by Simon Lord
last updated 29/07/2015
owning multi-unit and multi brand franchises
by Simon Lord
last updated 29/07/2015
As dairy farmers, Denise Andrews and her husband Neil had 350 cows and just 1 member of staff. Five years ago, they sold the farm and changed direction completely. With no experience at all, they entered the food business and today, they have 80 staff in 5 outlets in 2 cities operating 2 different franchise brands. It’s a striking example of what can be achieved through multiple-unit franchising.
Although many people might think of franchising as consisting of owner-operator businesses, multiple-unit (or ‘multi-unit’) franchising is increasingly popular. It’s what happens when a franchisee runs two or more outlets, and it’s surprisingly common. For example, several McDonald’s franchisees own four or more restaurants, while many petrol stations are now operated by multiple franchisees who might own 10 or 20 outlets in the same region. Even in the service sector, it’s not uncommon for franchisees to own multiple territories, while in retail the same franchisee might own two or three outlets in neighbouring areas.
It’s not necessarily restricted to a single brand, either. In Denise’s case, she owns three Pita Pit and two KiwiYo franchises in Invercargill and Dunedin. The brands aren’t in competition but complement each other. As she says, ‘People can come to Pita Pit for a healthy meal, then head next door for dessert – that can be healthy or not, depending on the topping they choose!’ Meanwhile, in the business-to-business sector, sister franchises Speedy Signs and EmbroidMe encourage franchisees to take on both brands, which have similar target audiences.
grow, don't go
For people like Denise, buying a franchise isn’t about buying a job – it’s about creating a substantial and sustainable enterprise of their own. In the US, over 50 percent of franchised outlets are now owned by multi-unit franchisees and the trend is growing here, too. As a new survey reveals, franchisors are finding a shortage of suitable new franchisees right now, so encouraging good franchisees to open second and third outlets is attractive. For franchisees, too, the opportunity can appeal – after all, if they have the desire and ability to build a larger business with bigger returns, why not stick with the model they know and open more outlets rather than having to move into something entirely new?
It’s an approach that appealed to Rob Lea and his brother Brian. The brothers both worked for the same pizza company when they were in college, where Rob was studying accounting and business while Brian took marketing. ‘We thought a franchise was a great way into business, so straight out of college the family opened a Pizza Haven in Manurewa and never looked back. We opened a second, then once Domino’s arrived and took over the brand we saw there was potential for more. Now we have four and we can see how we could easily get to six with no more management structure than we have now – me, Brian and our mum, Beverley.’
The brothers might well have been inspired by Scott Bush, the general manager of Domino’s New Zealand, who is himself a former multi-unit franchisee in Australia. ‘I started as a delivery driver and worked my way up through operations and management,’ Scott explains. ‘I bought my first store in 2004, my second later that year, and four more the next year. Then I merged with another franchisee and we built up to 18 stores before we sold.’
On the other hand, Jude Fieldhouse of Pita Pit in Palmerston North is happy with her two stores – for now. She opened her first outlet in 2011 and it went pretty well right from the start. ‘I decided Palmerston North could support two stores and I wanted to own the market here rather than share it with somebody else. I tried to get a second store in 2012 but Pita Pit said no, too soon, and I’m glad they did. At the time I’d just won Pita Pit’s Franchisee of the Year award and I felt 10 feet tall and bullet-proof. Over the next year I perfected my systems, trained up more staff and by the time I opened my second outlet I had everything in place.’
That’s not to say that running multiple outlets is easy. ‘I’m a one man band, with no husband or partner working in the business,’ says Jude. ‘I can be in either of my stores within five minutes which makes it easier to ensure consistency in product and service, but if I opened a third I’d have to put in a whole different structure. I used to be in management for a 10-store retail chain and I know the pitfalls, so at the moment I’m happy running two stores at their best and enjoying the business.’
not for the inexperienced
Daniel Cloete of Westpac has seen many franchisees go down the multi-unit path with varying degrees of success and understands Jude’s attitude completely. ‘I think that there’s a big difference between running two outlets and running three or more – that seems to be the tipping point for most people,’ he says. ‘It’s the point at which you move away from working in the business to working on the business, and it requires a whole different level of financial commitment, structure and management expertise. It’s not for inexperienced business owners.
‘That’s not to say that a single-unit franchisee can’t get the experience they need on the job and grow into multi-unit ownership, but they have to understand that the bigger you get, the more structure you need and the more management you have to have in place to make it work. If you’re an owner/operator by nature, that’s going to be hard for you. On the other hand, if you have the skills to match your ambition, it can be very rewarding.’
