Operating Multiple Franchise Locations for One Franchiser can be More Lucrative than Owning Just One, but be Aware of the Differences Between Multi-Unit and Single-Unit Ownership before You Make a Choice.
If one franchise business opportunity location is good, then two is better. That's the basic premise behind the appeal of multi-unit franchisee operations versus single-unit operations. As Baltimore FranChoice consultant Britt Schroeter puts it, "If one franchisee location can net you $100,000, then five locations should be able to net you $500,000."
As is often the case, however, the arithmetic is simpler than the reality. While owning several units can be several times more lucrative than owning a single unit, franchisers often raise the bar higher for would-be multi-location franchisees in terms of financial resources and specific skill sets. Personality also plays a role. Some people are happier dealing with customers hands-on on a daily basis, while others prefer to manage from afar, delegating operational details to others.
Some franchisers discourage or even prohibit multi-unit ownership, requiring all of their owners to be personally involved with daily operations at a single location. Others, through the use of non-compete agreements that keep owners from engaging in other businesses, can sometimes require their franchisees to open multiple units if they want to continue to grow.
To further complicate matters, multi-unit franchises come in at least three different varieties, each of which places different demands on the franchisee. Some franchisers allow franchisees to open up multiple locations using an agreement similar to the one used for a single-unit operation. Another type of multi-unit franchise, area development, grants an owner exclusive rights to a sizable territory, and usually a discount on franchise fees, in exchange for the area developer's commitment to open up a specific number of units over a period of time.
A minority of franchises also offer regional or master agreements, Schroeter says. These special agreements call for the franchisee to recruit other owners to the brand in his/her target market. The master franchisee may not have any company-owned operating units, but focus entirely on engaging and supporting the owners of the actual locations. Fees charged for master franchises are often higher, Schroeter says. "In exchange for higher fees and their work, the masters often receive half the net franchise fee and half the ongoing royalties of franchisees they help place and support," she adds.
Owning multiple units is significantly different than owning a single unit. That's why, Schroeter says, multi-unit owners require special skills. In particular, they need to be comfortable leading and allowing others to do their jobs, rather than micro-managing, and selling and delivering products or services themselves. "As a multi-unit franchise you'll be focused on managing managers as opposed to managing operations," Schroeter says. "So it can be a better fit for executives and individuals who bring management skills to the table." Also, multi-unit franchisees frequently must have greater net worth, so they can help fund the expansion of larger operations, and must have more risk tolerance, since they are betting more and being required to do more.
The business opportunities suitable for multi-unit operation also display distinct qualities. The best are simple options: tanning and hair salons, coin laundries and car washes are a few examples. Opportunities requiring intense customer focus fit better with single-unit ownership.
Perhaps the best way to tell if a franchise concept is likely to work well for a multi-unit ownership is to see how the franchiser tailors its marketing. Franchisers have to take into consideration not only the concept, but the availability of suitable franchisees, and that can change.
At Tasti D-Lite, for example, CEO and Chairman Jim Amos began growing the Franklin, Tenn., retailer of frozen treats using the same model Amos employed at Mail Boxes Etc. "There we were able to scale to nearly 5,000 centers using a combination of single-center development, multi-center development, as well as area developers and international master franchisees," Amos says.
Then the last recession's credit crunch caused small-business lending to dry up and keep most potential franchisees on the sidelines. Amos found that Tasti D-Lite still was able to attract well-heeled applicants. "The caveat was that these candidates were less interested in single-unit development, and more interested in multiple centers or even areas to develop," he says.
Today, Tasti D-Lite focuses on multiple center sales, area development, and international master franchises as much as single unit development. Amos is ready to change again, if the lending situation improves. "When there is some loosening we will once again begin more single unit development as well," he says.
Tasti D-Lite has leveraged the near-cult status of its flavorful and healthful offerings to expand far outside its New York City origins. The company currently has 50 locations, including 47 in the U.S., two in South Korea, and one that recently opened in Mexico. For 2010, Amos has new domestic locations opening in Connecticut and Florida, as well as a new international market in the United Arab Emirates. For future development, the company has targeted Boston, Dallas, Southern California, Florida, and Seattle. "And we have our sights set on several new countries and regions outside the U.S.," Amos adds.
International expansion also highlights growth plans for Candy Bouquet International, Inc., which franchises retailers of chocolate and other sweets packaged in festive, floral-type arrangements. Founder Margaret McEntire says most of the Little Rock, Ark., company's franchisees have a single outlet. "But I have a real progressive lady that has 17 stores," McEntire says. "And a lot of internationals have more than one as well as several master locations. They're definitely leaning toward multiple units. And our international growth is just crazy."
Candy Bouquet has 575 franchises in 38 countries and plans to add at least 150 stores, many of them internationally, in 2010. "We have many new initiatives, mostly related to our Internet marketing," McEntire adds. "And we are co-branding with some large national chains, as well."
The opportunity appeals to many middle-aged people leaving previous professions in search of a business opportunity they can operate in several different ways. Franchisees often start their businesses out of spare bedrooms and garages in their homes before growing gradually into separate retail locations, McEntire says. One master franchisee in Brazil is placing small kiosks in shopping malls as a way to distribute the offering rapidly and inexpensively.
