Understanding Multi-Unit Franchises and How to Manage Them Successfully
It’s common for someone starting in restaurant franchising to begin with just one location. Buying into a franchise or franchising your own business can be a smart decision, but it does come with some risks. It often requires a large amount of time and money. Jumping into owning more than one location right away isn’t the best choice for everyone, especially if you’re new to the restaurant business.
Owning multiple franchise locations can help your business grow faster, but only under certain conditions—if you have enough experience, if you’re working with a strong and trusted brand, and if you have the right resources to support your growth. Moving from managing one location to managing two, three, or even ten means you’ll need to make major changes in how you run your business. You’ll need to adjust your management team, staff, operations, and even your role as the business owner.
If you’re thinking about growing your business by owning multiple franchise locations, here’s what you need to know.
What is a Multi-Unit Franchise?
A multi-unit franchise model allows a franchise owner to run more than one restaurant in a certain area.
In some cases, a franchisee may run several locations of the same brand. In other cases, they may manage different restaurants from various franchise companies. For example, Guillermo Perales, the CEO of Sun Holdings in Dallas, operates over 1,000 stores, including 293 Burger Kings, 150 Popeyes, 94 Arby’s, and 18 Krispy Kreme shops.
But being a multi-unit franchisee doesn’t mean you have to own hundreds of locations. Right now, 54% of all franchises are part of multi-unit operations, while 46% are owned by single-unit franchisees. Looking closer, 30% of franchisees own between two and 30 restaurants. Only 5.3% of franchisees own more than 100 locations.
If you run more than one location, you are considered a multi-unit franchisee.
How Does a Multi-Unit Franchise Work?
Multi-unit franchises involve growing from one location to two or more. When this happens, the franchise owner usually takes on more of a leadership role in the business. Instead of running each restaurant day-to-day, they focus on managing the business as a whole.
Most multi-unit franchise owners visit each location from time to time to check on performance and talk to staff. However, they usually hire experienced managers to oversee the daily operations at each site or across several sites.
What Are the Benefits of Being a Multi-Unit Franchisee?
Multi-unit franchising has become more popular among restaurant owners in recent years. From 2010 to 2018, the number of new multi-unit operators grew by 23%. There are several reasons why this approach appeals to business owners:
- Higher Income Potential: More restaurants mean more chances to earn money, especially if you expand into different brands.
- Lower Operating Costs: As you open more locations, you can share certain services like accounting, marketing, and operations across all locations. This helps reduce your overall costs.
- Spreading Risk: If one location experiences problems, such as construction that keeps customers away, your other restaurants can help balance out the loss.
- Stronger Brand Relationships: Franchisors rely on franchisees to succeed. The more locations you open, the more you strengthen your relationship with the franchisor. When you do well, the brand benefits too.
What Is a Multi-Unit Franchise Agreement?
Franchise owners can grow in two ways: by starting with one location and adding more over time, or by signing a multi-unit franchise agreement from the beginning. This agreement outlines the roles, responsibilities, and expectations of both the franchisee and the franchisor.
When you sign a multi-unit franchise agreement, it covers several important points:
- How You Will Expand: The agreement explains whether you will be opening new locations or taking over existing ones, and how those sites will be chosen and approved. This is part of what’s called an area development agreement.
- Opening Timeline: Most agreements include a schedule that lays out when each new location should be opened, often on a yearly basis.
- Your Territory: The franchisor gives you a specific geographic area where you can operate. Some franchisees work in more than one area, but most focus on one region at a time.
- Use of Brand Materials: This includes things like menus, brand colors, marketing tools, and training materials. Many fast-food franchise agreements do not allow changes to recipes or menu items.
- Profit, Fees, and Insurance: The agreement explains how profits are shared, what annual fees you’ll pay to the franchisor, how pricing is handled, and what kinds of insurance and other operating costs are required.
By law, franchisors must give you at least 14 days to review any multi-unit franchise agreement. It’s important to read it carefully and go over it with a legal expert before making a decision.
Types of Multi-Unit Franchise Agreements
There are two main kinds of agreements for multi-unit franchising:
- Area Development Agreements: This is the more common type. It gives the franchisee the right to open a set number of units in a specific area over time.
- Area Representative Agreements: This type allows the franchisee to act like a sub-franchisor. They can open their own locations and also sell franchise rights to others within that territory.
When you run multiple franchises, your focus shifts from the daily tasks of a single restaurant to managing your business as a whole. If you’re thinking about growing your franchise business, consider how many locations you want to open, which brands you want to work with, and what type of agreement fits your goals best.
