Survival Mode: Tactics to Grow in 2022 and BeyondJun 01, 2022
(Part 8 of the 2022 Multi-Unit Franchising Conference)
For the last eight weeks, I’ve been reviewing what I experienced during the 2022 Multi-Unit Franchising Conference. To close up this blog series, today I’m sharing particular tactics that four successful multi-unit franchisees are implementing to grow their organizations and their portfolio.
The best part is that you too can take these actionable to increase the revenue of your business not only in 2022 but beyond!
Donna Lafreeda, Denny’s multi-unit franchisee
She operates over 80 restaurant units in multiple states. She is focused on growing her organization with this single brand, and her current goal is how much cash flow she can get out of her business.
One of the things she looks for is to take out language that makes it difficult to sell any unit that she acquires, in either a franchise agreement or a lease agreement, because you never know what's going to happen with the area, the location, or even your plans.
She advised business owners to work through that with the landlord and the franchisor, assuming the franchisor approves transfers or sales. This will help you get out of the lease if you can then sell based on that.
Another tip she gave is to have land control. This is one of her primary concerns right now, even so, that her franchise business is just as valuable as her real estate business. She is very focused on this because, thinking long-term, if she decides to sell the units, she’ll still own the property, and therefore, the leases would give her the cash flow she needs for her retirement.
Of course, having the banking loans and access to capital to complete this mission is a challenge right now. It may change soon, but you have to be aware of that if you decide to take this land control.
By being in a single brand for many years, she has learned that the franchise leadership team can drive you to success or drive you down the cliff. So she urged franchisees who are exploring potential brands for growth to look into who the leaders are, their kind of culture, performance, and relationship with the franchisees.
She also mentioned that the secret to her success is having the ability to provide her team members with growth opportunities. If you want to retain and attract great people, keep a positive culture and environment, and the staffing levels that you need, you have to be growing, she said.
Donna also highlighted how business owners should be aware of their cost of goods increase. Inflation is going to be a challenge, so you have to adjust accordingly, whether it is increasing your prices or adjusting other areas so that you can protect your bottom line.
Eric Danver, ex Papa John’s franchisee
He sold all of his pizza restaurants and acquired the Hand & Stone Massage franchise, which he has been growing with it ever since.
The reasons behind his divestiture are many. For once, his perspective is that it’s easier to hire in this new brand, hence, have a better labor force or, at least, a less challenging one. Another thing he mentioned is that he wanted to have control of the market and by operating the beauty brand he was able to protect the market and ensure he could grow at the speed and the length that he wanted.
This is a very important matter. Those of you that are considering growing and becoming multi-unit should know that having the negotiation of controlling a market is critical. Other franchisees in your area may have captured markets and the only way you'll be able to grow is by going to other cities and even other states. This means that your operations won’t be as effective and efficient as you as they could be if you had all your units close by.
This is also one of the reasons why looking for emerging brand opportunities is an intelligent growth tactic. And for a long time, people selected big and mature, but becoming a multi-unit operator in those brands is more challenging because the areas are already taken. That’s where the big opportunity comes with emerging brands.
Eric also reminded the audience that if you go for the acquiring strategy you have to be aware that there will be capital expenditures. This means that usually, people that are looking to sell don’t keep their locations in tip-top condition.
His advice is to negotiate with the landlord, especially when it comes to expenditures of repair and maintenance so that you don't end up with those big surprises as you're taking over the business.
Nate Garn, MUMBO
A multi-unit multi-brand franchisee (MUMBO) who operates over 180 units from Little Ceasars, Dunkin’ Donuts, Red Robin, Wing Stop, and Jersey Mikes.
One of the things that you should know if you are new to the franchise world is that in the franchise agreement there are certain requirements for remodeling either every five, eight, or even three years, depending on each brand.
If you're acquiring a franchise, Nate recommended finding out how far you are from that commitment to remodeling because when the time comes, you're going to have a huge capital expenditure that you may have not considered.
As well as Eric, this MUMBO also recommended to do acquisitions of newer brands, because they want to grow their market in the long term. But he warned that, from his point of view, acquisitions usually end up becoming high capital expenditure investments. They can still be a good investment but you have to make sure that you do your due diligence and find that out.
He also advised that you are very knowledgeable of what happens with the lease terms and everything that you are acquiring and taking over because there might be an opportunity for you to renegotiate to have a better return on your investment. The likelihood of getting another lease is high but not guaranteed.
And, another one of the coincidences he has with Donna, is that he has a very cash-flow focus. This means that every unit he acquires has to give his organization a certain minimum amount of cash flow, cash, and cash return so that they can be successful and accomplish their business goals.
Roland Spongberg, MUMBO
A multi-unit multi-brand franchisee from El Pollo Loco, Wendy's, Denny's, Krispy Kreme, and Blaze Pizza, with over 380 units.
Continuing with the topic of remodelings, this MUMBO talked about the need to ask the franchisor is what is the expected return on investment of those remodelings. Many factors influence, for example, how much due diligence and care the brand did on defining what the remodel should be, why it should be that way, and how much is being spent on what.
Remodelings are part of the business and you’ll have to invest. But I tell you: having seen those processes firsthand, they do pay off and will give you increased revenue and result.
Something else that is shared is that the expansion should be driven by unit economics. For them, knowing what is the unit economics of a particular package and understanding what the business is, helps them know whether they can improve upon that existing unit economics. If so, they will not only get a good deal but have better returns than the average franchisee.
He also advised franchisees to consider delivery when choosing locations, meaning that they have to make sure that there's a spot for the delivery persons to come in and out easily to service customers.
I agree with him, the delivery channel could be tremendous! Having worked almost 20 years at Domino's Pizza, I understand the power of delivery. But if you don't have a space to accommodate those delivery drivers and make sure you provide excellent service, you may be hurting your business when it comes to growth and revenue.
One thing that this MUMBO does differently than the other panelists is looking at market-wide opportunities. Roland is a little bit more risk-averse and he doesn’t like to introduce new brands to the market, not knowing whether they’ll be successful or not.
But what he agrees with his peers is to own as much land as possible. He even said that he'd rather go slower but own the real estate because, like Donna, he wants a franchise business as well as a real estate business. That way, he can ensure a long-term cash flow for himself and his business.
As a final comment of this session, I want to highlight that none of the franchisees mentioned being apprehensive about the country’s growth. The acceleration that the franchise world has experienced in the last two years has been tremendous, and it doesn't seem like it's going to slow down because people are excited about the opportunities. What this has done, though, is make people smarter about how and where to grow.
I hope you enjoyed the 2022 Multi-Unit Franchising Conference blog series. Give us a thumbs up on Facebook, Instagram, and LinkedIn, and subscribe to our YouTube channel to see videos and get resources, best practices, and business tips like these to help you become a successful franchise business owner.
- Are you providing your team members opportunities to grow along with your organization?
- Are you aware of the lease terms and the franchise agreement terms of the brand you chose to grow with?
- Would you rather grow with a mature brand or an emerging brand?
- How are you protecting your bottom line?
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