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Updated RecentlyToppers Pizza Places Among Top Multi-unit Franchises 2014
Tuesday, April 22, 2014
WHO WE ARE Franchise Business Review is a national market research firm focused on franchisee satisfaction and performance. Our products include franchise satisfaction reports, custom research and analysis, industry sector studies, executive networking groups, and other services aimed at driving franchise performance.
WHAT WE DO To compile the data for this report, Franchise Business Review surveyed close to 6,600 multiunit franchisees (we focused our research specifically on operators with at least three units). We invited all North America-based franchise companies to participate in this study, and over 300 leading multi-unit brands were researched. Any franchise company can take part in our franchisee satisfaction studies at no cost to the company""our research is completely independent, and our surveys and interviews are conducted directly with franchisees and senior management.
All active franchisees within a system were given the opportunity to answer 33 benchmark questions ranking their franchise in the areas of financial opportunity, training and support, leadership, operations and product development, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community. An additional 16 questions asked franchisees about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community. From this data, we identify our list of Top Multi-Unit Franchises, which only includes companies with the highest franchisee satisfaction among all the brands we researched.
(Download full Free Report to view charts, graphics, and more info.) WHAT IS MULTI-UNIT OWNERSHIP? The definition of "multi-unit" can vary greatly depending on the franchise concept. In the food and retail industry, it usually means you own multiple physical locations. For service-related sectors, it can mean you serve multiple territories but maintain one central office. Some brands define bigger territories while others break their territories up to be very small (usually based on population). This can mean that someone who meets the definition of "multi-unit franchisee" actually has a smaller business numbers-wise than a single unit franchisee who owns a big territory. Then, of course, there are other multi-unit franchisees who own so many units (sometimes from multiple brands) they are actually bigger than many franchisors.
Area development can be another form of multi-unit ownership and also has multiple definitions. Typically, an area developer is someone who's agreed to develop a number of units within a territory by selling franchises within that territory to additional investors, training and supporting those franchisees, and getting paid a percentage of the royalty from those units. Many area developers own franchise units themselves, but in some systems, they simply perform a support role for franchisees in their area. Others are simply charged with selling franchises, and support is handled through the corporate office. Clearly, the exact definition and role of an area developer can vary from franchise to franchise, and you will need to research the specifics of the opportunity you are considering should you go down the path of area development.
For this report, we looked only at franchisees with three or more franchise units within the same brand. Franchisees told us owning two units was very similar to owning just one""it wasn"�t until they reached three or more units that their operations and support needs really changed.
It's important to note that not every multiunit concept (or franchisee) starts that way. Many evolve into it with time and success. For example, Hungry Howie's Pizza and Subs franchisee Bob Leger opened his first location in 1987. He opened a second in 1990, and, by 2000, he had 25 locations. Whether or not you plan to start out as a multi-unit owner, it's important that you go into your research with that possibility in your head.
"You need to be sure that your franchisor has the systems in place to help you to succeed," Leger said.
At Weed Man, a lawn care franchise and the #2 company on our list, the corporate office does a lot to prepare its franchisees for growth. They offer a formal multi-unit training program for interested franchisees. When they are ready to expand, franchisees get help putting together a detailed business plan and identifying a general manager to run one of their locations.
"The training provides our franchisees with a comprehensive blue print, so that they can avoid the many common missteps in expansion," said Roman Skrypuch, Weed Man's director of franchise development.
If you decide to commit to opening multiple units right out of the gate, be sure you know what you"�re getting into so you can honor that commitment. As Hungry Howie's CEO Steve Jackson told us, not fulfilling a multi-unit agreement can create an adversarial relationship with both the franchisor and franchisees because it holds up a territory/area that could be developed by someone else.
WHAT TO LOOK FOR IN A MULTI-UNIT OPPORTUNITY Jackson of Hungry Howie's compares multiunit franchise ownership to having children: The first one or two you can handle, but more than that, you"�re outnumbered, and it requires a different skillset and a different type of franchisee. It also requires a different type of franchisor.
Potential franchisees who want to own multiple units need to look closely at the franchise system and whether it's set up to support multi-unit ownership. Does the franchise have the resources and systems in place for multiunit operators? Are the brand's business plan, marketing, systems, corporate management, and culture set up in a way to manage stores from afar (or at least not from the premises on a daily basis)? Is the brand scalable? "The service""the hand-holding""that the franchisor provides is crucial for when you hit growing pains. And that almost definitely will occur at some point," said Alex Bingham, senior vice president of operations at The Little Gym. "Even more paramount is the set of systems that the franchisor has in place to make the operation of the business turn-key. Systems such as point-of-sale, product implementation, training, etc., are the onesthat make the operation most scalable. These are the things that will minimize those growing pains in the first place." Technology is hugely important for success with multi-unit ownership (and often an area that scores lower in terms of franchisee satisfaction). The franchisors"� websites, training platforms, and financial tracking software must be able to work across multiple systems with the ability to look at unit performance both individually and collectively.
