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Common Mistakes New Multi-Brand Franchisees Make

Craig Dunaway

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Common Mistakes New Multi-Brand Franchisees Make

When a multi-unit franchisee adds or even considers adding a new brand, there may be some unexpected changes and challenges for the franchisee, especially for franchisees with many locations of only one brand who has operated that same brand for a number of years.

They have to get into a new mindset and adapt to the way the new franchise conducts business while at the same time maintaining their existing business in accordance with the operational standards and policies of their current brand. For the best chance of success, avoid these common pitfalls.

You cannot change a brand to fit your current operations.

When investing in any franchise concept, you are buying (or leasing) the rights to use that franchisor’s system over a set number of years. When you invest, the brand expects you to follow their systems completely. This means even large multi-unit franchisees must accept the new brand’s policies, even if they are different than the way they operate in the established system. For example, if you look at labor in 10-minute increments for your first brand, you may need to adapt to 30-minute or hour increments for your second brand to avoid overcomplicating their existing system.

Don’t try to automatically cross over the policy from one brand to the other just because it works in one instance. Begin with the end in mind, and never tear down a fence until you find out why it was put up in the first place—there might be a bull on the other side, or conversely, the bull might have died 10 years ago.

Simply stated, if you don’t follow their manual, the franchisor won’t be able to help you succeed. You don’t want to interject systems from your first brand into your second brand. The franchisor’s system and process are what you’re buying as a franchise, and if you don’t plan to use it, it’s not worth paying for.

Don’t put it on the backburner.

Your main brand has been your bread and butter for years, but it’s not worth expanding into a new brand if you aren’t going to give it the FULL attention it needs to succeed. You never want to dabble in brands. It’s more profitable to have four units of one brand than one unit of four different brands. Once you have four or more of one brand you’re building a company, not just a restaurant or store, making it easier to grow and leverage your economies of scale.

Build out as many units as you can with your first brand before you look at other brands so you can maximize efficiencies. It may seem glamorous or exciting to open a second business, but it’s also more work and requires you to have a team in place that allows you to divide your attention between two brands.

Don’t enter a new market.

Dividing your attention between multiple brands is a lot easier when all of your locations are in one market. Multi-unit franchisees already understand traffic patterns, the nuances of certain parts of town, and intimately know their best and worst locations (and more importantly, why those locations do or do not succeed). Additionally, existing real estate connections can help them find new locations and operate a successful business in their market, and they already have relationships with local schools, charities, and organizations they can partner with for marketing. You’ve built an intimate knowledge of your market when you open several units there. Capitalize on that by choosing a second brand that has plenty of room for you to grow in your existing market.

Don’t choose a franchise with wildly different operations.

Choosing a new brand can be difficult. While your brands should not be identical—and shouldn’t compete with each other—it will be easier if they are similar. For example, look at the average ticket price for restaurant brands as a way to compare. If your old brand and new brand both are around $10, they’ll more than likely have similar enough operations. But if you’re operating a fast casual business with a $10 average ticket and looking at adding a fine dining restaurant with an average ticket over $100, there will be many key differences in the businesses.

Similar brands also allow you to maintain your existing culture with your employees because you’ll be hiring similar people. If you go too far outside of your current industry, you’ll need to find new ways to attract and retain different talent with different expertise, and you’ll have to maintain two independent cultures instead of building one larger business with multiple brands.

Becoming a multi-brand franchisee sounds like an exciting way to grow for many existing multi-unit operators, but franchisees must make sure they are committed to success from the beginning. To read more about when to add a new brand and the benefits of having more than one brand, click here.

Craig Dunaway has been president of Penn Station since 1999. Before joining Penn Station Inc., Dunaway was a partner at the regional accounting firm of McCauley, Nicolas & Company, LLC in Jeffersonville, Indiana, where he had worked since 1982 in various staff and managerial positions. Dunaway has a bachelor’s degree in accounting from Indiana University and is still a licensed CPA. Dunaway formerly had ownership interests in a Papa John’s® franchisee that owned 11 stores, and he served as the secretary/treasurer for that Papa John’s® franchisee. In addition, he had ownership interests in Coastal Cheesesteaks, LLC (headquartered in Raleigh, North Carolina) until June 2011 and in Louisville Cheesesteaks, LLC (headquartered in Louisville, Kentucky) until January 2014, both of which are Penn Station franchisees. While a shareholder in those Penn Station franchisees, Dunaway served as secretary/treasurer. Penn Station was named one of the Best Franchises to Buy by Forbes in 2016 and 2018 and one of the Best Franchise Deals by QSR Magazine in 2016 and 2017.

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