Franchising enjoys a reputation as a reliable business model because, when executed effectively, it allows owners to scale their brands efficiently and cost-effectively.
Franchisees who have been successful with their initial locations may consider expanding their presence through multi-brand franchising. Multi-brand franchisees can maximize growth by diversifying their portfolio, reducing risk, and gaining operational efficiencies. By operating across different industries, they can also remain resilient in economic uncertainty.
Benefits of Multi-Brand Ownership
A franchisee with success operating a pizza concept might apply their knowledge to an ice cream chain. The franchisee could also explore opportunities in other sectors, for example through a home services brand, which would broaden the customer base and help expand knowledge of franchising. Let’s explore some benefits…
1. Diversify Supply Chains
By sourcing products and materials from various suppliers across different countries, operators can mitigate the impact of country-specific tariffs. This approach reduces reliance on any single market and helps maintain cost stability. There are also benefits to tapping into domestic markets, which we’ll discuss in #3.
2. Leverage Economies of Scale
Managing multiple brands allows operators to consolidate purchasing and negotiate better terms with suppliers, potentially offsetting increased costs due to tariffs. Bulk purchasing and long-term contracts can lead to more favorable pricing. Multi-brand operators can leverage shared resources such as staff, real estate and supply chain to lower costs and maximize profitability.
3. Implement Strategic Pricing
Adjusting pricing strategies across brands can help absorb additional costs. Operators might consider value-based pricing or introducing premium offerings to maintain margins without alienating cost-sensitive customers.
Harkening back to point #1, increasing the use of domestically sourced materials and products can lessen the impact of international tariffs. Even if this leads to higher costs, it can be marketed as a commitment to local economies, potentially attracting customers willing to support such initiatives.
4. Enhance Operational Efficiency
Streamlining operations by sharing resources such as marketing teams, administrative support, and logistics across brands can reduce overhead costs, helping to counterbalance tariff-induced expenses.
With evolving consumer preferences and economic uncertainty, having multiple brands allows operators to pivot more easily to trends like automation, AI-driven customer experiences, or sustainable business models.
5. Strengthen Customer Loyalty Programs
Robust loyalty programs can encourage repeat business, providing a steady revenue stream that helps buffer against market fluctuations.
Running complementary brands – such as a fitness franchise and an organic food restaurant – allows for cross-marketing opportunities that boost customer loyalty.
Tips For Avoiding Conflict Between Brands
Managing multiple franchisor relationships requires a thorough review of all contracts to identify potential conflicts or restrictions.
Three key issues to negotiate include:
- Non-compete provision. For multi-brand developers, typically, it is preferable to have a narrowly written non-compete so that any future brands the developer may want to purchase the rights to are not deemed competitive.
- Non-disclosure and confidentiality covenants. This is an essential provision in the franchise agreement. However, the clause should be reviewed carefully to ensure it is not so restrictive that developers cannot take advantage of shared resources (HR, accounting, etc.) and buying power across their brands.
- Personal compliance. While franchisors usually require the owners of the developer to personally comply with a non-compete or confidentiality provision, this may not make sense because multi-brand developers are often franchisee groups, large companies or private equity firms. As a result, the non-compete and confidentiality provisions should be limited to those owners who are active in the developer’s business or who will have access to the franchisor’s confidential information.
Learn more about the benefits of multi-brand ownership in this video and in our Lusthaus Law’s complimentary e-book, A Guide to Multi-brand Franchise Expansion.
Lusthaus Law Can Help
Though multi-brand franchise development offers many advantages and access to larger consumer markets, it also raises unique concerns. If you are considering such an arrangement, you should seek experienced legal and financial advice to determine whether it is the best way to accomplish your business goals.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path toward your franchise’s successful future.