"A good technology system can slice and-dice down, as well as roll up to look at how well things work""scheduling, invoicing, payroll. The website should do the same thing""allow you to segment out one unit or territory or look at all your units as one," said Leann Reynolds, president of Homewatch Caregivers.
Most of the franchise brands we talked to don"�t necessarily provide more support for multi-unit operators, but they do provide different support specific to multi-units. Brands like Checkers & Rally's and Two Men and a Truck host an annual conference just for multi-unit owners, and other brands tailor their training for multi-unit needs.
PROS AND CONS OF BEING A MULTI-UNIT OWNER Being part of a franchise system as any type of owner offers significant benefits over starting a business on your own. You"�re part of an established system and franchisee community that guides you along the way, and you benefit from the system's resources and tools for many business "basics" like marketing and website support. But, being a multi-unit operator comes with its own unique advantages over single-unit ownership.
Multi-unit ownership affords franchisees the opportunity to lower their costs per unit because their fixed costs are shared over more locations. Achieving economies of scale makes the business more profitable over time""and more efficient. Especially in low-margin industries like food, vendor relationships improve and expenses go down the more you buy.
"Your cash flow, your relationship with your banker, the ability to negotiate new sites "� there's a list of opportunities that grows as you expand," Hungry Howie's Jackson said. "Your success helps create more success, and a more successful unit can help carry a weaker unit." "If your equipment goes down, you have multiple units to cover operations," added Jim Bonner, a Heaven's Best Carpet Cleaning franchisee. "You"�re not going to have to shut down operations and productivity." In industries like senior care, which can require a significant amount of licensing, multi-unit ownership makes sense because franchisees are already set up for growth once the first unit is up and running in a state.
"The economies of scale, from an operations standpoint, allow for efficiencies and diversification across multiple communities""or markets, which leads to stability and greater growth opportunities," said Shelly Sun, CEO of BrightStar Healthcare.
Multi-unit ownership can also mean you have more say in factors that directly affect your business. At Heaven's Best, for example, a multi-unit operator typically owns an entire region, so, rather than debating things like prices and marketing spend with two or three other franchisees, they work directly with the corporate office to make these decisions, said CEO Cody Howard.
From a lending perspective, franchisors told us it is much easier for multi-unit franchisees to get financing. Banks are more receptive to multi-unit loans, particularly if the prospective franchisee has previous experience in the specific industry they"�re looking to do business in. Multi-unit ownership can also make a business more attractive if a franchisee wants to sell it down the road.
"If you have a long-term horizon to be attractive to a buyer, then you can do exceptionally well with multiple units," said Crunch Franchise president Ben Midgley.
Other pros of owning multiple units are increased brand awareness (the more units you own in an area, the more you"�re able to promote your brand) and increased power within the franchise system (the more units you have, the more sway you have with the corporate office). You also have the ability to provide more opportunities for employees and recruit better people.
"When you are smaller, you are not always able to hire a dynamic applicant because you have nowhere to put him or her, or you may not even have the chance to interview a quality applicant because they are looking for a company they can grow with," said Hungry Howie's franchisee Leger.
Many of the cons of multiple-unit ownership are most prevalent in the first few years of business. While ultimately more profitable, it can take longer to actually be profitable because the investment is higher. And, a bigger initial investment means more risk early on (although that risk is spread out among multiple locations).
Franchisees told us that multi-unit ownership doesn"�t necessarily require more work than a single unit, but the work is different, which might not appeal to everyone.
Single-unit franchise owners are usually very hands-on in the day-to-day operations of their business. As they grow into multi-unit ownership, their ultimate success is highly dependent on making the transition to more of a managerial role, with a reliable team in place to handle the day-to-day operations of the business.
"You must learn to delegate tasks, follow up with those tasks, and trust your leadership team," said Hungry Howie's franchisee Leger.
"It's so important to develop the right habits, processes, and relationships with that first location before expanding," adds Sun of BrightStar.
MARKET ANALYSIS Multi-unit franchising has become hugely popular with both franchisors and franchisees in recent years. This year, 20 new franchise companies were eligible to participate in our multi-unit research (because they had at least five franchisees who own 3 or more units). We expect this number will only continue to grow.
"If you look at all the conferences that are popping up""the expos, the periodicals that are devoted strictly to multi-unit owners""you are starting to see a key focus in popularity that you haven"�t seen in years past," said Randy Shacka, president of Two Men & a Truck.
Prospective and existing franchisees recognize the significant revenue potential in owning three or more units versus just one, and franchisors told us they want to increase their multi-unit operators because it is easier to manage fewer franchisees (and because multi-unit owners tend to be more satisfied).
"You can really get to know every person, every person's significant other, their kids"� There's great networking between the franchisee base, and it's easier for people to adhere to your systems. It allows you to create a tighter culture," Crunch's Midgley said.
