How to Grow Into a Multi-Brand Franchise Company
I am a huge proponent of multi-brand franchise systems because of the economies of scale that they afford and the competitive advantages that come with them.
One advantage is revenue balance. With multiple brands, when sales are up 5% in one brand and down 3% in another, your company still maintains a 2% sales increase when viewed on a consolidated financial statement. This diversification helps not only the franchisor, but its franchisees too. They benefit because the franchisor remains financially healthy and has the resources to invest in the system.
Purchasing and distribution is a direct benefit to the franchisees. The greater the number of franchise units, the greater the buying power. This represents lower costs and increased profits for franchisees. Increased purchasing power also leads to greater supply chain efficiencies because the increased volume produces a reduction in distribution costs.
Two franchise Mega-Brands (mega=great) that excel with multi-brands are The Dwyer Group in Waco, TX and Roark Capital Group, a private equity firm located in Atlanta, GA. In my opinion both of these companies represent how multi-brands should be developed and managed. From The Dwyer Group’s incredible culture and unit profitability, to Roark Capital Group’s integration prowess, best practices sharing and implementation – these are two companies you can study on how to do it right.
Scaling to Multiple Brands
If you are starting or acquiring a second brand it is paramount that your expansion efforts do not negatively impact your existing brand in any way. When the expansion of the second brand is properly planned, it will enhance the current brand economically by decreasing expenses through economies of scale and by providing additional unit-expansion opportunities for existing franchisees.
Much like the first franchise brand was before it grew to produce positive results; the second brand will have all the capital needs that impacted the initial brand.
When making the decision to move forward with a second brand you must consider “autonomous” or “integrated operations” options. Because every company has different circumstances, operations, resources, etc. your structure should be determined by what makes the best sense for your company’s current situation and strategic growth objectives.
Choosing the best structure is dependent upon the circumstances surrounding your expansion. When you acquire an existing franchise company, depending on the strength of its operations, geographic location, etc., it may make sense to let it run autonomously. This will cause the least disruption to the acquired company’s culture and staff.
Over time the finances of the accounting, franchise development, marketing departments and other operational functions can be examined and integrated into the existing company’s departments to decrease expenses and increase efficiencies.
Certain companies or entities such as private equity firms and investor pools, typically choose to allow their investments to run autonomously because they are in the business of investing in companies, rather than operating companies.
Again, the decision in selecting the type of structure for the second brand must also include the options that make the most operational sense for your company.
When you are launching or acquiring a new brand or are a non-franchised company that expands into franchising as a distribution model, all your existing company’s operational functions should be evaluated to determine which ones will, or can provide services to the new franchise entity.
To help determine this, break your company’s operations into two categories: those that are brand-specific and those that are not.
Training, field support, and franchise development are usually brand-specific and tend to be difficult to integrate because those departments are very focused on operational specialties and it is challenging to apply the nuances of a new brand into current operations. Integration can be eventually accomplished by creating larger training, field support, and franchise development departments and assigning an executive to oversee brand-specific teams.
In some cases brand-specific operations are so unique that they need to remain as autonomous departments.
Accounting, marketing, public relations, and information technology, are all examples of departments and services that are scalable in a multi-brand environment and should be evaluated for possible integration.
Economies of scale can decrease expenses and increase productivity so any opportunity to integrate departments and services should be evaluated and considered. Caution! , Don’t get trapped by the math alone in your quest for efficiencies.
Current franchisee support or franchise relations must not be compromised in favor of gaining a dollar! It is short-sighted and most likely will have a negative impact on the brand. So while it might make sense, mathematically, to integrate a function, you have to look at the bigger picture and do what’s right for your franchisees!
Keep in mind that your current franchisees are your best emissaries. They are viewed by prospects as a window into the franchisor’s practices. Unhappy franchisees will negatively influence prospects and affect all of your brands!
The above is an excerpt from my book Five Pennies: Ten Rules to Successfully Building a Franchise Mega-Brand and Maximizing System Profits.
Need help becoming a multi-brand franchisor? Give me a shout for a free consultation.
Call/Txt 727.455.0056 or Lonnie@HelgersonFranchiseGroup.com