FBR-Multi-Unit-Franchises-2017

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SPECIAL REPORT: Top Multi-Unit Franchises What a Typical Multi-Unit Franchisee Looks Like 65% have bachelors 67% degree or higher 22% have an advanced degree* 20% have no college degree 1% did not graduate high school* *(overlap with above) 19% own 5 or more units 30% 24% male/female 11% partnerships have been an owner for 10 years or more 17% have been an owner for less than two years 83% Would recommend their franchise brand to others 90% enjoy operating their business 80% 83% respect their franchisor would “do it again” in terms of investing in their franchise knowing what they know today each unit is procedurally operating identically. It enables cross-pollination of our talent. Any studio manager, or even myself, can go into any of our studios and everything is located in the same place, with the same filing system, with the same expectations, and procedurally is run identical. We are very process driven from an alignment standpoint.” 2. Have a Clear Vision When It Comes to Growth: “Within less than two years, we have four studios and a growth strategy within a targeted geographic area. Once we get up to eight to ten studios and beyond, we will have ‘scale’ we can leverage to become the dominant paint-and-sip player in the area. Whether through the purchase of existing studios or through new units, we want to achieve our goal to ultimately have 20 to 30 or more locations.” 3. Control Expenses: “Unnecessary expenses can creep into your business. You have to be careful or it will stunt your growth and your bottom line. Just take one unnecessary expense of $100 per month, multiplied 12 times, multiplied by four units, multiplied by five years equates $24,000. Diligently scrub your expenses monthly. If removing an expense doesn’t hurt your customers or employees and isn’t required by law, then get rid of it.” 4. Hire and Grow the Right Talent: “It’s very hard to grow if you don’t have the fundamental concept of identifying and teaching talent. We believe in teaching our employees everything there is about running a small business and we are very open with all components of the business including the financials. We believe ‘the more you share the more they’ll care,’ which exponentially gives you a greater chance of reaching your goals.” 5. Build a Strong Corporate Culture: “The culture of a multi-unit business can determine the level of success or failure one has, so we put a very high ticket on this point. We work hard at creating a culture of family, trust, expectations, accountability, and collaboration.” 6. Listen to Your Employees: “As in any organization, the best ideas come from the folks who are doing the day-to day-operations. We’ve benefited immensely from listening and reacting to their suggestions and ideas where it made sense.” BENEFITS AND DRAWBACKS OF BEING A MULTI-UNIT FRANCHISEE Steve Jackson, CEO of Hungry Howie’s Pizza & Subs, compares multi-unit franchise ownership to having children. “The first one or two units you can handle, but more than that, you’re outnumbered, and it requires a different skill set and a different type of franchisee. It also requires a different type of franchisor.” There is no doubt that if you are considering becoming a multi-unit franchisee, there are many things you need to be aware of. Here are just a few of the benefits and drawbacks of multi-unit ownership: Benefits • Support from the Franchisor and Franchisees: Being part of a franchise system, whether you own one or multiple units, offers significant benefits over starting a business on your own. You’re part of an established system and franchisee community that guides you along the way, and you benefit from the system’s resources and tools for many business “basics” like marketing and website support. Multi-unit owners need different support than single-unit owners, so it’s important to ensure the brand you are considering can provide it. “We have systems in place that enable our franchisees to do an orderly increase of locations and to effectively oversee all their locations,” says Jose Merille, President of Estrella Insurance. “We offer extensive training for all of our franchisees. In the case of the multi-unit operator starting for the franchisee with the capacity to grow a specific territory consisting of multiple locations ranging from 10 to 50, we do a lot more extensive training with them and/or the management personnel they bring on board.” Although only 33% of Estrella Insurance’s franchisees are multi-unit operators, they run 74% of all of its locations. “We give our franchisees multiple platforms that enable them to connect, support, and learn from each other,” says Stacy Eley, Vice President of Operations at MY SALON Suite. “They include an online private Facebook group and weekly conference calls. In addition, we have implemented a mentoring program where new franchisees are partnered with a mature franchisee who offers them support and encouragement.” 4 | For more information on this report, visit: www.FranchiseBusinessReview.com
