Single - or Multi-Unit Development: Which Works for You?
This is an excerpt from a feature article that will be published in the next issue of Franchise UPDATE magazine, Issue 2, 2010, available online or in print by mid-May.
Despite the surging growth in franchisors using multi-unit development strategies over the past 20 years -- especially the past decade -- this approach is not always a sure bet for successful franchise growth, and certainly not for every franchisor. For example, the multi-unit model may make a great development tool for an established retail-oriented brand seeking heavy market penetration in a given territory, but it may not be right for a newer service-based brand testing a smaller market.
There remains a time and place for strategic single-unit expansion development models. As we learned from speaking with franchise executives from a variety of franchise brands, as well as with a veteran franchise consultant: one size doesn't fit all.
The good, the bad, and the ugly
Karen Spencer is founder and CEO of Fran-Systems, an Atlanta-based franchise educational and consulting firm that assists new and existing franchisors with everything from sales and marketing to administrative and operational issues. Spencer, who has worked with many major franchise brands over the past 25 years, says that for franchisors seeking the most appropriate growth and expansion strategies, it's essential to fully evaluate their expansion markets and opportunities.
The single-unit approach can sometimes move growth at a faster pace than a multi-unit strategy because, often, several single operators can open units more quickly than one multi-operator with a schedule. Working with several single-unit operators also gives franchisors a chance to assess the stronger operators -- which could come in handy for future development as single-unit owners become multi-unit operators.
By contrast, a multi-unit development model, with a larger, focused operator building out a territory, can help franchisors achieve market penetration more quickly and effectively. Additionally, she says, "You have a better chance of having a more sophisticated franchise operator, which makes support and compliance issues much easier for you."
Popeyes: Combination plate
"We don't want to pre-select candidates right out of the process simply because we 'only' do multi-unit deals," says Greg Vojnovic, vice president of development for Popeyes Louisiana Kitchen. "Our strategy is to be flexible with every candidate and situation and find out if a single- or multi-unit approach would be better."
Vojnovic says just over 25 percent of Popeyes franchisees operate 5 or more restaurants; the largest has 160. Most of the others operate two or three units, and a few are single-unit operators. It's a mix that has worked well for the brand.
Popeyes does like to recruit multi-unit, multi-brand operators, he says, because they typically have solid experience, resources, and infrastructure. To succeed with this group, he says, "Franchisors better have their act together. A lot of times, multi-unit operators will come in and try you out by opening just one unit to really find out what kind of franchisor you are before they go any further with you."
Wild Birds: One at a time
When Paul Pickett, vice president of franchise development at Wild Birds Unlimited, begins sizing up a candidate, he's looking for something a little bit different. "We are an owner-operator franchise model," says Pickett. "We're looking for passionate franchisees who love backyard bird feeding."
Although that doesn't necessarily exclude a multi-unit operator, Pickett says the brand sells only one unit at a time, and that when it comes to franchisees he is more interested in quality than quantity. Wild Birds Unlimited has 275 franchise stores. "About 75 percent of our franchisees are single-unit operators; the other 25 percent have 2 or 3 locations," he says.
To be considered for an additional location, a franchisee must demonstrate success with their first location for one year, after which they can apply for a second store. To be considered for an additional location, says Pickett, the franchisee also must be financially healthy and have a track record of following the system's best practices.
Pickett admits the brand's single-unit development approach limits the system's ability to grow quickly. However, he adds, "We're more interested in a strong relationship with a passionate franchisee who creates energy in the store and delivers our message passionately every day." One store at a time.
Right at Home: Single-plus approach
"During the last decade since the company has been franchising, we have tried both multi- and single-unit development strategies," says Eric Little, senior vice president of development. A little over a year ago, the brand began a new development initiative: after one year of operation, franchisees hitting system benchmark performance levels and who prepare a business plan can become eligible for an additional franchise. "This slows the process down a little and helps us make sure we are all making good, smart business decisions," he says.
A look at the numbers reveals another reason the single-unit approach works for Right at Home. "Our franchisees average around $1 million in revenue each year. Their personal income is then anywhere from 12 to 15 percent, sometimes even more, of that. That's a healthy income that many of them are happy with," he says. That could explain why nearly 90 percent of the system consists of single-unit franchisees (the other 10 percent have 2 or 3 locations).
The strategy is working. In 2009, Right at Home awarded more than 40 new franchises, a record year for the company. He does admit that he'd love to find a way to allow high-performing multi-unit franchisees into the system right up front, "but we've just not found a way to do it... yet."
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