Denise and Neil Andrews have built up a sizeable management team to support their multi-unit, multi-brand operation. ‘We appointed an office administrator to do the wages shortly after opening our second store and now we have managers and assistant managers in each outlet, as well as several team leaders in the bigger stores. We also have a very good accountant who we work with a lot, and an employment lawyer who we’ve worked with from the beginning. I was used to cows and had no idea how to manage staff when we started so I went to an employment workshop and realised how important it was. With 80 staff, it would be easy to get into a mess with employment issues, but by getting good advice and having good contracts and systems in place, your employees have confidence in you.’
Rob Lea agrees. ‘All four of our Domino’s outlets have managers, assistant managers and staff, so it’s vital to hire well, train well, and lead well. You need to learn to let go without letting go, if that makes sense. But at the same time you really need to understand your business and work on the things that are going to make it better.
‘For example, Domino’s provides all the tools and systems each of our stores needs to run smoothly and efficiently, so we need to train our managers and staff to use the tools and stick to the systems. But on top of that, we need to look at our business as a whole so we’ve devised ways of analysing the business and designing schedules to make it run more efficiently across four stores. We’re constantly looking for ways to work smarter and capitalise on the opportunities.’
economies of scale
One of the advantages of multi-unit ownership that Rob identifies is that the economies of scale can be applied at a local level. ‘The franchise already offers all sorts of benefits in terms of systems and marketing and buying power and so on, but owning four outlets enables you to do things like share overheads. We only need one phone and one laptop each, for example, regardless of how many stores we have. The same goes for office space, and even salaries. Of course you want to be paid, but with four stores you don’t need to pay yourself so much from each store.
‘Not taking so much money out of each business means that you are able to re-invest and pay off the debt faster. In turn, that increases your equity in the business, and gives you the ability to fund your next outlet.
‘We work with Chris Gavin at Westpac and have developed a really open relationship with him. He knows our business back to front, sees the Profit & Loss accounts and knows exactly what each store is worth. It’s good to have that relationship.’
You can read more about funding multi-unit franchises in Daniel Cloete’s article on page 56.
managing the figures
If you have multi-outlet ambitions, good financial management is critical. In addition to running her own stores in Palmerston North, Jude Fieldhouse works as part of Pita Pit’s business mentoring team, helping franchisees from Hawkes Bay to Wellington, and brings an experienced eye to food costs, wage bills and profitability issues. ‘These are the fundamentals of running a business, no matter how many stores you have,’ she says.
Denise agrees. ‘We get constant updates and are looking at our Profit & Loss and key statistics all the time. Our managers are all on incentives so we – and they – have to know exactly how we are doing on things like food costs, wastage, wages and sales growth. Unless you’re on top of all those things all the time, things can soon slip. The Pita Pit team help too, analysing the figures and giving lots of feedback.’
Denise is the first to say accounting isn’t her forte. ‘What I do best is teaching staff and building my teams, so you’ll find me on the counter somewhere every day, getting to know people and sharing the passion. These are the people who run your business when you’re not there so you’ve got to train them well and make them want to do their best for you.
‘I am so proud of our young staff – many have been with us from the beginning and they do amazing things sometimes. If someone isn’t working out they have to go, but I firmly believe you can’t value good staff highly enough.’
And Scott Bush of Domino’s says the same thing. ‘You have to be happy to invest in your people and empower them. If you want to own multiple stores, you need to replace yourself, and the key to that is building your team and putting aces in the right places.’
For a franchisee, then, the idea of owning multiple outlets can be an attractive one. You can start with a single unit and build your business up as time and funding permit. Rather than being limited as an owner/operator, you can leverage the time and input of other people. And, if you’re an experienced manager, you can build a sizeable enterprise of your own within a well-known brand.
But, just as not every franchisee is suited to operating multiple units, not every franchise system is, either. In many cases, franchises designed to operate via owner/operator models don’t have the right systems, structures or training in place to facilitate the growth of multi-unit operators. The franchise might depend for its profitability on the owner also working in the store rather than paying a manager, or its appeal might depend on an owner being highly active in the local community. If this is the case, multi-unit franchisees could struggle to grow beyond a certain size.
You therefore need to choose your franchise carefully right from the start if your ultimate intention is to open multiple units, and to check that the franchisor both supports your ambition and has a business model which can achieve it.
meet the standards
Even once you have opened your first outlet, of course, further growth isn’t assured unless you prove that you can operate a good, profitable business within the confines of the franchise system. No wise franchisor is going to grant a second outlet to a franchisee who doesn’t score highly on their regular reviews, or isn’t following the rules, or isn’t a credit to the brand. You might have your eye on opening a second store in the next suburb, but if you’re not on top of your game the opportunity will go to someone else.
‘Quite frankly, multi-unit franchising isn’t for everyone,’ says Westpac’s Daniel Cloete. ‘Even the best owner/operators aren’t necessarily capable of managing three or four outlets and they’d be unhappy trying. There are risks, and you need both the financial resources and the management skills to mitigate those risks.
