Multi-unit franchise ownership – owning multiple units of the same brand – has gained popularity in recent years and for good reasons. Many franchisors now seek franchise candidates who desire a “package” of franchise units rather than just one unit, and many franchise prospects are only interested in franchising if they can buy multiple units or units of multiple brands.
According to FRANdata, which tracks franchise development in the United States, 54 per cent of all franchises are multi-unit operations, with 43,212 multi-unit operators controlling most units. It’s a trend that FRANdata has observed for more than 30 years. Between 2010 to 2018, FRANdata reported that entry-level multi-unit ownership increased by 23 percent.
The benefits of the model
What created the trend? If owning one unit of a popular brand is a good idea, owning multiple units is a better idea in the minds of many owners. Overall, the benefits of multiunit ownership satisfy thousands of owners. These benefits include multiple revenue streams, economy of scale resulting in lower operating costs, staff flexibility, and less hands-on commitment by owners providing a more satisfying work-life balance.
A franchisee who successfully opens one unit may find it easier to open the second unit, and so on. Why build infrastructure for just one unit? With one unit, a franchisee needs accounting, HR, a CRM, and other services, and in most cases the same services, perhaps with expanded capacity, can serve multiple units and even multiple brands.
Many franchisees, especially if they have business experience and capital, won’t consider a single-unit franchise because it won’t return the results they desire. What’s more, nowadays an experienced multi-unit operator of one brand is likely to buy a “package” for a second brand. Successful multi-unit operators not only learn how to operate a specific model, but they also learn how to operate successfully in a specific market.
With market knowledge comes the opportunity to introduce multiple brands in that market.
Consequently, multi-brand operators are on the rise in the U.S.A.
Meanwhile, franchisors increasingly prefer multi-unit and multi-brand operators. Who wants 1,000 franchisees each operating a unit when 200 franchisees could each own five units? (On average in the U.S., multi-unit operators own five units).
Working with the same franchisees, and a smaller number of franchisees, makes life easier and more profitable for franchisors. Consequently, franchisors will discount their franchise fees to attract multi-unit investors.
How do you know if you’re a good candidate for multi-unit franchising? First comes the desire and capacity to own more than one unit – it’s not for everyone – and then you will need to prove your value to a franchisor. It’s not just about your financial capabilities although if you can’t meet the investment requirements, i.e., the ability to open a store every year to 18 months, you won’t qualify. Here are six characteristics of leading multi-unit operators. Use these to measure your value:
1) Business expertise
“The most important quality characteristic that I seek in a multi-unit franchisee is they are already a proven successful business operator and even better a proven operator of successful franchised units,” says Peter D. Holt, president and CEO of The Joint. “No franchisor has the time to teach an unsuccessful businessperson how to be successful.”
If you haven’t successfully operated a business, you may not meet the franchisor’s expectations. If you haven’t operated a franchise business, again you may not get the franchisor’s approval. Without operational success, you may be invited to buy one unit with a promise of additional units after hitting prescribed benchmarks.
2) Leadership qualities
When franchisors qualify multiunit candidates, they look for leaders. They measure for integrity, honesty, active listening, self-confidence, communication skills, delegation skills and much more.
“We seek great leaders for multi-unit ownership,” explains Jeff Thompson, international sales director for United Franchise Group. “They must be visionaries and convey how they’ll implement their vision. They also must be able to organize and delegate responsibilities.”
Many franchise specialists emphasize the importance of delegation skills. “Multi-unit operators must be masters at delegating,” says Monica Feid, COO, BizCom Associates. “They don’t look at investing in a franchise to buy themselves a job. They look to create jobs for others and work on the business rather than in it.”
Feid says that’s the mindset that’s necessary to “grow and lead great teams across multiple units” because multi-unit operators cannot physically be present at every unit.
When it comes to multi-unit, multi-brand and multi-state franchisees, John P. Clancy says it’s important not to be a “control freak.” He oversees 50 units of Planet Fitness, 30 units of Smoothie King, and several units of Buff City Soap and does it all from Jupiter, Florida.
“You must do many things right as a multi-unit franchisee. If you cannot delegate some of those disciplines to either trusted, incentivized employees or partners you cannot operate at peak efficiency.”
3) Competitive qualities
“If you choose your brand wisely, you will have competitors,” explains Clancy. “That’s capitalism.” He says multi-unit market leaders must be competitively aggressive. “They can’t be afraid to surround their competitors when they open in a territory. They have access to more capital and they use it to out-market the competition. They choose better sites, build better stores, and support better operations. They are aggressive in being the best.
Multi-unit, multi-state Dunkin Donuts franchisee, Damon Dunn, has accelerated his franchise portfolio by using technology. Whether it comes to a decision about buying an existing unit, or where to locate a new unit, Dunn depends on technology to help make decisions.
Using the right technology boosts productivity and enhances a franchisee’s quality of life.
Franchisors are more likely today to implement technology and they want multi-unit operators to be comfortable using it. In Dunn’s case, he spends time investigating technology that he can adapt to his operations.
5) Know the numbers
“Single-unit operators may be new to knowing and understanding a P&L,” says Feid, “but great multiunit operators are vigilant about unit economics. If they aren’t personally experts at math, they hire for it on their teams. Because if you don’t know how your business makes money, you cannot replicate that success across multiple franchise units.”
Clancy says it’s important to use data to make decisions. “Test and measure. Make sure you do both. It’s great to test, but without knowing the ROI on your test you won’t know if you succeeded.
Measuring is usually nuanced and involves multiple layered technology, POS and franchisor integration. It’s not easy but it’s critical. Testing and measuring is wisdom in franchise operations.”
6) Engage in the work
Holt says he wants multi-unit operators who are engaged in the concept. “They may have competing interests that vie for their time,” he explains, “but if my concept is not at the top of their list it’s hard to imagine how they will be successful. Engagement is the foundation for success.”
Multi-unit operator Eddie J. Rodriguez agrees. His portfolio has included as many as 260 Wendy’s restaurants in seven states. He’s also a multi-unit operator for Wingstop. Rodriguez attributes much of his success to his engagement as a franchisee. First, he supports all the brand’s operating systems.
“This is important,”he says, “because reinventing the wheel in a franchise system creates confusion for the consumer” which results in lowered customer loyalty.
He also believes it’s important to engage outside of the store. “Most franchise organizations do business within three miles of their location,”he explains. “Local involvement is the best sales building technique in most businesses.” Rodriguez thinks a franchisor should consider a prospective franchisee’s involvement in networking events, civic clubs, schools, and other businesses.
Finally, engagement must extend to the franchisor’s organization. Rodriguez says, “It’s important to serve on the franchise advisory council, on local marketing councils and in other meaningful ways. This type of leadership creates future growth and opportunities to represent the brand.”
Depending on the industry, a franchisor may have other qualifying characteristics for selecting multi-unit operators. Nowadays, with the prevalence of multi-unit operations, it’s easy to find top multi-unit franchisees for a specific brand and interview them.
Successful franchising is never a one-way road; it depends on the agreement, cooperation and skill sets of both franchisor and franchisee. If you want to capitalize on what may be the “hottest trend” in franchising in decades, then consider multiunit ownership, but be prepared to meet the franchisor’s expectations.
Dr. John P. Hayes, CFE, directs the Titus Center for Franchising at Palm Beach Atlantic University in West Palm Beach, Florida. He has written extensively about franchising and speaks at conferences worldwide. Students at the Titus Center earn a Concentration in Franchising along with a baccalaureate degree and most go to work in franchising after graduation