Will this appetite to expand franchise empires affect or even
hurt the average guy who wants to buy a franchise?
Though many franchisors happily trade the problems that
accompany multiunit development for the bonus of faster growth,
prospective franchisees who aren't necessarily interested in
building a chain don't need to worry about being squeezed out:
There are franchisors who believe single units still provide plenty
of opportunity. AlphaGraphics franchisees typically own about 5
percent of the market share for their regions with their printing
centers, and the parent company would rather see franchisees
increase that share than open additional stores doing the same
amount of business.
"There has been a standing offer to pay anybody $100 on the
spot who can demonstrate he or she has more than a 5 percent market
share. Nobody within our system has collected it," says Keith
Gerson, vice president of global development for the Salt Lake City
franchise. "If all you're doing is knocking down 5 percent
of the market, why would you want to go out and open additional
units when you haven't maximized the velocity of assets within
your store?"
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That's not to say AlphaGraphics doesn't have any
multiunit operators. Currently, 8 percent of franchisees in the
system operate more than one unit. "You can split your time,
but you can't split your focus," says Gerson.
"Sometimes people pursue multiple unit ownership because
they're unhappy with the economics of the first unit. I say
take care of what's inside the box before you go outside the
box. [If you want to be a multiunit franchisee], make sure
you're really wired, you've got the capital, you're a
good developer of people and you've got a proven track
record."
Prospective franchisees aren't the only ones who need to
make sure they're fully prepared for multiunit development.
Shane says it's fairly common for new franchise systems to sell
only multiple units or area developments for quick growth. But that
doesn't necessarily mean franchising in general will go in this
direction. "New franchises that use multiunits all the time
are really risky," says Shane. "My research has shown
that 10 years [down the road], only about a quarter of them will
still be alive; it's high risk, high return."
Pagani and Neil understood the additional risks involved in
opening multiple units, but they weren't intimidated. "We
never thought about owning just one. We have all this experience in
the restaurant business, and this is what we want to do,"
Pagani says. "I never felt like three was a problem for
us."
Slavin, who has helped create franchises for businesses like
Mrs. Fields' Original Cookies and Bally Total Fitness, is
himself a Chicago area multiunit operator for El Taco Tote Real
Mexican Grill, a franchise his company consults for. Despite his
obvious affinity for multiunit franchising, Slavin doesn't see
single-unit operators languishing in their wake. "There will
always be a place for [single-unit operators]," Slavin says,
noting tertiary markets where geography allows for single units to
backfill particular areas.
Falconi concurs and doesn't think any prospective franchisee
should be discouraged or feel limited. "There are so many
opportunities for somebody who wants to make it, as long as they
have the fire in their belly and a plan."
Multiple Personalities: Should You Be a Multiunit
Operator?
Thinking of taking the multiunit route? Realize it's a
major decision that shouldn't be taken lightly. Consider the
size of the endeavor: George Krotonsky, president of Wild Noodles
Franchise Co. LLC, advises you to first take a look at the concept
and what it takes to open an individual store with regard to
factors like finance, management and employees. Now multiply that
by the number of stores you're considering. Is this feasible
for you to undertake?
Economics professor Scott Shane, with Case Western Reserve
University in Cleveland, says that, in building a bigger
organization, you must not just select management, but also be able
to create the right structure for your business's hierarchy.
And don't think that because you have more than one unit of one
franchise, you'll automatically make more money. Shane suggests
you look carefully at the best brand or product you're
considering becoming a multiunit franchisee of-your focus should be
quality over quantity. Take the time to consider different
franchises and the varying profitability of outlets. Says Shane,
"I would urge potential franchisees to look at the earnings
claim disclosures."
In other words, don't get mesmerized by the idea of opening
a lot of stores. If you're more effective at running one outlet
over multiple units, you may find that a single unit in one chain
can be more profitable than several of another type of
franchise.
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