Restaurant Brands Seek Growth With New Franchising Strategies
Written by Tim Morral
In an effort to expand, more and more brands are entrusting franchises to multi-unit operators.
The franchising industry has undergone a noticeable shift. More and more, brands are shying away from single-unit franchise owners and embracing multi-unit franchisees.
Currently, 53 percent of the 450,000 franchise units in the U.S. belong to franchisees who own more than two units, according to FranData. That's up from 18 percent in 2007.
Indeed, as the industry has evolved from the traditional owner-operator model, many successful and well-established brands now work exclusively with multi-unit franchisees.
Restaurant Franchises Embrace Multi-Unit Franchising Trend
The restaurant industry is leading this multi-unit trend. In fact, multi-unit owners currently make up 76.5 percent of restaurant franchises, according to a recent article in Entrepreneur.
"I think franchising is changing," Chris LaRocca, owner and operator of Crushed Red, a fast-casual salad and pizza concept, told Entrepreneur. "The owner-operator mentality has its place, but it takes a different mentality to execute operations with the consistency we want. The only way to get there is using the systems and tools and technology that multi-unit franchisees bring with them."
Explaining the Shift to Multi-Unit Franchising
There are a number of reasons that multi-unit franchising is becoming the norm:
- Staying Power. During the recent economic downturn, franchise brands began to notice a trend: small operators with one or two units were struggling and feeling the effects of the poor economy, resulting in closures and performance issues. Multi-unit owners, in contrast, have deeper pockets and are able to perform better, regardless of the economic climate.
- Entrepreneurial Experience. New, single-unit franchisees are often not experienced at running a business. Franchise brands prefer multi-unit owners because working with experienced franchise owners is easier than working with owners that have less experience.
- Sales Efficiencies. Anybody who is selling franchises will tell you that it's much better, and easier, to sell five or ten at a time than it is to sell a single franchising opportunity. Multi-unit buyers are more sophisticated, move faster and don't run into financing issues.
- Relationships. Perhaps the greatest motivation in partnering with multi-unit franchisees is that experienced franchisees have deep ties with realtors and vendors in their territories, particularly in the rapidly growing fast-casual sector. Due to these relationships, multi-unit owners are able to develop more units with a faster speed to market.
Brands Build Growth Strategy Around Multi-Unit Franchisees
As multi-unit franchising goes mainstream, many franchisors are experimenting with different approaches. Fast-casual sandwich concept Which Wich, for example, has a unique approach to multi-unit franchising, reports Entrepreneur. Beginning in 2005, the company offered a two-store commitment to potential franchise partners, regardless of their level of experience. If franchisees can successfully open two stores in two years, they can move forward and develop additional units.
"It gives us a level of comfort," Jeff Vickers, senior vice president of development for Which Wich. "When an operator gets their stores open, we know if it's someone we want to continue with for the long-term. It's a win-win for us and the franchisee."
Implications for Franchisees
From the perspective of the multi-unit franchisees, there's certainly more attention being paid to them. There's even a conference dedicated to multi-unit franchising put on by Franchise Update Media. Over 550 multi-unit franchisees attended the 2014 conference, looking for tips on how to run multi-unit franchising operations and also looking for new franchise concepts to buy into.
For the small franchisee, it may mean that it's increasingly competitive to get access to the better franchising opportunities. Franchisors will give preference to multi-unit buyers. So, while the multi-unit trend may be good for franchisors, the jury's still out on what this will mean for aspiring entrepreneurs with modest financial strength who are considering buying a franchise.
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