The rise of the multi-unit franchise

Paul Monaghan, director at The Franchise Training Centre, explains what makes a successful multi-unit franchise operator

With the number of multi-unit franchise operations increasing, we look at what makes this format both different and successful.

What do you mean when you talk of a multi-unit operation?
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The most general use of this term relates not to franchisees who operate more than one franchise concept, but rather to an operator who runs a number of units of the same franchise concept.

In the UK most franchisors will specify in their franchise agreement that the franchisee cannot be involved in another business that competes with the franchisor and may even require the franchisee to devote the whole of their time to developing their franchised business. Franchisees may only be allowed to be directly involved in other businesses with the franchisor’s consent. So if a franchisee wishes to expand their business beyond their current operation the easiest route is often to open an additional outlet of the original concept. Not all franchises, however, are suitable for multi-unit operation.

Given that a franchise system may allow or even encourage multi-unit operation, what attributes is a multi-unit operator likely to demonstrate?
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It is becoming increasingly clear that multi-unit operators need to have a somewhat different range of skills and attributes from those demonstrated by a typical single-unit operator.

They often come from a corporate background that they may have left by choice to follow a new career or, increasingly in these times, have left as a result of redundancy or an unacceptable proposed relocation. They have probably been responsible for the management and leadership of, sometimes, large teams of people, an attribute that will stand them in good stead when they leave the close confines of their first operating unit to open additional units.

Equally, they are more likely to have a sense of ‘a big vision’, where they see themselves developing a substantial business rather than simply finding an opportunity to earn an income. This is likely to be demonstrated in the choice of franchise that they make and the proposals that they put to the franchisor during their due diligence and selection process.

While some franchisors will be seeking out such people, only admitting potential multi-unit operators, others may need to be persuaded to grant rights to additional territories from the outset. A clear vision, demonstrated in a multi-unit business plan, will help the potential franchisee in this process.

They will almost always need access to higher than normal investment levels, either from their own resources or from other investors or funders, who will need to be convinced of their ability to manage teams of staff over whom they will not have close day-to-day control. Even during times of difficulties in finding funding, banks will often recognise the potential and additional security offered by such multi-unit operators and be prepared to lend higher multiples than normal.

In common with all successful franchisees, multi-unit operators will need to follow the franchise system rigidly because that will give them easier and greater control over the units they have to manage at arm’s length. If the system itself is not well defined, they will often struggle to replicate the success of their first unit, where they were able to manage the operation closely, and will be unable to take full advantage of the benefits offered by multi-unit operation.

If a franchisor is keen to or will only recruit franchisees with the potential to be multi-unit operators, its recruitment process will require the potential franchisee to be able to demonstrate their commitment and ability to rise to this challenge. They will also need to recognise and demonstrate how they intend to leverage the advantages that multi-unit operations will offer them.

What are those advantages?
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Some of the biggest advantages come from being able to spread some overhead costs across a number of unit operations.

In the first instance, the franchisee may not need to employ additional senior staff to cover the second unit. With a clear understanding of the long-term objectives, the franchisee will have ensured that the staff of the initial unit have been trained and supported to an extent that a ‘senior supervisor’ will be sufficient to manage the unit during the franchisee’s absences managing the second unit.

Equally, if the franchisee was drawing more salary than was commensurate with simply being a unit manager (which would not be unreasonable given the element of overall business management in which they were involved), the need to employ ‘full’ managers as the business continued to grow would not involve the same expense as their own initial salary costs.

Where a multi-unit operation is proposed from the outset, it may be that the franchisor will offer a discount on the fee applicable to further openings, if only to compensate for the lack of any need to provide initial system training and support for the franchisee. Where no such discount is offered, the franchisee would be well advised to negotiate this or other benefits with the franchisor in the early stages of the recruitment process.

The cost of marketing activity per unit can also be reduced or have increased effectiveness where the operations are geographically close to each other and can share costs. In fact, the simple presence of another branded unit can reinforce the brand penetration in consumers’ perception. Savings may also be possible in the purchase of products or services, given that many suppliers link price to volume. Whether this be the purchase of insurance or telecommunications or the ability to bulk purchase consumables for the business, it will all add to the overall profitability of the business.

Finally, one of the biggest advantages in businesses that employ relatively high levels of staff, for example the quick service restaurant sectors, is the ability to use staff in one unit to cover difficult temporary staffing situations in other units, and as additional units open it provides opportunities for existing staff to advance thorough the ranks, thus aiding the retention of good staff.

So multi-unit franchising is an increasingly strong format in the UK?
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Yes, and it offers opportunities to a new type of franchisee/business builder that may become more evident in the recruitment market over coming months and years.