First/single stores require more from a start-up perspective, added Jackson from Hungry Howie's. "We send more support staff to a first opening, and fewer to others because Store 2 opening procedures are more streamlined." WHAT IT TAKES TO BE SUCCESSFUL MULTI-UNIT OPERATOR Many of the traits that make a single-unit franchisee successful are the same for multiunit owners: marketing/sales experience, operational expertise, passion, willingness to follow an established system. But as the number of units increases, so too does the focus on leadership and solid management skills.
If you"�re a hands-on, detail-oriented person who wants to be in your business every day and very involved in every detail, multi-unit ownership might not be the right fit for you.
"It's very difficult for multi-unit operators to be micro managers," said Hungry Howie's CEO Jackson. "There has to be a balance. You give people goals and reward them accordingly. I"�ve seen people who transition to multi-unit ownership work themselves to death because they do everything themselves." "The most important trait we find is someone with a vision and a strategic mindset," said Bingham of The Little Gym. "This is critical when developing a multi-unit operation. Without vision, you"�re simply doubling the amount of work you have because you have two separately operating businesses. With a vision and strategic mindset in place, your two (or more) businesses operate in tandem, recognizing opportunities for economies of scale." Being properly capitalized is even more important for multi-unit franchisees because the ramp-up can take longer. Even with a lower-cost investment like Heaven's Best, it's important not to expand too quickly, says CEO Howard.
Some franchisors, like Hungry Howie's Pizza & Subs, look for franchisees who own other food concepts because they already have restaurant experience and know what is needed to run a successful franchise. Of course, prior experience does not mean a franchisee gets to ignore their new brand's system.
"Sometimes franchisees with prior experience at a competing concept want to bring all their old ideas with them. This can be beneficial, but it can also sometimes be confusing," Jackson said.
Ultimately, says The Little Gym's Bingham, multi-unit operators need the perfect balance of influence and restraint to run their business successfully.
"They should have enough dominance in their personality to hold someone accountable, but be able to temper that enough to give up some control of operation to managers, because they can"�t be in both stores at the same time." FRANCHISEE SATISFACTION Any franchise system can promote itself as a multi-unit opportunity, but there's no guarantee they have the resources, processes, training, and technology in place to actually support multi-unit franchisees successfully.
This is why it is imperative that investors looking at investing in multiple franchise units ask for a franchisee satisfaction report (preferably from a third party) and talk to other multiunit operators within the system.
Generally, franchisee satisfaction among multi-unit owners runs slightly higher than satisfaction among single-unit franchisees. This isn"�t surprising since profitability tends to play a role in satisfaction, and multi-unit operators tend to be more profitable. In 2014, 50% of the participants in our survey ranked the financial picture of their business as strong/very strong (compared with 41% of single-unit owners).
Franchisees of both types rank their system highest in the areas of overall enjoyment they get from running the business and being a part of their franchisee community, respect for their franchisor, and willingness to recommend their system to other prospective franchisees. Eighty percent of the multi-unit franchisees we surveyed for this report said they would recommend their franchise brand to someone else.
One of the lowest rated survey categories for both single- and multi-unit franchisees is Training and Support. This category encompasses several areas""ongoing support provided to the franchisee, ads and promotions, systemwide communication, and effective use of technology. As we mentioned earlier, multiunit operators rank their systems lower in technology than single-unit owners. This is likely because, as franchise locations grow, franchisees rely more and more on effective technology to tie them all together. Twenty four percent of multi-unit franchisees rank their systems"� technology use as average/poor, compared with 19% for single-unit owners.
SUMMARY The allure of multi-unit ownership has never been greater. Franchisors look to attract multiunit owners because they are easier to manage, and franchisees seek out these opportunities because, with more units, usually come greater rewards (and reduced risk). But finding the right system""one with the support, technology, and leadership team in place to support multi-franchise ownership is no easy task.
The franchise companies featured in this report have a proven track record for growing and supporting successful multi-unit owners""and they have the highest satisfaction in the franchise sector among multi-unit franchisees. For the right franchisee with adequate capital, these 50 brands offer the potential for an incredible investment opportunity""one with high profits and long-term security.
It's important to remember that no business or franchisee opportunity is a surefire success. Operating multiple units requires a certain type of personality and a certain type of corporate support. People considering a multi-unit investment must do even more due diligence than single-unit candidates to determine if a brand can properly support them.
If you"�re researching a franchise opportunity, no matter what type of franchisee you think you"�ll be, it's worth considering the multi-unit options and support provided. What you desire as a franchisee today may change in 10 years, and it's better to be part of brand that can support you as you grow, regardless of what form that growth takes. Ultimately, finding the right fit and the right culture for you is the most critical step in your franchise search.
For more detailed information about researching a franchise brand or on the brands featured in this report, please visit us online at www.FranchiseBusinessReview.com.
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