In franchising, there have historically been two general types of franchisees: Single Unit and Multi Unit. In Single-Unit Franchisees has been the bedrock of franchising. Individuals, or often a pair of spouses who were looking to own their own independent business, would invest what would often amount to their collective lie savings into a single franchise unit.
However about last couple of decades, Multi-Unit Franchisee has increased in volume, power, and influence. This has led to a greater sophistication in the multi-unit arena, where it is not uncommon for a Multi-Unit Franchisee to be a bigger and more experienced company than the franchiser they are investing in.
Single-Unit Franchisee is typically a traditional franchising. A franchisee will invest in a single unit with no promise or expectation that they will open any future additional locations. They may have some experience operating a business, or they may not. Typically their back of house operations consists of their personal computer and maybe a home office. There is only a single Franchise Agreement between the franchiser and the franchisee.
The Single-Unit Franchisee will often be the main operator of the unit. There are situations where a Single-Unit Franchisee will hire an operating principal to run his or her location, but more often than not they are investing in the franchise as their way of ‘buying’ a job and hence it will avoid paying an additional operator’s salary.
Generally, Single-Unit Franchisees were often given exclusive or protected territories for their units. This would mean that the franchiser was limited in whether they could open another location- whether corporate or franchised- within that exclusive or protected territory. An ‘exclusive’ territory is just as it sounds — that franchisee’s unit was the only unit that could be open within that territory.
The recent trend, however, is away from offering exclusive or protected territories, and instead limiting a franchisee’s territory to the four walls of their specific unit. The argument in favor of this, in short, is that a franchiser's ultimate goal is to protect the entire brand, and that encompasses not placing locations so close to each other that they will unnecessarily cannibalize each other, as that would hurt the brand overall.
The Multi-Unit Franchisee is an entity that has increased in popularity, frequency, and influence in franchising over the past few decades. Under this model, one franchisee owns and operates more than one unit, traditionally in the same general region.
For a Multi-Unit Franchisee, there is an area development agreement, which specifies the number of units that the Multi-Unit Franchisee will open, in what time period, and in what specific territory. This territory is almost always protected, subject only to the franchise breaching any of his agreements. There is then an individual franchise agreement between the franchiser and franchisee for each individual unit that is opened. Typically there is a schedule or required time in which each individual unit must be opened under the Area Developer Agreement.
If that schedule is not adhered to by the franchise, they can risk losing their rights to open any further locations under the agreement.
While a Multi-Unit Franchisee certainly requires a higher investment level, it also provides more stability and a higher expected rate of success, as they are not reliant on only one location to be successful. There are also saved costs because of the efficiencies of having one back of the house for multiple locations. Additionally, franchisers will often offer reduced fees and royalty breaks for Multi-Unit Franchisees to entice them to invest at a higher dollar amount initially. For example, many franchisers will require that a Multi-Unit Franchisee pays an initial portion of the franchise fee for each location specified in the agreement to be opened.
Ultimately, both Single-Unit and Multi-Unit operators have their place in franchising. However, as franchising continues to provide a consistently profitable option for private equity and other sources of capital, bigger Multi-Unit Franchisees will continue to increase their numbers and influence.
Hope you understood the difference between Single and Multi-Unit Franchisee. If you are looking for any franchise, which type of franchise then don’t worry Select Dine is here to help you out. Call or visit our website to know more about us.