Posted by Elizabeth Gore-Jones
on 10 June 2015
Is multi-site franchising good or bad?
Firstly, multi-site franchising covers the scenario where a franchisee has more than one franchise within a franchise system.
It can be an easy way for a franchisor to more quickly expand the franchise system and the brand by granting further franchises to a current franchisee. It alleviates the need to expend time, effort and money in the training of a new franchisee and arguably reduces the infrastructure required as the franchisor will be supporting fewer franchisees albeit with a number of franchised businesses.
The franchisor is also given certain comfort in the knowledge that the franchise is being granted to a proven franchisee (presuming you wouldn't grant a further site or sites to a defaulting or poorly performing franchisee). This takes away what, can sometimes come down to, a guessing game when appointing new franchisees and hoping for the best.
So what are the downsides for a franchisor? I have seen a franchisee obtain a lot of power within a franchise system by holding a number of franchised sites. If a franchisee holds say 5 or 6 sites they have more say within the system and can be very influential upon other franchisees. Other franchisees can view them as "the way things should be done" and may follow their lead or say so rather than that of the franchisor. This can be especially so if the franchisor has held out the multi-site franchisee as the poster boy/girl for the franchise system.
What about if things turn bad for the multi-site franchisee? A default under one agreement can be a default under all franchise agreements. If the multi-site franchisee finds itself in financial difficulty then the franchisor may find itself in the unenviable position of having multiple stores to sell or manage at the one time.
Multi-sites can be very attractive to franchisees also. It can be a means of them increasing their wealth by investing in multiple businesses but there may be an element of "all the eggs in the one basket". There may also be an element of spreading themselves too thinly. A franchisee may be very successful in their first franchised business, but once they expand in numbers they aren't able to devote the same amount of time and attention to each business as they had with their first business.
Also, most franchise agreements state that a breach of one agreement constitutes a breach of all agreements between the franchisee and the franchisor. There is a large risk then that a breach of one franchise agreement by the franchisee may entitle the franchisor to terminate all franchise agreements and thus in one fell swoop lose the franchisee's entire investment in the franchised system.
There are lots of pros and cons. What do you think?
Disclaimer - This article is of a general nature only and not to be relied upon as legal advice. You should seek legal advice specific to your needs.
