Buying multiple units

Dec17_2015
17
December
2015
Considering a Franchise

If you have big dreams from the start of being a franchise tycoon, you may want to consider franchisors that offer the whole package:  area development rights.  These rights allow a franchisee to expand exclusively within a specific territory, according to a schedule – X number of units within a certain period.

In a twist on this method, some chains sell an entire territory to a franchisee, and, based on a schedule, allow the franchisee to open units themself, or sell unit franchises to other operators, called subfranchisees.   This approach is called master franchising.

The master franchisee recruits new franchisees into the system and often provides them with many of the services other franchisees get directly from the franchisor.  In exchange for recruiting and supporting the subfranchisees, the master franchisee retains a portion of the continuing royalty payments (a continuing fee paid by the unit franchisee to the franchisor, usually based on a percentage of gross sales).

Some franchise systems expand only via area development or multi-unit development.  Theoretically, by dealing with fewer but larger and hopefully more sophisticated franchisees, they can manage their systems with more ease and focus their efforts on support, new products, services, and other areas besides franchise sales.

For franchisees, an advantage of acquiring an area is that you lock in a territory in which you can develop multiple locations without having to worry about  how many other franchises are being developed and how close those locations are to your sites.  In contrast, if you buy franchises one at a time, you risk getting closed out of parts of your area because other franchisees or company owned  locations have been developed.