Is Multi-Concept Franchising for You?
Opening a single franchise unit is often one of the most challenging--and sometimes rewarding--things an entrepreneur can do. Opening multiple units of a franchise is for advanced franchisees only. And opening several franchise units across several different brands? That's like earning a doctorate in the small-business school of hard knocks.
But despite the difficulties of juggling multiple brands, more and more tenacious and highly organized franchisees have decided that multiconcept franchising is the right growth strategy for them. What's more, instead of demanding 100 percent brand loyalty, some franchisors are beginning to see value in multiconcept franchisees and actively courting them.
Over the past 30 years, Greg Hamer Sr. of Morgan City, La., has built his family-owned B&G Food Enterprises into a 56-restaurant, multiconcept corporation with 1,300 employees. In 1982, Hamer sold his share of an oil field services business and opened a Taco Bell unit. From there, he invested in a string of Taco Bells.
For a decade and a half, B&G expanded across Louisiana, Texas and Mississippi. But in 1998, when Yum! Brands, the parent company of Taco Bell, began allowing franchisees to buy into its other concepts, Hamer decided to get into Kentucky Fried Chicken, too.
"We hadn't reached our saturation point, but we wanted a little diversity and opportunity for growth, and at the time, the way KFC's territory was set up, it was a little easier to develop than Taco Bell," Hamer says.
But just because the same group owned the two restaurants didn't mean Hamer was on autopilot when switching from chalupas to chicken. "Operationally, the brands are really, really different in their approach and how they operate, and their technology is different," he says. "They even have a different type of employee, believe it or not."
This year, Hamer is expanding once again, this time outside the Yum! Brands umbrella. He's opened his first Teriyaki Experience location in Houston, with another in development, and he plans to open a total of 50 locations in Houston within the next 10 years. He's betting that the restaurant's healthful steamed offerings catch on, but it's also a way for his company to grow now that his Taco Bell and KFC territories are hemmed in by other franchisees.
This time around, though, Hamer started building the new branch of his company from the ground up. "When we got into KFC, we thought we could run it with existing people," he says. "Looking back over 12 years, our biggest mistake was not dedicating separate resources and personnel from the very start. Going into Teriyaki Experience, we did do that. The first thing we did was hire somebody to supervise that side of business."
These days, franchisees who want to go beyond the traditional single owner-operator model have to ask themselves whether multiconcept franchising is the right way forward.
"Multiconcept franchising is a solution for certain types of franchisors and franchisees," says John Hayes, franchise expert and professor of business and mass communication at Gulf University in Kuwait. "Most are happy with one business--and why not? If it's profitable and enjoyable, who needs more? Well, there's always someone who wants more, and multiconcept franchising fills the need."
The practice of running two franchises from two different companies was not always accepted. In fact, companies were often afraid of having star franchisees stolen by other companies.
"In the old days, people were more defensive about franchisees being poached by other systems," says Lane Fisher, a partner at the franchise law firm FisherZucker and a board member of the International Franchise Association. "The world was centered around area development deals and franchisees opening multiple units of the same franchise.
"But as the economy shrunk, area development came out of vogue," he adds, "and the big multi-unit operators of other franchise systems became primary prospects for other franchises."
So instead of focusing on small mom-and-pop prospects reliant on hard-to-find credit, franchisors began looking at proven franchisees of noncompeting systems with deep pockets and access to capital.
"Demand is still high for those kinds of people," Fisher says. "In fact, there's a whole cottage industry that's developed around finding them. They have expansion dollars--that solves a big part of the crisis."
Over the last few years, multiconcept franchisees and franchisors have gone public in a big way. "I think there has been a change in the last 10 years," says Paul Damico, CEO of Moe's Southwest Grill, a franchise concept that's part of the Focus Brands family (which includes Cinnabon, Schlotzsky's, Auntie Anne's and Carvel Ice Cream) that actively seeks multiconcept recruits.
Damico hunts for prospects at a spate of multi-unit trade shows that have popped up in the last few years, and also advertises for prospects in the Wall Street Journal.
"Franchisors that have focused on single mom-and-pop operators in the past are looking at these individuals because they can grow the brand faster and their learning curve is shorter," he says. "They usually have a higher unit average volume and are a more sophisticated entrepreneur."
But most important, multi-unit franchisees typically have the type of infrastructure that makes expansion easy. They have a whole team of construction pros, real estate developers and others working to put up new units.
"An easy thing for franchisors to do is sign up someone finishing up development of another brand," says Fisher. "It's hard to amass all those specialized people. Instead of kissing them goodbye and focusing on operations, a second concept lets that team engage on a second develop schedule. That's a highly sought-after prize for expanding franchisors."
But going multi-concept is not just advantageous for companies in expansion mode. Franchisees are willing to take on the added complexity for advanced growth and to spread their exposure. "There's the advantage that if one business falters, or if the market changes for one of the businesses, or if there's a loss for any other reason, like the loss of a product line, or a product falls out of favor temporarily, the other business picks up the slack," says Gulf University's Hayes. "It's the idea of not putting all your eggs in one basket."
For small owner-operators, multiconcept franchising may not be as complex as setting up an entire new division, but integrating a new system is still a challenge. In 1999, Jeff Orlando opened a Wingstop in a strip mall in Killeen, Texas. Over the next decade, he opened two more, both about 100 miles away. But the drive was too much, and managing problems from a distance was difficult. So he sold his satellite locations and focused on Killeen.
When the owner of a nearby Schlotzsky's decided to retire, Orlando saw the opportunity to expand his business without the nasty commute. The deli concept, it turned out, was the perfect complement to his wing business.
"The stores don't compete with each other," says Orlando, who plans to open a second Schlotzsky's location later this year. "Sixty-five percent of sales are during the day for Schlotzsky's and it's the complete opposite for Wingstop. Schlotzsky's does most of its business during weekdays, and Wingstop is busy on the weekend. That was a huge part of my decision making. I couldn't be happier with either one of them."
Similarly, synergy drove Mike Park and Robert Schattner, co-owners of Purofirst of metropolitan Washington, D.C., to piggyback a Mr. Handyman franchise on top of their fire, water and mold restoration franchise.
"We already did repairs and had the infrastructure and management," Park says. "It was about broadening our base of business, and getting business from as many avenues as possible."
Park and Schattner came into their Mr. Handyman business, which they opened last October, with 15,000 to 16,000 high-quality leads from their Purofirst clients, an advantage that helped them launch two Handyman trucks--with a third and fourth on the way--even though they anticipated almost no business throughout the winter.
While their businesses are complementary and clientele may overlap, Park says he's careful to keep the books separate and not to violate their franchise agreements. "We don't take a Purofirst job and turn it into a Mr. Handyman job," he says. "We'll go back and market our Mr. Handyman service at a later date. We're conscious of not switching back and forth."
Park isn't alone in not wanting to muddy the waters. Franchise powerhouse McDonald's, for example, is strict about franchise cross-pollination. Business professor Hayes thinks that most franchises frown upon, or are restrictive of, multiconcept franchising, because the risks are obvious: If one concept fails, it may cannibalize attention and resources from a franchisee's other businesses. And mastering the ins and outs of two franchise systems can be difficult.
But while multiconcept franchising isn't for everybody, there are plenty who find it worth the risk. "It's tricky to own multiple concepts," Hayes says. "Of course, there are disadvantages to everything. In the end, you're either cut out for multiple ownership or you're not."