SPECIAL REPORT: Top Multi-Unit Franchises “Careful consideration must be taken to allow the necessary amount of time to break even and become profitable for each unit,” says Merille of Estrella Insurance. • Increased Risk: A bigger initial investment means more risk early on, although it’s spread out among multiple locations. Chris Lemcke (left) is co-owner of 67 Weed Man territories between Canada and Houston. • Reduced Costs: Multi-unit ownership affords franchisees the opportunity to lower their costs per unit because their fixed costs are shared over more locations. Achieving economies of scale makes the business more profitable and more efficient over time. This is especially true in low-margin industries like food, since vendor relationships improve and expenses go down the more you buy. “With four units, we are already seeing cost savings in areas of the business, specifically with resources that can be shared between the studios,” says Painting with a Twist franchisee, Owen. “The ability to interchange talent between the studios has been very beneficial.” • Easier Access to Financing: It’s often easier for multi-unit franchisees to get financing. Banks tend to be more receptive to multi-unit loans, particularly if the prospective franchisee has previous experience in the specific industry they’re looking to do business in (see page 9). • Brand Awareness: Part of the appeal of investing in a franchise is that it has a recognizable brand. Owning multiple units of the same brand enables you to more strategically utilize your marketing dollars to promote your locations. • Can Attract & Retain Talent: You will have the ability to provide more opportunities for employees and recruit better people since they can move between your locations and have more roles available to them. “As a multi-unit operator you have flexibility of personnel,” says Merille. “You can transfer, promote, or compensate them in ways that encourage them to remain and move up the ladder.” • More Influence within the Brand: In most brands, the more units you have offers greater influence within the franchise system. The corporate office will likely take more notice of your feedback and needs. • Higher Resale Value: Multi-unit ownership can also make a business more attractive if a franchisee wants to sell it down the road. “If you have a long-term horizon to be attractive to a buyer, then you can do exceptionally well with multiple units,” says Ben Midgley, President of Crunch Franchise. Drawbacks • A Big Commitment: If you commit to opening multiple units right out of the gate, be sure you know what you’re getting into from a financial and time commitment so you can honor it and be successful. “Not fulfilling a multi-unit agreement can create an adversarial relationship between the franchisor and franchisees because it holds up a territory/area that could be developed by someone else,” says Jackson of Hungry Howie’s Pizza & Subs. • Profitability May Take Longer: While multi-unit ownership ultimately can be more profitable, it can take longer to achieve profitability because the investment is higher. MULTI-UNIT OWNERSHIP DEFINED The definition of “multi-unit” varies depending on the franchise concept. In the food and retail industry, it typically means you own multiple physical locations. For service-related sectors, it can mean you serve multiple territories, but maintain one central office. Some brands provide large territories while others break their territories up into smaller segments, usually based on population. This can mean that someone who meets the definition of “multi-unit operator” actually has a smaller business than a single-unit franchisee who owns a big territory. An example of this is Home Instead, which defines most territories, regardless of how large, as a single outlet. Therefore, they have very few “multi-unit owners” by definition so could not be considered for our list of top multi-unit franchises. On the other hand, Right at Home defines small territories so the majority of their franchisees are multi-unit owners, even though their businesses may be smaller than a Home Instead when compared on a population or revenue basis. Then, there are some very large multiunit franchisees who own so many units, often consisting of a mixture of franchise brands, that they have their own holding companies. Area development can be another form of multi-unit ownership and also has several definitions. Typically, an area developer agrees to develop a number of franchise units within a territory, trains and supports the franchisees who purchased the units, and gets paid a percentage of the royalty from the units they sold. Many area developers own franchise units themselves, but in some systems, they simply perform a support role for franchisees in their area. Others simply sell franchises, and support is handled through the corporate office. Since the role of an area developer varies depending on the franchise brand, you will need to understand the specifics of the opportunity prior to pursuing it. Continued on page 8. For more information on this report, visit: www.FranchiseBusinessReview.com | 5
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