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When to Add a New Brand to Your Multi-Unit Franchise

Craig Dunaway

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When to Add a New Brand to Your Multi-Unit Franchise

Many franchise companies actively seek existing multi-unit operators, which can be a great way to grow a franchise system. For multi-unit operators, knowing when to add a new brand is as important to success as a multi-brand franchisee as choosing the right franchise.

There are two main kinds of big multi-unit operators—typically, franchisees with dozens of units either dominate a market or a brand. For example, some multi-unit franchisees may want to stay in their hometown, so they’ll own four or five brands for a total of 50 restaurants in one market, adding a brand when they are saturated with their other brands. These multi-unit franchisees know their market better than anyone and already know the best locations and have great people working for them. Other large multi-unit franchisees dominate one brand across multiple states. They may own 50 restaurants of one kind in five states, for example. These multi-unit franchisees excel at operations for one brand.

So, how does a multi-unit operator know when to start looking for a new brand?

Their home market is full.

Many franchisees become large multi-unit operators by continuing to open and acquire locations in their home market, but these franchisees will almost always reach a point where their market is saturated and can’t hold additional locations. At that point, they can either choose to stop growing and just maintain their business, expand into another unfamiliar market, or they must look at other brands. It’s often better to stay in your home market and find a new franchise with plenty of room for growth there.

They want to diversify their business.

Diversification is a hot topic for all types of investment, and it’s not any different in franchising. For example, many pizza franchisees are tired of managing self-delivery and dealing with competitive discounting, so they frequently diversify by expanding their portfolio to a different kind of restaurant franchise like a sandwich shop. Take franchisees in the senior care industry for another example. With the expected changes to Medicare, they may look to restaurants to diversify.

Benefits of Being a Multi-Brand Franchisee

It can help you retain top talent.

Large multi-unit operators usually have several top employees at the general manager level and above that help manage their business. Bringing in a new brand can be a career growth opportunity for their top talent to keep them in their business. In some cases, a franchisee may have a great employee who doesn’t fit well in his first brand but excels in his second. Two or more franchises gives you the opportunity to create opportunities for excellent employees. You can also potentially reward your best hourly employees with more hours at your second brand, but avoid any crossover for higher level employees.

You can capitalize on your experience.

Multi-unit franchisees also already understand and appreciate the value of a system and bring many good habits, including hard work and determination. It’s important to avoid injecting systems from your first franchise into your second, but many of the back-office logistics can carry over. Most multi-unit franchisees already have an accountant, a legal team and a culture within their organization, which they can leverage when they bring on a new brand. Multi-unit franchisees also already know their market intimately, and they can use their connections with real estate agents, maintenance people, and local charities and schools to make their new business more successful from the start.

Adding a new brand to your business is a great growth opportunity, but it’s important to make sure the timing and franchise are right.

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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