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One Big, Happy Family

These days, franchise systems seem to be irresistibly attracted to each other. But consolidation doesn't have to turn into a family feud.
January 1, 2003
URL: http://www.entrepreneur.com/article/58120

On The Brady Bunch, a widowed man and woman brought their three sons, three daughters, dog, cat and housekeeper together to live in familial bliss. There was no bitterness, and the children all got along and easily referred to their new parent as Mom or Dad. And six kids peacefully shared one bathroom.

When a franchisor considers bringing other brands into the fold, deep down they're hoping for that Brady-like euphoria where there's no jealousy, and new ideas and leaders are welcomed with open arms. But because businesses don't operate in this TV fantasyland, franchisors and franchisees have to be prepared for uncertainty and struggle when disconnected franchises consolidate.

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Accepting the ups and downs that come with running a business, particularly a large one encompassing many concepts or industries, franchisors like Yum! Brands Inc. (franchisor of A&W, KFC, Long John Silver's, Pizza Hut and Taco Bell) and Cendant Corp. (Century 21, Howard Johnson, Jackson Hewitt and others) are continually welcoming new franchises to the family.

What's the driving force behind the trend? "We saw we could take a competency we'd developed in one company and bridge it over to the next," says Steven Rogers, president and CEO of The Franchise Company, parent of California Closet, Certa ProPainters, Paul Davis Restoration and Stained Glass Overlay. "If you're good at your business, or good at the skill of franchising, those skills are transferrable."

While some multiconcept franchisors seek to take advantage of existing skill sets within their organizations, others hope to improve efficiencies or save money. Consolidating often means franchises "can combine operations, reduce their costs and be more efficient," says Edward Dunham, partner with New Haven, Connecticut-based Wiggin & Dana and editor in chief of the American Bar Association Franchise Law Journal.

Franchisees of The Dwyer Group Inc., with concepts such as Glass Doctor and Mr. Electric, share support services. "We have one accounting department and one legal department that service all the franchise companies," says president and CEO Dina Dwyer-Owens. "Because our brands all deal with the same type of consumer, what works for one usually works for another."

The franchises of Service Brands International Inc.--1-800-Dry Clean, Molly Maid and Mr. Handyman--benefit from shared marketing and promotion. "The prototypical customer for [the brands] is very, very close, and we're just beginning to explore ways in which we can exploit the various customer bases and explore strategies for cross-promotion," says Greg Longe, group president of home services for Service Brands.

Even with franchisors touting the benefits of consolidation, which can also include co-branding, franchisees may struggle with sibling rivalry issues with their new sister brands. "Franchisees may complain that it's hard enough as it is. The franchise system is supposed to be focusing on the Ajax system, and now they've acquired Acme, and the Ajax franchisees [feel they're] not getting the level of attention and support they used to," Dunham says.

Or acquired franchisees can feel threatened by their new parent. "If the acquirer already owns franchises in that industry or is a former competitor, if they don't build this energy about how good this [consolidation] is going to be, it's often hard for the new company to get things going," says Jim Davis, president of 3MD Group Inc., a Newport Beach, California, management consulting firm.

And in cases where an acquisition is due to poor sales or other financial issues, like bankruptcy, it's important for the new franchisor and franchisees to communicate. "Franchisors have to let franchisees know what they're doing and why they're doing it and try to avoid surprises that make people scared and angry," Dunham says. "Most franchisors recognize it's bad for business to go out and do something that leaves a significant percentage of their franchisees disaffected."

Regardless of the causes or goals of consolidation, franchisors and franchisees can ensure everyone benefits by communicating. "It is important for franchisors to communicate and let franchisees know what they are doing and why they are doing it as early as possible to try to avoid surprises that make people scared and angry," Dunham says. "Also let franchisees know the business reasons why it's good for the system, because if it's good for the system, it's going to be good for the overwhelming majority of franchisees."