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Multi-unit franchising may seem like a logical, attractive next step up the ladder of success, but are there pitfalls beyond the obvious in going that route? Greg Nathan, founder and chairman of Australia-based The Franchise Relationships Institute, says,
While the theoretical benefits of multi-unit franchising are seductive - a quick way to multiply sales, profits and market share – the reality is often quite different.
Nathan writes that an area development agreement could put franchisor and franchisee in a straitjacket with disastrous results.
Often the area developer will also be the franchisee and will be expected to quickly open a regional cluster of franchised units, usually at least one or more a year. This can end in tears because the franchisee lacks the capital, competence or commitment to keep up with the predefined development schedule and thus loses their area development rights. Or the failure of a regional cluster of stores due to poor management can result in a right royal mess for the brand.
A taste for the good times could cause a multi-unit owner to lose their focus.
As their business interests continue to grow they can become distracted with golf, boats and holidays. A taste for the good life can result in complacency and serious operational problems which can quickly bring their empire crashing down. —Greg Nathan