start shopping for a new brand.
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