Multiple reasoning

If your ambition is to run more that one franchise unit, Manzoor Ishani reveals what life could be like and what you need to look for in your franchisor

Multi-unit franchisees cost a good deal less per franchise unit opened than individual franchisees, thereby saving the franchisor valuable management time and expense. After all, the franchisee has done it before, is familiar with the franchisor's requirements with regard to shop-fitting, stock purchase, etc.

A good proportion of the initial franchise fee therefore goes directly to the franchisor's bottom line. Some franchisors offer a discount on the initial franchise fee for second and subsequent units opened by the same franchisee, sometimes as an incentive for the franchisee to open more units, sometimes simply because it seems the right thing to do. However, it is rare for a franchisor to take only a nominal or indeed no initial franchise fee at all.

Multi-unit franchisees have strong business acumen, management and administration and so require less guidance and support. All in all therefore it seems to be a good deal for franchisors if they can encourage their franchisees to take on more franchised units.

Even in terms of training, once a franchisee has grown to a certain level, the franchisor needs to only train the franchisee's trainer who is then responsible for training all the franchisee's staff. Again this means further savings for the franchisor.

As for the disadvantages, the first is that unless the franchisor is extremely careful in its selection of the franchisee and keeps a very close eye on the franchisee's managers or supervisors, the ill effects of going against the basic concept of franchising can have a profound effect on both the franchisee and the franchisor's business. One of the fundamental reasons for franchising is that a franchised outlet should generate a much higher level of turnover than a managed outlet and increase its market share because the owner is behind the counter serving the customer. The franchised business is his business and the profits of that business are his profits. In the case of a managed outlet, the manager is an employee and, although there may be sophisticated bonus schemes in place, it is never the same as being the owner of your own business. If a manager is unwell he or she will nurse their cold at home and call in sick. A franchisee will drag themselves out of bed and open the shop.

The second disadvantage relates to the size of an individual franchisee's business. The larger the franchisee's business the more demanding that franchisee will be of the franchisor. There comes a time when the size of the franchisee is such that he can more or less deal, or at least feel he can deal, with the franchisor on equal terms even if the franchisor is considerably bigger than him.

Clearly the strength of the franchisor is crucial when planning a strategy for multi-unit franchise holders. It is certainly a good way of expanding the number of franchised outlets. However, as in all things, a balance has to be struck. Franchisors who encourage multi-unit franchise holders in circumstances where they themselves do not have a sufficient number of company-owned outlets may be storing up trouble for the future. Once franchisees, whether multi-unit franchise holders or individual franchisees, realise that the franchisor is beholden to its franchisees for a substantial part of its income, the rules of the game change and the balance of power begins to shift.

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