Advisory Jun, 02 2010

Multiple ways to multiply profits

After successfully establishing themselves in the market, franchisees can look up to further growth with multi-unit and multi-conceptual franchising. Let us explore these concepts and their standing in the industry

By Abha Garyali
Sub Editor
Multiple ways to multiply profits

Fanning entrepreneurial spirit among prospective investors, franchising has been at the forefront as the ideal business model to expand and grow. After reaching the break-even period in the first franchise business, franchisees can find further growth in multi-unit and multi-conceptual franchising. But there are some issues to keep under consideration.

  • Growth strategy: Franchisees should be sure that they have the capability of handling more than one store. All franchisees cannot take the added responsibility of expanding their business.
  • Franchisor’s consent: Few franchisors may not allow franchisees to adopt multi-unit or multi-concept franchising. It is a must to take your franchisor’s consent before proceeding.
  • Financial planning: Initially, to start another outlet or buy franchise rights of another brand may be a strain on franchisee’s financial resources. As a franchisee, plan your budget to support both the existing as well as new outlet.
  • Investment: In terms of dedication, time, money, interest and space lot of investments is required.

Multiple facets of multi-unit franchising

Multi-unit franchising means owning more than one franchise store of a particular brand at a time. As franchisee cannot be present at all the outlets, franchise managers can be hired to look after the day-to-day functioning of the franchise outlet.

Main factors behind the rise of multi-unit franchising are:

Increase in profits: Increased profitability for both franchisees and franchisors is one of the main factors for the steady rise of the concept. The multi-unit franchisees gain in terms of capital as well as power. They are sure to earn more profits than single-unit franchisees. Moreover, the franchisor, in most cases, reduces the franchise fees and royalty for multi-unit franchisees since they also benefit from expansion by a single franchisee.

Increase in experienced franchisees: Taking up of the franchise business by successful corporate personnel and retirees after requisite experience in their respective fields also lead to increase in multi-unit franchising. These individuals are enriched with knowledge and experience, therefore, find it easier to manage and run multi-units. These entrepreneurs have the know-how, confidence and ambition to successfully expand their franchise systems and multiply profits.

High savings: Multi-unit franchising ensures cost-effective use of financial, material and human resources. As mentioned earlier, a franchisor usually reduces his fee and other charges for his multi-unit franchisee. Moreover, having more than two outlets reduces efforts and capital. Here’s how.

  • Advertising: A multi-unit franchisee can advertise for n number of stores in the same amount as required for advertising one outlet. Therefore, advertising for various outlets via different media does not increase cost.
  • Time management: While opening additional units, less time is spent on each outlet, as with every new outlet, franchisee gains experience and hence, the expertise.
  • Employing staff: An experienced franchisee learns to recruit able staff during the process. In case of staff shortage in any outlet, he can share his employees from his other outlets.
  • Discount: A franchisee usually develops friendly relations with his vendor. Therefore, he can buy equipments (in bulk) at discounted prices from him.

Concept of multi-concept franchise

Multi-concept franchise involves buying franchises of different brands from different franchisors simultaneously. This concept can also bring in lots of profits in following ways.

Regular cash-flow: A franchisee with many brands has the advantage of a regular and steady cash flow. Having different concepts and brands gives your customers more choices. For, if a certain product does not sell well at a particular time zone, he will gain enough from the presence of other brands and products.

Something to fall back on: All businesses hit rough patches once in a while. If a franchisee has many brands, he will not depend on only one brand and its success. If one brand does not do well, he has other brands as well.

Co-branding benefits: Keeping two or more brands in a single store also boosts profits. For example, having an ice-cream outlet next to fine-dining or fast food outlet will add up to its sales.

Flip side ofmulti-concept franchising

It has been seen that multi-unit franchising is more prevalent than multi-concept franchising in the present scenario,. This is because of lack of freedom offered by franchisors to the franchisees in taking up the franchise of other brands. Franchisors may feel that their brand will not be paid due attention by franchisees and his attention will be divided. However, few franchisors do provide this freedom.

Related: Experiencing The Franchise Boom In India

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