Growth comes in many forms. Whether you are a franchisor who wants to broaden your presence in a particular market, or a franchisee who is ready to develop more than one location, multi-unit expansion might be the best way to accomplish your goals. Let’s look beyond the initial single-unit franchise offering and discuss the most common options for new multi-unit operators.
Franchise Areas Poised for Growth
The business owner who wants to expand in 2023 will have demonstrated success in the market, or is ready to tap into a sector or geographical area expected to grow.
Industries that thrive during a recession are those delivering products or services that people will pay for even when times are tight. Franchise Direct’s 2023 Top 100 Franchises Report features some of the top performers in the industry. The report based its rankings on 2022 performance and focused more on how prospective franchisees evaluate the opportunities before them. Some of the sectors represented in the list include cleaning services, nursing and senior care, fast food, child care and pet services.
Three of the five top franchises in the 2023 report were in food retail (#1 Chik-fil-A, #4 McDonald’s, and #5 Wendy’s), with the UPS Store and Ace Hardware respectively in the #2 and #3 spots.
Dining and takeout, shipping and home and business repair cater to the public’s necessities and have proven to be some of the more reliable concepts in franchising. Franchisors and franchisees who operate historically strong concepts should seek options for multi-unit expansion.
Method of Expansion
If you are ready to operate more than one franchise unit, consult your NY franchise lawyer to begin the dialogue and negotiation. Generally, there are three types of multi-unit arrangements:
Area Development Agreements – This is the most common form of multi-unit development. Here, the franchisor grants a franchisee (or developer), the right to develop a predetermined number of franchises within a specific area and pursuant to a specified schedule. The benefits for the developer include the fact that they will have a protected area within which to develop franchises over time. They will not have to worry about other franchisees opening in the protected area.
The franchisor benefits from multi-unit development because it has fewer franchisees to manage and receives some compensation upfront in consideration for holding the territory for the area developer. This dynamic can be complex, and is a key reason franchisors and franchisees should consult with their NY franchise lawyer before advancing the dialogue of multi-unit expansion into an actionable plan.
Area Representative Arrangements – In this scenario, the franchisor is selling single-unit or multiple unit franchises to one category of franchisee. But they also offer representative franchises, in which the area representative buys a franchise for the right to provide franchisees presale and post-sale services that the franchisor would otherwise furnish to franchisees in a particular territory.
Area representatives do not enter into franchise agreements with unit or subfranchisees. Their rights are limited to recruiting franchisees and providing certain services (e.g., training, ongoing support, etc.). The franchisor will execute the franchise agreements with the unit franchisees.
Master Franchise – This strategy is used when, for example, the franchisor is a foreign company or unfamiliar with a particular region or market and wants to grant someone local the ability to sell and oversee franchises in a designated territory. The master franchisee recruits and contracts with subfranchisees and provides training and ongoing support. The franchisor benefits from having the subfranchisor assume the risks and obligations of supporting local franchisees.
Multi-Unit Expansion Is Serious Business – Contact Lusthaus Law
All parties need to understand how their rights and obligations may differ in multi-unit operators franchising. Credible legal advice in negotiations is essential, particularly with respect to issues such as territory protections, royalties and fees, opening schedules, and liability among other concerns.
Even the most sophisticated multi-unit operators run the risk of misinterpreting their franchise and development agreements. Contact Lusthaus Law to ensure your rights are protected, and for further insight download our free e-book, A Guide to Multi-Brand Franchise Expansion.