Franchisor Strategies for System Growth
by Ed Teixeira
Franchisors looking to grow their system can have a tendency to focus on a
single approach; namely selling more unit franchises. However, this strategy
should be adjusted, so that it’s not the only way to grow the franchise network.
In today’s current economic environment completing new franchise sales
continues to represent a challenge. Tight credit markets, soft consumer demand
and the apprehension of some people to invest in a new franchise represents the
root cause of this malaise.
When it comes to growing a franchise system, most franchisors stick to the
traditional practice of selling unit franchises. This becomes their only focus
for growing the franchise network. In many cases, franchisors find it difficult
to say no to a new franchise sale regardless of location. Look at some
franchisor website maps and you’ll often find single locations throughout the
country. Franchisors that follow this strategy can end up with mixed results. In
many cases there is an imbalance between adding new locations and increasing
existing franchisee sales, with new franchise sales receiving the bulk of the
focus and resources.
Here are Several Ways to Supplement Franchise System Growth:
Specific Markets: Focus on selling new franchises in specific
markets and be prepared to say “no” to a new franchisee that is
not in these markets and will result in a single franchisee. The
single isolated franchisee may have difficulty earning a profit.
Of course, no franchisor wants to pass up adding a new
franchisee and pass on the opportunity to receive a franchise
fee, however, in some cases the ends don’t justify the means.
There is a reason why top franchisors like Panera Bread or Dairy
Queen require a minimum number of locations to be opened before
committing to an open market. There are exceptions to every rule
and some franchise concepts are so unique that opening just one
location in a market won’t be a problem.
the Focus on Increasing Current Unit Sales: Franchisors can
direct some of their resources towards increasing existing
franchisee sales, referred to as organic revenues. It can be
productive to focus on introducing programs and products that
existing franchisees can use to grow sales. Selling unit
franchises in disparate markets where there is little
opportunity to gain brand recognition and market share might
generate initial franchisee fees and another pin on the map but
little else. The training department can be used to help
introduce and instruct on new products, services and sales
programs. Establish a committee of top franchisees and do some
brainstorming. Don’t be afraid to make adjustments to the
franchise concept. It may be easier to increase franchisee sales
than selling new franchises. Consider using a competent
franchise broker group to find prospects while the rest of the
team works with existing franchisees.
Current Franchisee Expansion: Identify successful and promising
franchisees that would qualify for additional franchises. Put
together financing packages that would encourage them to expand
and where there is a risk sharing between the franchisor and
franchisee. You could have more locations operated by fully
trained and successful franchisees.
Corporate Owned Locations to “Seed” a New Market: Consider
opening select corporate offices that could help establish a
market presence in a specific market or territory. The location
could eventually sell as a franchise. I interviewed a franchisor
that employed this strategy in order to expand to new markets
and the approach worked well.
marketing to Multi-unit franchise operators: Tweak your
franchise program so that you can grow your system by attracting
multi-unit franchisees. The area development concept adds
another layer to the organization and may not work for everyone.
There are individuals and groups that seek to own and operate
multiple locations, however, unless you have a Gold Standard
franchise opportunity you’ll need to adjust your program to
appeal to these prospects.
Franchisors should carefully evaluate their franchise growth strategy in
consideration of the current economic climate. Perhaps these new growth
strategies will continue to be utilized when better economic times return.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He
can be reached at firstname.lastname@example.org