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.

As Richard Johnson, a Domino’s franchisee who now runs fivestores, says: “If you can learn how to run one store well, there’s no reason why you can’t run two stores well. The sky’s the limit.”

McDonald’s
Nigel Dunington worked for McDonald’s US, UK and Europe for 26 years, before becoming a franchisee in 2006. He now runs eight McDonald’s restaurants in Preston and around Blackpool.

Is it difficult to run so many restaurants?
It’s hard work. It’s a very active, hands-on, ‘be engaged in the business’ role. Whether I work a five-day, six-day or even sometimes seven-day week, it’s generally in the restaurants. I haven’t got an office as such: my office is generally the dining area or in the corridor or working on the floor with the staff.

How did you expand to eight restaurants?
For the first couple of years, I ran the five restaurants myself as a supervisor. When in 2009, McDonald’s came to me and offered the Blackpool restaurants for me to buy, I took on a supervisor to look after the Preston restaurants. It was a calculated risk but if I was to get the best out of the Blackpool restaurants, I needed that structure.

What are you plans?
My goal is grow to eight to 14 restaurants in the next five to 10 years. I think that's achievable from my end.

Any tips?
Don’t become so big that you become a mini-corporation and lose the benefits of franchising.

Granite Transformations
After running his own IT recruitment business, Peter Morrison opened his firs Granite Transformations showroom in Cambridge in 2004 and now runs a second in Brentwood.

Why did you open the second store?
To be a credible business, you need to have retail premises within reasonably close distance to your customers, even though probably the majority never come into the showroom. Also, Brentwood was always part of our patch, but it was undeveloped so the thinking was to increase revenue and profit by better use of our territory.

How has it affected things?
There’s now a 50/50 split in our business between the two showrooms. You get more stability from the point of view of sales. Everyone has poor runs in terms of sales, but it usually coincides with the other store doing better so it balances out.

Do you have to split your time?
I have a sales person who works with the other showroom so it’s fairly self-sufficient.

Will you open another store?
In current trading conditions, we need to run a tight ship in terms of costs. There is the opportunity to open a third showroom, but for the moment I am happy consolidating my current businesses.

Any tips?
Identify the right location at the right price and don’t get tied up in a ridiculous long-term lease. Be comfortable with delegation: things will happen once you have the right people there.  

Domino’s Pizza
After 20 years in IT, Richard Johnson decided to go into business for himself. After buying his first store in Stockport nearly three years ago, he’s gone on to acquire four others.

Did you have any experience of retail or catering before you started?
None at all, which was one of the things I discussed with Domino’s. But I had a wide range of experience, capability in growing business and I had led teams.

What are the advantages to owning more than one store?
You can make more money, you can promote staff because it’s a larger group and move them from one store to another to gain experience.

How different is it managing more than one shop?
In general, it’s slightly less hands-on. I’m not in each store as much so I rely more on processes to make sure everything’s working properly. But you need to have good store managers. You can’t grow without the team below you to take over.

Any tips?
It’s absolutely vital to choose the franchisor correctly. A tremendous amount hinges on having a great franchisor that lets you grow to the level you want to.

What skills do you need?
You have to be a very all-round person, with lots of drive, lots of enthusiasm. But if you’ve got a great product and you believe in it, you get an awful lot of support in franchising, which you wouldn’t get on your own.

Cash Generator
After running Spar stores and creating an exhaust franchise, Mal Elwood is about to open his 11th Cash Generator store this month.

What is the attraction of owning so many businesses?
It’s quite an easy business to replicate, being a franchise, but it’s just what I do. I enjoy the challenge of growing something.

What are the skills needed to run multiple stores?
The biggest thing is a team of good people. Without good people you can’t grow like that. I also tend to be very analytical, systemise things and replicate it in all my stores.

Are you as hands-on as when you had one store?
When you get over a certain number, you have to be a little bit more remote, so you have to manage the business through other people. If you’re very hands-on, you can’t grow.

How does opening new stores affect finance?
As you grow beyond five stores, costs increase because you’ve got extra overheads. You carry the extra burden of what you would have done if you’d been in the store the whole time. But although individual profits fall of, total profitability rises significant.

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