5 Things You Should Know About Huge Franchise Systems
1. The Range of Franchise Sizes
Emerging brands are new franchises. Though they may be well-established businesses, they’re new to the world of franchising, and likely have one to 25 units. Because these brands are new, we want to make sure they’re set up for success – an FBA broker does this work with you, helping you ask the right questions so you can make smart investment decisions. We work to identify the pros and cons of the brand.
Partner franchises fall between 25 and 100 units. “They’re actually our favorite,” explains FBA Broker Amanda Ramirez, “because they’re not at the top of the bell curve yet, so there’s still a lot of opportunity for open territories.” However, she says, these brands already have an established track record, meaning the franchise buyer can often access financials from past years. There may also be room for negotiation – something that’s frequently not available for empire brands.
Plug-and-play franchises fall higher up the bell curve. While these franchises likely have less availability, they are also well-established franchise systems. For buyers that want ease, efficiency and existing processes and procedures, these may be a good option.
Lastly, explains Ramirez, empire brands move slightly down the bell curve. McDonald’s, Marriott, and Dunkin’ Donuts are just some of these brands: They have over 500 units and already have multi-unit owners and a strong development schedule. It’s very difficult for new franchisees to join these companies. Instead, you’ll want to identify good models that still have room for growth.
2. Understanding Hybrid Brands
Hybrid brands are a unique franchise model that may contain franchises at various stages, from emerging to plug-and-play. For example, one main company like the Neighborly brand owns 30 – 40 different individual brands. While these brands themselves may be in the partner stage, the model is well-established and offers the buyer a lot of support in operations, marketing and more. That means a less saturated market with the structures and organization of a major brand. “You really get the benefits of operating with a plug-and-play brand… but it’s still a newer model,” says Ramirez.
3. Bigger Is Not Always Better
Brands like McDonald’s with over 50,000 units often see higher failure rates of new franchisees. Why? “When you have [so many units], it’s very difficult not to become oversaturated or over-placed,” explains franchise attorney Eric Riess. “There’s not necessarily safety in a large system.”
4. Understanding Brand Value
While empire brands can be difficult to purchase, they also deliver a key benefit: brand value. Consumers are already familiar with the brand and know what they’ll get from it, whether that’s a comfortable hotel stay or a delicious burger and fries. “They’re not the best hamburgers in the world,” says Riess of McDonald’s, “They’re the most consistent hamburgers in the world.” The value of this fast food franchise, or any other empire brand, is not based entirely on their profits. Instead, the consistency and long-term brand value must also be factored in.
That said, brand value does not always mean a profitable franchise. It’s vital to ensure you’re not buying only into brand value but also into a system that will help you make money and be successful. While brand value should be part of your calculation, it shouldn’t overwhelm other considerations such as brand culture and operations.
5. The Power of Negotiation
When buying into a smaller brand, candidates have the opportunity to negotiate. For example, you may add a statement to your agreement that says the franchisor will not require the franchisee to sell products or services at a loss. This protects the franchise buyer against future changes the franchise may make or promotions that may benefit the brand as a whole but cost the franchisee money.
Hear more from Sabrina Wall on this topic here:
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