Multiple choice

• Article 2 of 3
• Business Franchise, December 2011
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It’s an idea that many franchisors are happy with and even encourage. In fact, it seems obvious. If franchises are based on the same business model being implemented in different locations and a franchisee can successfully run one franchise, why can’t they run two? Or three? Or even more?

But is it really as easy as all that? What are the pitfalls to being a ‘multi-unit franchisee’ (MUF) – and what are the rewards?

Success certainly seems to breed success. Domino’s, for example, currently has 130 franchisees and 70 per cent own more than one store, while of McDonald’s 150 franchisees, 90 per cent operate more than one restaurant. Franchisors have largely been looking to encourage this trend. “At the moment, the ratio is 5.2 stores to one franchisee, but in the longer term we’re looking to get around 10:1,” says Andy Hirst, head of franchise development at Domino’s. “We want new franchisees to come in with the skills and ability to become multi-franchisees.”

McDonald’s, too, has been encouraging multi-restaurant franchisees. “As we looked ahead in terms of what we needed to do as a brand,” says chief operating officer Richad Forte, “we knew we needed to reinvest in restaurants and modernise our estate. For our franchisees to have the best chance of being able to afford and invest in our plan, the best way to achieve that was to have franchisees with more than one site so they could afford the investments as we traded through some pretty turbulent times.” While most of these franchisees were existing franchisees, he says, McDonald’s also had a recruitment strategy to bring in external franchisees to keep a “healthy balance between our existing experienced franchisees while introducing new entrepreneurial spirit.”

There are benefits to both a franchiso and franchisee becoming a MUF. Marketing director of Cash Generator, Stuart Owens, says: “We have 84 ‘multiples’, which is a great thing for us. With every new multi-unit franchisee, it demonstrates confidence i our brand and model and we can see that franchisees are receiving a strong return on their investment. As they have done it all before, franchisees don’t need to learn the ropes or receive any further training, so they can deliver profit quicke, which in turn means we benefit fom higher franchise fees.”

Franchisees, in turn, get increased revenues and hopefully profits. “If you hav one showroom,” says Danny Hanlon, chief operating officer of Granite ransformations, “you can take the business to £500,000-£600,000 turnover per annum. If you open up another, you can edge that up to £1.2 million.” If there are problems in one unit’s revenues, other units can help to take the load until the unit can recover.

Nevertheless, how these advantages scale up can vary. With the right team in place in each unit, the franchisee can remain relatively hands-on up to a certain number of stores, assuming they aren’t too far apart. That means effort can be spread across those stores, with the franchisee’s salary as well as marketing, accounts and other operations paid for and shared by all the stores. However, above that threshold, new managers are needed to replace the effort the franchisee was once putting in. Equally, there are certain economies of scale such as increased buying power that would be available to other businesses, but not franchisees, as they scale up, since the franchisor already provides them.

There are unexpected benefits, too. “A franchisees have grown their operations, we’ve seen their confidence gow,” says McDonald’s Richard Forte. “They get the confidence t invest in new, pioneering schemes that help them – and us – grow stronger and stronger year on year.”

Not everyone is necessarily cut out to run multiple units, says Granite Transformations’ Danny Hanlon. “Most franchisees have pretty much got the skills – but not all. Most come to a conclusion in the first two or thee years about whether they’ve got the skillset to expand or not. In particular, they need very good man-management ability and the ability to recruit, motivate and drive a team of people.” A background in sales and marketing would be a particular advantage, he says. Stuart Owens adds that good time management skills are important so franchisees can split themselves between units effectively.

However, the underlying skills are the same, says Domino’s Andy Hirst. “Hard work, enthusiasm, passion for the business, the ability to get on and manage teams: people who understand what makes people tick. If they’re capable, have got commitment and the funding, they can grow fairly rapidly.” He points to two former lawyers, a husband and wife, who now own 18 stores across the UK.

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