Multi-Unit Franchising: Franchisees Are in the Driver’s Seat

It’s always been the case, but never more so than during today’s economy: Franchisees are clearly a franchisor’s best asset.

The prime directive for both franchisor and franchisee has evolved to truly focusing on generating a positive and growing bottom line.

The Prime Directive

In year’s past, the prime directive may have been a bit blurred. With equity “o’ plenty” and pre-recession financing readily available, franchisors often focused on granting more franchises rather than possibly primarily focusing on their franchisees’ bottom line. Let’s face it; just about every franchise concept made money back in-the-day when discretionary income was readily available and consumer confidence was high.

Alas, the franchise development booms of recessions past have gone the way of the VHS Recorder and the 10-pound portable cellular phone. As such, the franchisor’s  prime directive has evolved to focus on franchisee revenues, efficiencies and bottom line growth capitalizing largely on economies of scale.

Concentric Growth

Franchisors have moved concentric unit growth stressing the development of geo-specific target markets in order to build brand density, increase local purchasing power, and amortize support costs. Concentric growth focuses the franchisor on a specific region, and more importantly, the relationships with franchisees within the region. When it comes to bottom line growth and when it comes to implementing growth measures in today’s economy, it’s all about morale.

When it comes to boosting morale in order to achieve unit economic growth, it’s all about relationships.

Business models, and in particular, franchise business models, have redirected focus to maintaining relationships between franchisees, franchisors, approved suppliers and customers. Now that concentric growth has led to hubsatellite structures within a geo-specific area, franchisors can more easily establish relationships with franchisees necessary to grow their bottom line.

It’s become affordable to support franchisees on a daily basis and/or provide them with proactive tools designed to help them better understand how they are doing in terms of their gross revenues, daily KPIs, efficiencies,  morale and their bottom line.

The franchisor’s prime directive has shifted from selling franchises at any cost, to building relationships with franchisees and improving their bottom line… at any cost. This next-generation formula has one extremely attractive benefit: It can be replicated.

You Are Your Franchisor’s Best Asset

Franchisees have always been somewhat of an asset to both themselves and their franchisor, but nowadays they are the primary asset to both themselves and their franchisor. Franchisors who have recognized the shift in focus from selling new franchises to growing existing franchisees’ bottom lines, clearly accept the notion that their franchisees, a known factor, are their best asset.

Concentric growth + proactive relationships + proactive support = proactive and successful franchisees. Economies of scale are beneficial to both franchisors and franchisees. They are clearly beneficial when injected into a  concentric growth plan. The assets that franchisees bring to the table are significant and, in many cases, just now being truly leveraged by franchisors. It just makes sense to expand into multiunit ownership with your best team, your existing relationships, your existing success-mind and proven franchisees. If they are a franchisor’s best asset when they have one or two locations, imagine how much of an asset they’d be if they were given the rights to additional locations concentric to their own business development plans.

Moving to a concentric multi-unit model makes sense for everyone involved. Franchisees who have recognized a certain pattern of success in their first unit are clearly best suited to replicate that success in their second unit. Moreover, they too can amortize their support costs among multiple units, much like the franchisor can with the entire brand using a concentric approach. What’s more, who stands a better chance of obtaining financing than existing, successful franchisees with actual earnings and a track record for applying the franchisor’s system? Lastly, why break-up the relationship between franchisee and franchisor when adding multiple units?

As noted above, it’s all about relationships. It’s all about known quantities. A franchisor can certainly grant a territory to a new franchise candidate and, once again, roll-the-dice. Or, a franchisor can approach an existing, proven franchisee with a multi-unit expansion plan that clearly mitigates the risk of failure by working with known elements and capitalizing on a known relationship.

You Are In The Driver’s Seat

Franchisees are in the driver’s seat these days. As long as franchisors don’t cut off their nose despite their face and grant contiguous territories to different franchisees, they can open up opportunities for multi-unit  franchisees to extend their success and put the franchisor at ease as it relates to forecasting the future of the brand.

Single-unit franchisee candidates should be considering the eventuality of becoming multi-unit franchisees, taking advantage of the same economies of scale that franchisors tend to capitalize on. The franchisor’s development team is best served implementing a multi-unit concentric growth program. Granted, there are negatives and it is still somewhat of a gamble for all involved. For example, the franchisor may need to place contiguous territories on-hold for a period of time and/or commit to a First Right of Refusal in order to secure future growth options for eventual mult-unit ownership. Further, it may be difficult for a franchisor to turn down a new franchise candidate interested in an adjacent territory that would be best served as a secondary territory for an existing franchisee. But, the long-term benefits of economies of scale, building the brand, maintaining relationships and securing growth clearly outweigh the short-term gain.

In affect, we have a business model inside a business model. The franchisor capitalizes on methodical and concentric expansion of their brand with a focus on the success of their franchisees. The franchisees capitalize on  their own methodical and concentric expansion with a multi-unit approach. Everyone knows their role. Everyone capitalizes on economies of scale, which form the foundation of franchise success. Moreover, the franchisee remains in the driver’s seat.

Dan Martin, CFE is President & CEO of IFX Online, a Strategic Franchise Management Firm servicing 200+ franchise brands and 30,000+ franchisees since 1996. IFX’s Strategic Division and IFX’s Technology Division work hand-in-hand to assist franchise organizations in implementing key growth management strategies and applications designed to maximize operations and boost ROI.

Mr. Martin has 30 years of experience in franchising, serving in the roles of franchisee, Area Developer and Advisor. He has served on the International Franchise Assocation’s Board of Directors, Executive Committee, Membership Committee and Technology Committee. Mr. Martin was Chairman of the IFA’s Supplier Forum Advisory Board and is a Certified Franchise Executive.

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