Multi-Unit Franchises on the Rise
The IFA Educational Foundation, in cooperation with IFA and Indiana University Southeast, has published a study documenting the growing incidence of multi-unit franchisees.
The survey results are based on two postal surveys of 830 IFA member companies, with 145 franchise systems replying to the survey, for a response rate of 17.9 percent.
Single Unit Owner:
Owns one Franchise.
Many single-unit franchise owners complain about not earning enough money. If you have the managerial abilities and the financial resources, owning multiple locations is a way to make a considerable amount of money.
Multi-Unit owner:
Although the sub-franchisor, the area developer and the area representative may own multiple units, a multiple-unit owner doesn’t have to fall into one of these 3 categories. A multiple unit franchise owner is simply someone who owns and operates more then one location.
The multiple-unit owner hires a manager for each of the individual locations and oversees the general management of all the various locations.
It isn’t necessary to buy an entire area or region to open multiple units. If you don’t, however, you run risk of the area being taken or saturated by the time you’re ready to open a second unit. Sometimes you can avoid these problems by getting a written commitment from the franchisor giving you the right of first refusal to a nearby location that it plans to develop. It’s generally easier to get such a commitment from the newer franchise systems.
Franchise Systems
- On average, franchisors that choose multi-unit franchising as an
expansion strategy do so after they have been franchising for two-
and-a-half to three years.
- On average, franchisors that choose multi-brand franchising as an
expansion strategy do so after they have been franchising for
seven or more years.
- In single-brand franchise systems, slightly more than 56% of all the
multi-unit franchisees are concentrated in six industry categories –
Automotive, Fast Food, Personnel Services, Restaurants, Retail,
and Service Businesses.
- In multi-brand franchise systems, nearly 62% of all the multi-unit
franchisees are concentrated in three industry categories –
Lodging, Fast Food, and Service Businesses.
- The primary reasons given by franchisors for choosing multi-unit
franchising as an expansion strategy are:
• System Growth (22.6%)
• Reward for Good/Selected Franchisees (15.1%)
• Economic/Efficiency (14.1%)
• Franchisee Requests (14.1%)
• Market Penetration Strategy (10.4%)
• Miscellaneous (10.4%)
• Attract Potential Franchisees (7.5%)
• Easier to Manage Franchise System (4.7%)
Breakdown of single-unit and multi-unit franchisees
- 80.1% of franchisees in the study are single-unit franchisees
- 19.8% of franchisees in the study are multi-unit franchisees.
- Single-unit franchisees own less than half (47.4%) of all units.
- Multi-unit franchisees own more than half (52.6%) of all units.
- On average, multi-unit owners own 4.5 units.
Nearly three quarters (71.7%) of single-unit franchisees are from
single-brand franchise systems.
- Slightly over 28% of single-unit franchisees are from multi-brand franchise
systems.
- On average, multi-unit franchisees in multi-brand systems own
more units (5.83) than multi-unit franchisees in single-brand
systems (4.3).
Summary
While the vast majority (80.1%) of franchisees are single-unit owners, these franchisees account for less than half (47.4%) of all franchise units, and are more likely to be operating in single-brand franchise systems (71.7%). While just under 20% of all franchisees are multi-unit owners, they account for more than half (52.6%) of all units, and they average between 4.3 units (in single-brand systems) and 5.83 units (in multi-brand systems).
Results
1. The 145 franchise systems had a total of 33,878 franchisees and 57,262 units. Results are reported individually and combined for Single and Multi-brand Franchise Systems.
Chart 1 contains the results for franchiseesowning a single unit. Chart 1 shows that 72%
of single unit franchisees are from
Single Brand Franchise Systems and 28%
of single unit franchisees are in Multi-brand
Franchise Systems.
2. Overall, 80.1% of franchisees own only one unit. They own 47.4% of all franchised units. Multi-unit franchisees make up 19.9% of all franchisees and own 52.6% of the total franchised units.
Ownership characteristics have changed only slightly from the 1998 study by The Gallup Organization for the IFA. In the 1998 study, 78% of franchisees owned a single unit, the average franchisee owned 1.68 units, and the average multi-unit franchisee owned 4.27 units. In this study, 80% of franchisees own a single unit, the average franchisee owns 1.69 units, and the average multi-unit franchisee owns 4.46 units.
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