How To Grow Without Cannibalizing Your Sales
With growth, in some form or another, being a common goal amongst multi-unit franchisees, we have been looking at key areas of focus to ensure proper planning for growth. For owners simply looking to grow in units, franchise CPA Michael Iannuzzi, in our last article, "How to be Well Equipped for Funding Growth," shared the importance of laying out a long-term profitability budget and cash flow budget so multi-unit franchisee owners can project the required capital to accurately fund and meet goals.
In this installment, we reached out to Michael Einbinder, franchise attorney with Einbinder & Dunn, for a different perspective. Einbinder shared with us that franchise owners who have developed multiple units of the same franchise within a market, may feel as if they cannot support an additional unit without cannibalizing their sales. He says that finding the next area for expansion in a saturated market can be difficult but that multi-unit franchisees are uniquely positioned to thrive in this environment. Here he answers that conundrum of what to do? One potential solution he has seen multi-unit owners explore is developing other brands within their market.
Einbinder suggests one way to thrive is to consider centralization of key functions. In his experience, he has found that multi-unit franchisees who develop a corporate infrastructure are able to more easily apply that infrastructure across concepts.
"A key to adding a new concept to a franchisee's portfolio is to utilize existing personnel as much as possible to handle the additional back-office tasks without hiring a new team," says Einbinder. "If this can be accomplished, operating multiple brands won't require multiple teams of managers, trainers, marketing staff, bookkeepers, communications staff, etc. or a significant investment in personnel. The economies of scale will add to the bottom line."
In addition, franchise owners create a "pool" of resources that can now be shared throughout all units while also creating a growth model motivating and retaining key employees.
Jeff Bannon, a succession planner with The Rawls Group adds that any strategic planning initiative, particularly one that may include the introduction of new franchises, also needs to consider the cultural and management team impact. Time, money, and people are equal ingredients in any growth strategy and to dismiss the importance of one is to risk long term profitability.
Today's low interest environment makes capital readily available, begging the question, are your people ready? What is your bench strength at each critical management position? Will you be hiring from outside to create an executive team, and how will this impact your culture?
Further, new stores typically mean new opportunity - who are your key people looking for personal growth and are they ready for it? There may be an opportunity to reward long tenured employees with ownership in the new deals, which carries its own complexities. A growth strategy should address this dynamic with the consideration that synthetic equity may be a better and more meaningful long term solution.
One critical piece of the puzzle when considering multi-brand franchising is the expectation of the franchisor. Einbinder's experience has shown that multi-brand franchisees raise concerns regarding confidentiality issues, brand protection, and financial capabilities. Therefore, his recommendation to franchise clients operating multiple brands is to carefully develop and execute a plan for protecting each franchisor's confidential information from disclosure and preserving each franchisor's brand from diminution of value. Einbinder emphasizes that it is incumbent on the franchisee to convince its franchisors that it has the financial capability to support multiple brands without diverting finances from one brand to the other.
In this season of growth, franchise owners have exponential opportunity to expand either in units, geography, brand, or all the above. With proper planning, and considering insight from your team of advisors, franchisees can grow their portfolio across multiple brands, drive sales to their concepts, and use their economies of scale to increase margins.
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