Multi-unit franchising can be the right move, but take time to prepare.
In the International Franchise Association’s annual Franchise Business Economic Outlook study, the GDP of the franchise sector is forecast to increase 5.1 percent to $521 billion in 2015. Meanwhile, employment growth in the sector will continue to rise faster than the non-franchise sector. Multi-unit franchisees will play a crucial role in the expansion of the franchise industry.
Multi-unit franchising is an appealing business prospect, as it allows franchisees to expand faster and be more profitable in their endeavors. The downside to multi-unit franchising is it requires more experience, market knowledge, leadership ability and –of course –capital.
Those looking to expand their own franchise business should take the following advice into consideration when preparing a growth plan.
Evaluate your skill set
Single-unit franchising is more hands-on, while owners with multiple locations require different skills. Their job revolves around training, hiring the right managers and setting long-term goals and targets.
“New units need attention, and the second unit presents new challenges that a franchisee faces,” said Leslie Kuban, a FranNet consultant serving the Atlanta area. “Owners need to understand the skill set needed to run the business is going to change, and they need to be sure the first unit is adequately supported by management so that they can focus on the second location.”
Expand the smart way
Franchisees ready to expand, and expand the right way, need to pursue logical steps. Growing is a complex and ongoing development, so deciding whether to expand with the same brand or a different brand is important. Smart expansion with one brand can be easier and diversifying your portfolio is a big undertaking, so those eyeing different (perhaps complementary) brands should reflect on the reasons why.
“It’s essential that in their first operation [business owners] feel confident that they have enough management infrastructure beyond themselves so that they can leave the business and turn over the reigns to competent management to make sure all the plates that are spinning stay spinning in marketing, operations and customer service,” said Kuban.
Hire the right people
If new to the multi-unit structure, it’s important to realize that opening a second unit is a different experience than opening the first. Because franchisees can’t be everywhere at once, selecting the right management to operate the inaugural location is crucial.
“I would say the most important thing is identifying key people in an organization, developing the organization and having a robust recruiting, hiring and training program, because if you don’t develop your team, you’re never going to grow,” said Peter Greene, an 8-unit Which Wich franchisee in Arizona who plans to expand to 25 or 30 stores statewide in the next five years.
Speak with the franchisor
When first deciding on expansion, asses the franchisor. Most franchises have discounts and accommodate those looking to purchase multiple units.
“By moving in different locations, you don’t enjoy economies of scale with marketing and labor costs, so you’re building a better value for yourself if you expand in multiples. That involves negotiating an area development agreement with the franchisor up front,” Kuban added.