Multi-brand franchising has a multitude of plus points for franchisees and franchisors
It’s one of the best kept secrets in British franchising: around 30 per cent of franchisees own franchises from more than one brand. In the food and beverage sector, it’s even higher, at 50 per cent.
It’s called multi-brand franchising and it’s growing, so it’s worth knowing about whether you’re an existing franchisee who wants to go multi-brand or a prospective franchisee who’s considering a multi-brand franchise.
How it works
Franchisors who start off with one brand expand their business portfolio by founding new ones or buying other franchises. Multibrand franchising is more common in the US and Australia than it is in the UK, but we are now seeing more multi-brand franchises here, either international or home grown.
The US-owned company Neighbourly - formerly Dwyer Group - which owns 22 franchise brands globally, is currently expanding fast in the UK. The business has been offering franchises in the UK for decades, but it’s now in acquisition mode. In October 2019 its UK brands included Bright & Beautiful, Countrywide Grounds Maintenance, Drain Doctor, Mr. Electric, Aire Serv and Rainbow International. In Autumn 2019 it acquired Dream Doors.
Phil Carr, managing director of Neighbourly UK, says: “We are looking to acquire more franchise brands in the UK. We look for businesses that are well respected, established, premium brands and that fit with our focus on services to repair, maintain and enhance properties.”
Other multiple brand operators include Franchise Brands, a UK AIM listed international franchisor with over 450 franchisees in 12 countries across four brands: Metro Rod (and its offshoot Metro Plumb) ChipsAway, Ovenclean and Barking Mad.
Stephen Hemsley, its executive chairman, said in 2018: “We will consider the selective acquisition of reasonably valued and earnings enhancing franchise businesses that can leverage our core functions and complementary drainage and plumbing businesses which expand our scope of works.”
Both companies have yet to reach the heights of Yum! Brands, the US-based Fortune 500 corporation that owns KFC, Taco Bell, Pizza Hut, WingStreet and, in China alone, Yum! restaurants. It has around 48,000 restaurants in over 145 countries and opens an average of over eight new restaurants a day.
So why the growth?
From a franchisor’s point of view, multi-brand franchising has plenty of plus points.
Mark Abell, head of franchising at international law firm Bird & Bird, says: “I expect multi-brand franchising to get more common. There’s a limit to growth for any particular franchise brand, so multibrand franchising offers a new way to grow, whether by developing a new brand or acquisition.”
For overseas franchisors, it can also be a way to get into a new geographical market. Traditionally, overseas franchises have entered the UK by signing up master franchisees, who recruit the franchisee network. However, Mark points out that engaging with existing UK-based multiunit franchisees taps into their expertise immediately.
He explains: “The franchisors will know they are dealing with someone who has experience of the franchise system and a proven track record and will need much less support than a new franchisee.”
Mark says successful multi-unit franchisees have often qualified in accountancy, law or business and have skills and experience gained from running a large franchised operation. They are also likely to have access to the funds required to start up a second or third franchise brand and expand it into a multiunit operation fast.
What’s the appeal for franchisees?
Investing in a multi-brand franchise can benefit both existing franchisees and prospective franchisees looking for their first franchised business.
Phil says: “Multi-brand franchisors like Neighbourly offer franchisees access to a wide breadth and depth of knowledge. Their head office staff has experience of different business models in the group, so they can pass that on to their franchisees.”
The scale and size of the operation can mean there are more staff, so franchisees seeking help and advice could have a wider range of experts to call upon. Multi-brand franchisors also have more reason to invest in better infrastructure.
Stephen says: “We are continuing to strengthen the breadth and depth of our management team and increase integration and connectivity across the group. The investment we have made in infrastructure, particularly in the area of IT, is yielding savings and efficiencies. What this means for franchisees is greater opportunities for organic growth and a world class support infrastructure to bolster their businesses.”
Multi-brand franchises also bring the option of diversifying into new areas of business, which can reduce overall risk.
Mark says: “Following the BSE crisis in the 1990s, when sales of burgers plummeted, franchisees learnt that it’s good to own more than one type of food concept. The same could be said of the KFC chicken shortages earlier in 2018 - franchisees learnt to diversify.”
Once successful, existing one-brand franchisees may be able to invest in an additional brand with the same multi-brand franchisor. It can be quicker and easier for franchisees to get started with brand two than it was with brand one and may require a lower investment.
