Building Brands: How To Expand From Multi-Unit To Multi-Brand Franchisee

With the trend of multi-unit franchising continuing to drive franchising into the 21st century, some progressive franchisees are looking for the next logical step in the progression of franchising's ongoing and complex development. Many are finding that next step is through multi-brand franchising.

Multi-brand franchising can offer a great additional growth tool for multi-unit franchisees who have seen their fortunes rise simply from adding new units of one brand. Adding additional brands and units makes logical sense. If following the franchise system works for one successful brand, it will most likely work in another, then another--if you choose wisely. With a streamlined infrastructure, solid capital base, and strong unit economics, more profit can flow your way with each passing year and additional brand.

It's really the idea of diversification, and that's as old as capitalism. Dispersing risk can protect your business from negative market factors like economic downturns and encroaching competition. Diversification is a recommended strategy in designing an investment portfolio and 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.

But why would franchisors want franchisees who aren't fully devoted to a single brand? Simple, they're looking for additional multi-unit partners with a proven track record managing multiple units, relevant industry experience, positive cash flow, strong unit economics, and a solid management team and infrastructure. And, for franchisors, signing multi-unit deals also means dealing with fewer franchisees to sell more units. Meanwhile, multi-unit franchisees seeking a new franchisor partner have similar requirements: 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.

Here are some of the reasons multi-unit franchisees seek out additional brands:

  • Infrastructure. Multi-unit franchisees with their own accounting, human resources, and other internal departments often have excess capacity. Adding brands can take advantage of that capacity, growing profits without expanding the home office staff. With a strong infrastructure in place, a multi-brand franchisee has a built-in advantage in building brand awareness in their territory and more easily, rapidly, and successfully penetrating their market with a new brand.
  • Economies of scale. Once an organization attains a certain size, several things get easier and, often, less expensive since you're "buying in bulk": marketing and advertising, supplier costs and services, administrative and back-office functions, and more. For example, one vendor may be able to service all your equipment and, as a result, offer you a more economical rate.
  • Geography. Adding another brand can be the perfect path to continued growth in a region where a single-brand multi-unit operator has built out their territory, or for a franchisee of a brand with no local opportunities to build more units--without having to travel to new or distant locales. Familiarity with the territory and the dynamics of the market, combined with local connections and a solid grasp of local real estate, developers, and zoning requirements is a real home-court advantage.
  • Financing. A successful track record with one franchise concept demonstrates your ability to lenders who can help you launch that next concept. Thriving multi-unit franchise operators typically have high net worth, extensive contacts, and access to financing to open successful units quickly. These are powerful assets to have. Your existing operation and the value of your real estate can help you acquire a second or third concept, without putting a stranglehold on your cash flow.
  • Training and retention. With two or more brands, a franchisee can offer employees cross-training, flexibility, promotions, and a clear growth path as their skill sets improve. This helps in attracting and retaining top talent as you build your organization, always a challenge in any business. And with better-trained employees, unit economics improve.
  • Co-branding. Locating two or more brands in a single location also allows behind-the-scenes efficiencies that can boost profits. Be careful to maintain compliance with each franchise agreement, as some concepts may not be combined legally or functionally. If it does work, co-branding and co-marketing can make more efficient use of your advertising dollar.
  • Synergy. Each franchise brand has its own proprietary operating system perfected over many years and many thousands of customer transactions. While the operating systems differ and must remain separate, sometimes elements of one can be applied to another, or to internal operations at the franchisee's home office. The same holds true for marketing programs, recruiting methods, training, HR, and every other ingredient of franchising success. Keep them separate to maintain compliance, but look for areas to adapt good ideas across your organization.

Multi-brand franchising, when done right, offers great potential to the multi-unit franchisee seeking to diversify their investment, increase their profitability, and build a larger, stronger organization.

Published: March 17th, 2010

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