Are You Ready for Multi-Unit Growth?
If you want to expand, then you need to make sure you have the right brand and the right team behind you.
By Kevin King, Smoothie King
Multi-unit ownership is an attractive business model for proven franchise systems and capable franchisees alike. It presents a great opportunity to maximize brand awareness and return on investment while developing a lucrative business operation in a controlled, designated area.
From a franchisor’s perspective, the question is not if multi-unit expansion is a profitable partnership, but rather when does it become one? After all, multi-unit development is only an advantageous avenue to pursue if it’s done strategically and responsibly. Like a lot of things, multi-unit growth is about timing and finding the right fit.
Finding the Right Time
Before franchisors can begin thinking about multi-unit growth, they must ensure their system is prepared to support multi-unit owners. It’s imperative to analyze the situation as objectively as possible and ask yourself if you have a replicable business model. Can the success that transpired from opening a few stores be repeated on a larger scale? To go after experienced multi-unit investors, you must demonstrate success with the franchisees you’ve started with and boast healthy unit-level economics.
Take food cost for example. As a concept in the food and beverage industry, success on a multi-unit scale is dependent on managing tricky overhead costs like food inventory. That’s why we emphasize simplicity — in both our ingredients and how they’re prepared. We focus on serving only smoothies and optimize the little-required ingredients we do need to make them.
Additionally, we’ve invested in an integrated, user-friendly POS and recipe management system that clearly indicates what and how much of each ingredient needs to be used. Universal measuring cups ensure accurate portion sizes and similar taste experiences across the system. This also significantly limits waste and chance of error for employees, who are left with little-to-no uncertainty — everything is spelled out for them.
The ability for franchisors to efficiently manage costs via well-designed systems puts them in the best position to generate good unit-level economics. In turn, simplified and healthy systems translate into a scalable operation that will attract multi-unit investors. Finding the right time means being proactive as the franchisor — building, implementing and refining the systems necessary for supporting multi-unit growth and capitalizing when those candidates come along.
Finding the Right Fit
With profitable, proven systems in place, the next step is to determine who’s genuinely interested in your brand and growing with it. Ideally, it will be candidates that align seamlessly with what you’re trying to accomplish. For example, when we made the decision to roll out our Clean Blends initiative last year — a commitment to blend more nutritious smoothies containing more whole fruits and vegetables and no artificial preservatives, flavors, colors or other unwanted ingredients — it directly underscored our mission and vision. As one could imagine, though, this resulted in significant menu updates and a slight increase in food costs across our system.
While this was a purpose-driven initiative backed by significant consumer research and guest feedback, not all franchisees were necessarily sold at first. Those that experienced the greatest sales increase, however, were the ones that bought in right away. Passion for and alignment with the brand and its direction motivated franchisees to invest in Clean Blends more quickly. They understood the short-term increase in food cost would, ultimately, produce higher sales and greater returns over the long term. That’s not to say we aren’t continuing to refine our menu and working with franchisees to keep costs low and morale high. This example just goes to show the benefit of having owners who are advocates for your brand.
After finding a prospect that’s emotionally invested in the brand, you must ensure they can financially invest in a multi-unit operation as well. There are three qualifications franchisors should be looking for. The first is capital. Do these prospects have the resources, or the ability to get the resources, they need to build multiple stores? It’s important to recognize early on if this candidate has accumulated and saved enough capital to build store number two, three, four and so on.
The second piece is determining whether or not they’re growing that wealth and currently making money. Are they on an identifiable path to profitability so it’s clear they can support and sustain the development of a multi-unit operation? Finally, do they have the team in place? Do they have someone who can run the first store while they take time and effort to work on the next store? If prospective multi-unit franchisees struggle to present feasible plans for all three, it can result in a tense relationship from the start.
Whether you’re a nationally-recognized brand like Smoothie King or an emerging franchise concept, successfully growing your system with multi-unit owners comes down to two general requirements: finding the right time to pursue multi-unit growth based on the establishment of proven, replicable systems that have produced healthy unit-level economics; and finding the right candidates to invest in both your brand and business.
Kevin King serves as the Chief Development Officer for Smoothie King. Find out more about Smoothie King here.