Multi-Unit to Multi-Brand

March 14, 2019

Five questions to ask before adding even more to your plates.

By Dan Markel

For multi-unit franchisees with well-established concepts, hard-earned success can often lead to growth challenges – including a lack of available territories, expansion roadblocks and fewer operational opportunities to develop new food offerings that excite customers. When savvy multi-unit operators reach a plateau, they should consider it a call to action to diversify their portfolios, grow their companies and re-energize their operations by adding new brands.

While on the surface, an emerging concept may have more risk than a well-known brand, experienced, entrepreneurial-minded, multi-unit franchisees are at a distinct advantage to adopt an early-stage brand. They can not only apply their business acumen, market knowledge and creative energy to an emerging concept – they often have a chance to work collaboratively with the brand’s leadership or franchise development team to make recommendations that help shape processes and best practices. These factors combined can contribute to a ground-floor prospect, developing a brand with a strong growth trajectory and unlimited potential. So, how does a franchisee go about finding the right emerging concept opportunity for his or her business?

In the fast-casual restaurant arena, there are lessons to be learned for any multi-unit franchisee evaluating new growth opportunities and weighing the investment in additional brand concepts. For example, the saturation in the burger, pizza and sandwich markets create significant barriers to entry for new concepts. Too many proven brands and too many fly-by-nights have a real shot at success, whereas savvy multi-unit franchisees can seek out emerging – and scalable – concepts with the potential to break through the noise.

I have been very fortunate to be associated with Jersey Mike’s for more than six years. It is a fantastic brand with an inspiring founder, Peter Cancro, and I look forward to adding additional locations (either through acquisition or new locations that open up with the company’s phase of infill expansion). But in seeking “blue oceans” of growth opportunity with a complimentary brand, I recently committed to a 100-unit development agreement for The Hummus & Pita Co., the largest and fastest growing Mediterranean concept in the U.S. Based on my experience, here are five key questions for franchisees to consider when evaluating the potential of an emerging concept:

Question 1 - Is this the right brand, at the right time?

Seek out categories that are on-the-rise, but under the radar, and use historical or trend data as indicators for success. For example, while Mediterranean food is growing in popularity, it hasn’t yet reached the powerhouse status of pizza or burgers. Mintel’s 2018 U.S. Flavor Trends report found that 66 percent of U.S. consumers are interested in Middle Eastern foods at restaurants, and Middle Eastern cuisine on U.S. restaurant menus grew by 32 percent between 2015 and 2017. With thousands of years of popularity around the world, Mediterranean has never had a leading brand that honored all ethnicities with a slightly Americanized touch so as to broaden the appeal across all demographics.

Question 2 - Are there real estate and pairing opportunities?

For brick-and-mortar businesses, a franchisee looking to open a familiar concept in a popular retail destination will likely encounter binding, non-compete barriers. In contrast, emerging categories rarely compete with other chains in popular retail destinations. Multi-unit franchisees also have an opportunity to revisit highly profitable retail destinations without facing exclusivity conflicts. Diversifying brands can also provide pairing opportunities, such as having two or three complimentary concepts in the same shopping center. This allows a multi-unit franchisee to optimize their bench of successful operations teams and draw upon their knowledge of an area’s local real estate, developments and zoning requirements.

Question 3 - Is there a strong ROI?

In addition to closely evaluating the financial realities of a franchise investment, consider the intangible benefits that the brand’s leadership team and development partners will bring to help impact the bottom line. Look, and ask, for benefits that add value, build operational efficiencies and offer support as part of the same fees and royalties a franchisee would normally pay. If timed correctly, investing in the right emerging concept at the right time means you will have a longer “prime time” in the cycle. Emerging brands tend to have higher sales volumes, a faster ROI and better prime costs (because there is less competitive price pressure). Reinvesting free cash into more successful units means compounding the investment in a way that cannot be achieved with a more mature brand. It is the ultimate “by low, sell high” scenario, as multi-unit operators can operate like real estate developers by adding units and locations that increase cash flow and assets that can be sold in an exit strategy.

Question 4 - Does it help diversify my business portfolio?

Diversification is the key to successful investing, and emerging concepts can help franchisees strike a balance when market factors impact business. Fransmart CEO Dan Rowe says it best: “Like any good stock portfolio, multi-unit franchisees should have a diverse spectrum of mature and new brands. The key is to invest – and sell – a concept when it reaches its prime.”

Question 5 - Does the brand have “crave-able” staying power?

Seek out concepts that can grow and evolve with time, and whose leaders demonstrate a commitment to excellence and innovation early on. Regardless of the industry, determine if the brand fills a specific void or satisfies the cravings or needs of a variety of customers. In the restaurant space, for example, seek out a diverse, approachable menu with healthy, fresh food and seasonal specialty items that appeal to a wide customer base. Having a nimble menu allows a restaurant concept to evolve to match regional tastes and the latest flavor trends. This also speaks to attracting influential groups like millennials, who are more interested in new, innovative, healthy food and unique flavors than older generations. According to Technomic’s 2018 Generational Consumer Trend Report, 64 percent of millennials say they enjoy trying new flavors, and 44 percent would like to see more ethnic options at restaurants.

With the opportunity to take part in explosive growth potential early-on, multi-unit operators should plan for the long term and invest in emerging concepts with unlimited potential.

Dan Markel is currently working with Fransmart, the development group behind the success of Qdoba and Five Guys, to franchise emerging Mediterranean concept The Hummus & Pita Co. across California. He is also one of the top-performing Jersey Mike's franchisees.