Established multi-unit franchisees with one franchise may also be attracted to the multi-brand option. In some cases, they feel that rather than keep on adding more units of the same franchise it would be better to spread their risk by becoming a franchisee with a noncompeting brand.
For instance, the Woking-based company Amsric, run by Amish Patel, operates over 70 units from three unlinked franchise brands - KFC, Starbucks and Anytime Fitness. Amsric’s website says it plans to open five to 10 new stores a year.
Mark says: “With worries regarding staff shortages following Brexit, multi-unit and multibrand operators are looking for new opportunities in sectors where there is greater reliance on technology and less need for staff. Many are looking at fitness, wellness and service concepts that are less labour intensive.”
Where brands operated by the same umbrella franchise are in linked sectors, there are crossselling opportunities.
Phil says: “All the Neighbourly brands are aimed at the same customer - the householder looking for home maintenance and repair services. That makes cross-selling easier for franchisees.
“A customer who trusts someone from one company in their home will often ask for recommendations for other specialists, so our franchisees can recommend other franchises within the Neighbourly group. Across all the brands, this means franchisees gain more business through crossrecommendations from other group member franchises.”
The cross-recommendation system works well provided the umbrella company maintains uniform high standards across all its brands. This means individual franchisees from one brand can be confident their recommendation of another brand will not lead to embarrassment.
A word of warning
Fast growing multi-brand franchises can provide exciting opportunities for investors, but swift growth can also bring extra risk. Too much emphasis on growth can mean the core business risks being neglected, operational infrastructure cannot keep up or that services to franchisees and customers suffer. Fast growth can also mean finances being overstretched.
All these things mean you should ask franchisors about the sustainability of their future strategy.
Phil says: “It’s worth asking multi-brand franchises about this. In our case, Neighbourly UK is supported by a strong, long established US parent, so we have their size, scale and depth to lean on, plus a strong code of values unifying the network.
“But like any company seeking mergers and acquisitions, you never know when good opportunities are going to come up, so you have to be prepared to move fast when you see an opportunity that fits in with your strategy.”
Before investing, whether you are a first-time franchisee considering a multi-brand franchise or an existing multi-unit franchisee seeking to go multi-brand, get professional financial and legal advice from experts in the franchise industry.
Cross-selling to boost business
Steve Barlow runs a family-owned electrical contracting company in St Agnes, Cornwall. The family also owns Mr. Electric and Aire Serv franchises, both part of Neighbourly. The former provides electrical services for businesses and homeowners, the latter specialises in air conditioning, heating and refrigeration services to commercial and residential customers
Steve says: “One of the benefits of having two franchises from the same group is that we can use the same system to manage the admin and appointments for both Mr. Electric and Aire Serv. We can send information to our engineers on their iPads, where it appears under the individual brand name, but the system is just the same.”
He also benefits from the diversification having two franchises brings: “We are in Cornwall, so the Aire Serv franchise helps maintain our levels of business in summer, when tourist accommodation providers don’t want electrical work done around guests. It also means we can offer more to customers.”
In addition, Steve sees increasing opportunities for cross-selling among the various brands in the Neighbourly group: “When we’re doing electrical work, customers often ask for recommendations of companies that can supply other services, so we can recommend, for instance, Dream Doors for kitchen makeovers. We know the quality standards are the same across the group, so it increases your confidence in your recommendation.”
What it takes to be a multi-brand franchisee
Whether you’re a prospective franchisee or an existing franchisee seeking to invest in another brand, franchisors with multiple brands will be checking you out carefully. They look for skills and capabilities that include:
1. Superior business skills. Running two different brands at once, even when they belong to the same franchisor, is more complex than running one.
2. An appreciation of the different business cultures of each brand, which may well require two different mindsets.
3. The understanding that each brand must retain its own identity.
4. A willingness to follow the correct systems for each brand, especially if they belong to different franchisors.
5. Enough money to fund both businesses and the skills to keep on top of the financials.
5 things to investigate when considering going multi-brand
On top of the usual due diligence required when investing in a franchise, investors looking at opportunities to go multi-brand should ask themselves a few more questions:
1. How quickly is the franchisor expanding? Has it got the financial backing to afford new acquisitions and growth?
2. Are new acquisitions being integrated before the next one is targeted?
3. Are its resources stretched so thin by growth that service and support to franchisees are suffering?
4. What encouragement and mechanisms are there for franchisees to cross refer?
5. What do the franchisor’s existing multibrand franchisees say about it?
Linda Whitney writes about franchising for the Daily Mail, What Franchise and many other publications