Multi-Unit Growth: Is It Right for Your Franchise Brand?
Not necessarily. It depends upon a number of factors including the franchised unit operations, age of the system, geographic footprint already in place, and internal support structures.
Many service franchise brands require owner/operators because their economic models are not conducive to multi-unit expansion.
Part of the strategic planning for a franchise system should include evaluating multi-unit growth and the correct approach to it.
However, if a franchise system has been operating for a longer period of time and wants to provide a scalable growth plan for existing or new franchise owners, then a structured Area Development or Area Representative plan may make sense.
Again, the answer to the question is not a simple one. Because each franchise system is very different the decision will be difficult and needs to be thought through carefully.
Both of these multi-unit strategies can grow a franchise system dramatically if the program is well executed with the right Area Development or Area Representative candidates/owners.
On the other hand, if you have the wrong people in place, or do not provide them with the level of support required to execute at this level, the consequences can be devastating.
In addition to the accelerated franchise growth these development strategies can provide, there are a number of other direct benefits:
- Increased sales revenues from selling larger territories and multiple-location commitments
- Territory-franchisee profitability should be increased by having a responsible and accountable party for it
- Direct-franchisee field support can be provided by Area Developers and Representatives
- Increased geographic-specific marketing and advertising can be accomplished through collective franchisee co-ops
- Strong local knowledge is provided by the Area Developers and Representatives
- Provides for a quicker response to real estate opportunities
- Fosters better franchisee relationships and communications
- Provides alignment and focus on targeted market growth and brand penetration.
While the benefits of these types of growth strategies can be very compelling, there are dangers that can create disasters for a franchise system.
- Having an Area Developer or Representative that does not:
- Provide the level of support required
- Communicate with or treat franchisees well
- Meet location sales and opening requirements
- Represent the brand well or is a poor operator
- Adhere to the franchisor’s prescribed methods of doing business.
- Area Development and Representative Agreements are typically long term and may lock the franchisor out the territory
- May create different geographic pockets of brand culture
- In the event that the parent franchise company is sold and Area Developers or Representatives disagree with sale transaction, the possibility of pushback exists.
- The sharing of fees and the effect of the decreased revenues on the franchisor.
While Area Development or Area Representation may not be suitable for every franchise system, the majority of franchised systems today have multi-unit owners and this trend continues to grow.
Would you like to learn more? Give me a shout for a free consultation.
Call/Txt me at 727-455-0056 or email Lonnie@HelgersonFranchiseGroup.com
The above is an excerpt from my book Five Pennies: Ten Rules to Successfully Building a Franchise Mega-Brand and Maximizing System Profits.