Thought Leadership | The growing trend of multi-unit franchise ownership
While a single store might once have provided a comfortable living for an entrepreneurial franchisee, today’s constrained economic environment is increasingly pushing operators towards multi-unit ownership, and the franchise sector is becoming more consolidated as a result.
Escalating wages, soaring energy costs, and general inflation have created an environment where single-store operations often struggle to generate meaningful returns. Rising operational costs are eating into profit margins across the board, and franchisees are discovering that the traditional single-unit model doesn’t always provide the financial cushion needed to weather economic storms or build wealth.
If judged correctly, the economies of scale achieved through operating multiple locations create opportunities for genuine wealth creation. Fixed costs can be spread across a broader base. Group services such as centralised accounting, bulk purchasing power, and shared management structures all contribute to improved profitability. Some operators even establish mini distribution centres, centralising their warehousing to gain logistics efficiencies and additional margin through bulk buying.
The operational benefits multiply with each additional unit. Best practices developed in one location can be rapidly deployed across others. Staff can be rotated between stores to cover shortages or share expertise. Resources like mobile generators can serve multiple locations during power outages or loadshedding. Even negotiations with landlords become more favourable when you’re discussing multiple properties rather than a single lease.
From the franchisor’s perspective, this trend towards multi-unit ownership solves several pressing challenges. Finding suitable franchisees has become increasingly difficult, particularly when new operators need to meet substantial capital requirements. By focusing on existing, proven franchisees for expansion, franchisors reduce their risk significantly; they’re working with operators who understand their systems, share their values, and have demonstrated success. This approach also proves more cost effective than managing numerous single-unit operators, each requiring individual support and oversight.
Interestingly, some of the most successful multi-unit operators don’t limit themselves to a single brand or even a single sector. By diversifying across complementary businesses, they create portfolios that can weather sector-specific downturns. A quick-service restaurant paired with a retail operation, for instance, provides balance when consumer behaviour shifts between eating out and home consumption.
The ownership structures for multi-unit operations vary. While some are consortium-based, many successful multi-unit operations remain family businesses, particularly among established brands. Joint-venture models are becoming increasingly popular, allowing operators to spread risk while combining financial resources with operational expertise.
The transition to multi-unit ownership may be tempting but is not without its challenges for franchisees. Time management becomes more complex when overseeing multiple locations. Franchisees must learn new skills, shifting from hands-on operations to strategic management. Cash-flow pressures intensify, particularly in businesses with significant stock requirements. Managing a workforce that might number in the hundreds across multiple locations requires sophisticated human resource capabilities that many single-unit operators haven’t previously needed to develop.
Geographic concentration can also present unexpected difficulties. Stores located near each other might fall within the same loadshedding area, eliminating the diversification benefits during power outages. The complexity of issues multiplies with each additional unit, and we’ve seen cases where successful operators of one or two stores have stumbled badly when expanding too quickly, losing not just their new acquisitions but damaging their original profitable operations in the process.
For franchisees considering multi-unit ownership, it is critical to prepare thoroughly and to proceed with caution. Start slowly, ensuring comfort with each additional unit before pursuing further expansion. Conduct rigorous due diligence on any potential acquisition, looking beyond surface-level financial projections to understand the operational realities. Ensure that your cash flow is sufficient to support not just the acquisition but the ongoing operational needs of an expanded portfolio.
Fortunately, financial institutions are recognising and responding to this trend with offerings tailored to the needs of franchisees considering expansion. Rather than requiring the traditional cash contribution for each new store, FNB now allows existing profitable operations to serve as collateral for expansion, simplifying the application process and providing greater flexibility. Additionally, recognising that even profitable expansions can create temporary liquidity pressures, FNB offers cash-flow assistance designed specifically for the unique challenges of managing multiple units.
For those willing to embrace a challenge while carefully managing risk, the multi-unit franchise model offers a path to building a substantial business enterprise. Success requires careful planning, measured growth, and access to appropriate financial support, but for many franchisees, it is a viable route to long-term prosperity in an increasingly challenging economic environment.