What is Multi Unit Franchising?

What are multi unit franchises and what is an area development agreement with examples

Retail and Multi Unit Franchises

What is a Multi Unit Franchise?

When it comes to franchising, the most common scenario will be opening up single units. A single unit is considered as an individual outlet and traditionally this will be the route which most investors will choose. When you think about investing in a franchise, your first thought will likely be a single unit. But did you know there are other options when it comes to investing in a franchise? One of these options is Multi Unit Franchising.

What is a Franchise?

If you’re new to the concept of franchising, we’ll go over the basics. A franchise is a system where the owner of a business will license out the rights to trade as their business, to investors – entrepreneurs who want to run the business in their own area. In this context, the business owner is known as the franchisor, whilst the investor is known as the franchisee. The franchisee will have several of many reasons to invest. One of the biggest reasons for investing in a franchise is the opportunity to become a business owner whilst minimising many of the risks associated with starting up alone. The franchisee might become a single unit franchisee or a multi unit franchisee.

What is Multi Unit Franchising?

A multi unit franchise is where the franchisee will open up multiple franchises within a territory rather than opening one individual unit. Depending on the multi unit franchise agreement, there are a number of ways the franchisor can expect the franchisee to carry out the multi unit franchise.

One of the ways is through an area development agreement. An area development agreement is where the franchisee will agree to open up a certain number of units within a given timescale. The advantage of an area development agreement is you can pack a greater punch, especially when there is a lot of competition. You’ll have an overwhelming effect, disrupting the market and local competition. Beneficially for you and your clients, having multiple units open in quick and close succession, if not at the same time, gives them better reach and access to your services over competition.

Another type of multi unit franchising is through a sequential agreement. This differs from an area development agreement in that the franchisee will open units in succession rather than developing individual units at the same time. With a sequential agreement, there will be more financial flexibility because the franchisee can open units as and when funds permit. This is advantageous over an area development agreement because with the former, there will be a lot of immediate cost.

Pros and Cons of a Multi Unit Franchise

The advantage of a multi unit franchise is a more effective launch of a product or service in an area. If competition already exists, opening up multiple units in an area can have more of an impact. By having multiple units in a small area, you can order products and services in bulk which will ultimately work out cheaper than buying individually.

On the other hand, multi unit franchising can have some disadvantages. The most obvious being the initial cost. You’ll need to set up multiple companies and or purchase multiple licenses, plus you’ll need to be sure there is enough demand for operating multiple units. Multi unit franchising won’t work with every type of franchise. Because in many scenarios, a home based or van based franchisee can simply recruit more workforce or add more vans to their fleet to cover a wider area.

What Other Options are Available?

In most cases, a single unit franchise will be enough. The most obvious example of a multi unit franchise would be a food franchise business. McDonald’s restaurants are a good example, you’ll often find multiple restaurants very short distances from each other. This works great because the demand is justified. Besides single and multi unit franchising, there is master franchising. This is where a franchisee purchases the rights to trade as the franchisor’s brand in a different country. The master franchisee operates similar to a franchisor in that they will profile and recruit franchisees in their own country.

Examples of Multi Unit Franchises

  • A card kiosk or card shop franchise might open up several kiosks or shops in a small territory to corner the competition and win customers. Having multiple units can help develop brand prominence.
  • A fast food franchise may open up multiple units to meet high demand or too, build greater brand awareness in a smaller timescale. An example being McDonald’s, who frequently have multiple units densely operated.
  • A Care Home franchisor might purchase multiple care homes and begin running them under the franchisor’s brand. This might be as a multi unit franchise agreement, where the franchisee operates multiple care home franchises.

An oven cleaning or windscreen repair franchise which operates multiple vans in a single territory would not be considered a multi unit franchise. The franchisee will usually own the rights to trade exclusively in that territory and it will often be the franchisee’s discretion to scale the business and run more vans and staff. Multiple franchisees will not trade in a single territory because franchisees are usually given exclusivity.

Discover Franchising With Franchise Planet

Multi unit franchising is a very intensive method of franchising. It involves a lot cost, time and research but done correctly it can be a very profitable way to build up a business career. However if you’re looking to start off smaller, there are some very affordable franchises out there. Some can be opened from less than £10,000. Take a look around Franchise Planet and discover a world of franchises.

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