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Franchisor Strategies for System Growth

By Ed Teixeira

Franchisors looking to grow their system can have a tendency to focus on a single approach; namely selling more unit franchises. However, this strategy should be adjusted, so that it’s not the only way to grow the franchise network.

In today’s current economic environment completing new franchise sales continues to represent a challenge. Tight credit markets, soft consumer demand and the apprehension of some people to invest in a new franchise represents the root cause of this malaise.

When it comes to growing a franchise system, most franchisors stick to the traditional practice of selling unit franchises. This becomes their only focus for growing the franchise network. In many cases, franchisors find it difficult to say no to a new franchise sale regardless of location. Look at some franchisor website maps and you’ll often find single locations throughout the country. Franchisors that follow this strategy can end up with mixed results. In many cases there is an imbalance between adding new locations and increasing existing franchisee sales, with new franchise sales receiving the bulk of the focus and resources.

Here are Several Ways to Supplement Franchise System Growth:

Target Specific Markets: Focus on selling new franchises in specific markets and be prepared to say “no” to a new franchisee that is not in these markets and will result in a single franchisee. The single isolated franchisee may have difficulty earning a profit. Of course, no franchisor wants to pass up adding a new franchisee and pass on the opportunity to receive a franchise fee, however, in some cases the ends don’t justify the means. There is a reason why top franchisors like Panera Bread or Dairy Queen require a minimum number of locations to be opened before committing to an open market. There are exceptions to every rule and some franchise concepts are so unique that opening just one location in a market won’t be a problem.
Increase the Focus on Increasing Current Unit Sales: Franchisors can direct some of their resources towards increasing existing franchisee sales, referred to as organic revenues. It can be productive to focus on introducing programs and products that existing franchisees can use to grow sales. Selling unit franchises in disparate markets where there is little opportunity to gain brand recognition and market share might generate initial franchisee fees and another pin on the map but little else. The training department can be used to help introduce and instruct on new products, services and sales programs. Establish a committee of top franchisees and do some brainstorming. Don’t be afraid to make adjustments to the franchise concept. It may be easier to increase franchisee sales than selling new franchises. Consider using a competent franchise broker group to find prospects while the rest of the team works with existing franchisees.
Facilitate Current Franchisee Expansion: Identify successful and promising franchisees that would qualify for additional franchises. Put together financing packages that would encourage them to expand and where there is a risk sharing between the franchisor and franchisee. You could have more locations operated by fully trained and successful franchisees.
Open Corporate Owned Locations to “Seed” a New Market: Consider opening select corporate offices that could help establish a market presence in a specific market or territory. The location could eventually sell as a franchise. I interviewed a franchisor that employed this strategy in order to expand to new markets and the approach worked well.
Consider marketing to Multi-unit franchise operators: Tweak your franchise program so that you can grow your system by attracting multi-unit franchisees. The area development concept adds another layer to the organization and may not work for everyone. There are individuals and groups that seek to own and operate multiple locations, however, unless you have a Gold Standard franchise opportunity you’ll need to adjust your program to appeal to these prospects.

Franchisors should carefully evaluate their franchise growth strategy in consideration of the current economic climate. Perhaps these new growth strategies will continue to be utilized when better economic times return.