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Multi-unit franchising

Written by: Diarmuid Kieran

Article Overview: Multi-unit franchising - having the right to operate more than one outlet in the agreed location.

Multi-unit franchising

One of the biggest changes in business format franchising from when it began to take off in the 1950s and 60s is the development of multi-unit franchises.

This is where a franchiser will award the right to a franchisee to operate more than one outlet within the defined location area in the franchise agreement.

If run successfully, a multi-unit operation can make serious money for both franchisee and franchiser and so many franchise companies are actively seeking people who can become what is known as area developers.

According to FRANdata, a Washington-based information company specialising in franchise research, more than 27,000 franchisees own and run two or more franchise units in the United States.

This franchise format makes up 110,000 of the 219,000 franchise units in the US and is across 30 different industries. In addition, 7,000 franchisees operate two or more brands as multi-units.

A number of people now want to join the franchising industry as a way to establish a big business outfit, with many workers who have been laid off or who want a change of direction bringing their management skills and business acumen to the table.

However, franchisers will demand high standards before they agree to allow someone to immediately become a multi-unit franchisee. The main areas are having a proven record of achievement in a management role and being able to motivate and improve the performance of staff.

Therefore, the way for a lot of people to own more than one unit is to be very successful with a single outlet first and gradually develop things from there.

Current or potential franchisees will need to make a convincing business argument for more than one operation to be situated in a specific area.

Taking on more staff and investing in new locations must be countered by quickly achieving good profits, without damaging too much the number of people going to the franchise's other outlets in the area - in other words: demand must be high enough for more than one unit.

Franchisees must also take into account the business structure of the franchiser and examine how successful it has been in areas where multi-units exist. Also, if it is new to franchising, does it have the capital and resources in place to handle multi-units?

Those with the ambition to become a multi-unit franchisee must do their research properly, as some franchisers will look at multi-units as a great way to quickly increase revenue and jump into it too quickly.

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