Growing Influence: Multi-unit, Multi-Brand Franchisees Are "Changing The Universe"

The franchising marketplace has grown ever more complex with the increasing number of multi-unit, multi-brand franchisees (MUMBOs). These entrepreneurs have transitioned from single-brand operators into business owners with diversified portfolios across multiple brands. By leveraging economies of scale, reducing risk, and increasing their influence within franchise systems, MUMBOs are changing the universe of franchisees. These changes are affecting franchise sales and system operations.

At FRANdata, we maintain a database of more than 230,000 franchisees, including more than 42,000 multi-unit owners. To understand multi-brand diversification, we examined the ownership portfolios of franchisees with 25 or more units to see the makeup of their investments.

Our analysis of 986 franchisees with 25 or more units shows that 41% operate across multiple brands, averaging four different brands per portfolio. Multi-brand operations make up 6.2% of their total unit count.

This diversification strategy allows franchisees to tap into different markets and hedge against economic risks. For instance, SSP America operates 172 restaurants, some franchised and some independent, in U.S. airports across the country and spans 14 different franchise brands. Similarly, ZMC Hotels, backed by Hall Equities Group, manages 43 franchised hotels under 19 different flags. Such diversification enables franchisees to respond to shifts in consumer preferences.

Multi-brand franchising helps franchisees mitigate sector-specific risks by diversifying their investments across different industries. If one sector, such as food service, experiences a downturn, a franchisee with non-food brands, like fitness centers or hotels, can rely on those businesses to maintain profitability. 

Of the 401 identified MUMBOS, 69% operate exclusively in food brands, 16% in non-food brands, and 15% manage a mix of both.

Private equity investors are increasingly drawn to MUMBOS due to their stability, scalability, and growth potential. Multi-brand franchisees offer diversified revenue streams, making them less vulnerable to economic fluctuations and industry-specific challenges than less diverse businesses. They are often more capital efficient than single-brand operators. They can reduce costs by sharing resources and reinvesting in expansion. This growth potential appeals to private equity investors, who see opportunities for rapid scaling with reduced risk.

Operating multiple brands enables franchisees to achieve economies of scale by sharing resources, such as administrative staff, marketing, and supply chains. A franchisee with both restaurant and retail brands can centralize back-office functions, reducing operational costs and improving margins. Larger franchisees also gain more bargaining power with suppliers and franchisors, securing more favorable terms than smaller operators.

However, managing multiple brands across different sectors can add layers of complexity too. Each brand has unique supply chains, marketing strategies, and operational standards. MUMBOS must manage relationships with multiple franchisors, each with its own expectations and contractual obligations. Navigating these relationships requires clear communication and careful attention to each brand’s specific needs. Franchisees must implement strong management systems to ensure all brands operate smoothly.

Franchise sales individuals are finding that they must change their messaging to attract these new complex operators. Not only do you need to have a good brand story for yourself, but you must consider how your brand fits into the franchisee’s portfolio overall. Suppliers can no longer offer a solution that they know fits for one brand. They must tailor their solution to the operations of multiple business models.

As franchisees continue to consolidate, and private equity continues to invest, the complexity of the operations of the major franchisees will continue to grow. The difference between smaller operator-focused franchisees and mega investment groups will affect how franchise systems develop and operate in the long term because the number of franchisees looking to diversify their operations is only growing. 

Paul Wilbur is COO of FRANdata where he is instrumental in building the company’s research and consulting framework. He manages the research, information management, marketing, and IT departments and plays an integral role in the strategic development of FRANdata’s suite of franchise solutions. Contact him at 703-740-4700.