‘What happens if your second outlet doesn’t perform as well as the first? It will lower the average profit in both stores. Or if the second or third store takes sales away from the others? Or additional costs are loaded on to the first store as you expand? All these are very real concerns, and you have to be certain that the franchise – and your own business model – are robust enough to overcome them.’
designed to grow
While many multi-unit franchisees in New Zealand started as single unit operators who took the chance to grow when an opportunity arose in a neighbouring area, overseas there’s a much stronger base of what we might term ‘career franchisees.’ This refers to an individual or group who set out to develop a large number of outlets from the outset and already have the necessary infrastructure in place: experience in operations, finance, local marketing and real estate, for example. In some cases they may be companies which are already operating multiple units in the same industry, or wishing to diversify into a new area.
Although such groups are common in larger markets such as the US, where franchisees might take on development opportunities for a whole state or region, our small market means they are less common in New Zealand – in fact, many franchisors here might be concerned to have such companies as franchisees here on the basis that they might get too powerful and unbalance the franchise group as a whole. It’s an area which needs careful management.
Another option for career franchisees is to look at taking up a master licence for a franchise from overseas. This gives them the whole of New Zealand as their market, with the option of managing the outlets themselves or sub-franchising to individual owner/operators if that is appropriate.
The best-known example locally is probably Restaurant Brands, which is local master licensee for KFC, Pizza Hut, Starbucks and Carl’s Jr., but other companies include Antares (who operate Burger King here), Business Franchise Group (Speedy Signs, EmbroidMe and Contours), Jerba (V.I.P. Home Services) and, of course, Pita Pit themselves – the franchise originates in the Canada and was brought here by a team of four local entrepreneurs.
Taking up a master licence requires a whole different level of skills from operating three or four individual units, of course, especially if you plan to sub-franchise. It also requires a great deal more capital and research – see Philip Morrison’s article for more detail.
adding more brands
Another way for multi-unit operators to grow and diversify is to take on another franchise brand, as Denise and Neil have done with KiwiYo. In December 2014, they opened a stand-alone KiwiYo outlet next door to their Pita Pit in Invercargill, while the same month they opened a new Pita Pit in Andersons Bay in Dunedin which actually featured a KiwiYo inside the same premises.
‘When I saw KiwiYo I thought it would be a perfect fit for us so I talked to both franchisors and got them to talk to each other right from the start,’ Denise says. ‘It’s worked very well – in fact, I think the Invercargill KiwiYo has the best sales in New Zealand!’
Denise was wise to involve both franchisors before committing herself. While it’s not unusual for franchisees to own several different brands in some sectors – for example, Paper Plus, Lotto and NZ Post often share premises – in others it’s absolutely forbidden. For example, café franchisors don’t want franchisees taking their know-how to different brands, and in many cases the franchise agreement will also expressly forbid franchisees from owning or operating other businesses in a related area – whether franchised or not. For this reason, intending multi-brand operators should check out what is and isn’t allowed before making their plans.
tips from the top
Finally, we asked all our interviewees what their advice would be for anyone looking at building their own empire within a franchise system (or two). Jude Fieldhouse is first up.
‘I’d say getting the right location is massively important, not just for the first store but the later ones, too. No two locations are the same – I have different customer bases in both my stores, even though they’re so close together – but every location has to be good. The second thing is that you really have to be financially secure in your first store before opening another or it will just put too much pressure on you. And third, get your staff and management well trained so you can transfer those skills to your new stores from day one. That way, you’ll deliver the best possible experience across both stores.’
Rob Lea gives similar advice. ‘Make sure you really understand how your business works before you even think about expanding. Make sure it’s making money, and make sure the right people and systems in place.’ And he adds, ‘You also need to make sure your franchisor, your bank and your accountant also believe you can go to the next level. You’ll need their help so you need to know they’re right behind you.’
Westpac’s Daniel Cloete agrees. ‘If a franchise has a good track record and we see that multi-unit franchisees can succeed within it, then we’ll certainly be interested in helping you expand. But we also need to know you can plan that growth in a structured way. Share your plans, share your results and keep us informed.’
Scott Bush says, ‘To succeed as a multi-unit franchisee, you have to be a good leader, not just a good manager. You have to be able to develop a culture and routines that are followed whether you are there or not. Roll up your sleeves and work alongside people!’
And Denise sums up: ‘Don’t expect the money without doing the work, don’t expect your managers to do it all and, above all, love whatever it is you’re doing.’
It’s a recipe that has seen Denise and Neil, two self-confessed novices, create a small empire in just over four years. ‘Do you plan to go on expanding?’ I ask Denise. ‘Not this week,’ she chuckles. But she hasn’t ruled it out.
Such is the power of multi-unit franchising.
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