What FRANdata Thinks

Multi-Unit Moguls: Large Multi-unit Franchisees’ Growth Gathers Momentum

April 5th, 2019 by Ritwik Donde

Recent years have witnessed tremendous growth in the number of units owned by franchisees that own more than one franchise business/location (multi-unit operators). The growth story has never been more prominent than with the rising share of franchised units controlled by large multi-unit operators, i.e. those that own more than 50 units. These “multi-unit moguls” have taken their multi-unit ownership a step further, growing beyond an area of three-to-five units to run a small empire, often far more, across districts, sometimes even across states.

A recent analysis conducted by FRANdata on multi-unit ownership shows that operators, that owned 50+ franchised businesses, used to control 8 percent of the total franchised units in the US in 2011. This share has increased to 10 percent as of 2018. At the same time, proportional ownership of units among single-unit operators declined from 47 percent as of 2011 to 46 percent as of 2018.

Firstly, large operators are acquiring more franchised businesses over the years. Take the case of Flynn Restaurant Group, which is a franchisee of brands like Applebee’s and Taco Bell. In late 2018, this group acquired 368 Arby’s franchised locations from United States Beef Corporation (US Beef), which resulted in this company owning and operating a combined total of 1,245 quick-service, fast casual and casual dining restaurants across brands like Applebee’s, Panera Bread, Taco Bell, and now Arby’s.[1] More recently, Carrols Restaurant Group, one of the largest Burger King franchisees, acquired Cambridge Franchise Holdings, another Burger King and Popeyes franchisee with 221 locations. This resulted in Carrols now operating more than 1,000 Burger King and Popeyes locations following the deal.[2] A growing number of large multi-unit operators are increasingly spreading their ownership across multiple brands, i.e. multi-unit multi-brand ownership is a rapidly developing trend in franchising. Take Tushar Patel for example. This multi-unit franchisee with Papa John’s recently diversified his portfolio by signing up for a development deal in Georgia with Huddle House.[3]

Secondly, franchisees backed by private equity investors are lining up to acquire franchisees, and consolidation among such investments is increasing rapidly. One such franchise brand to experience the impact of this trend is Planet Fitness. Over the past two years, one Planet Fitness franchise operator, Sunshine Fitness Growth Holdings, owned by TSG Consumer Partners acquired two other smaller franchise groups representing a total of 31 units. It then proceeded to consolidate these newly acquired units under its existing business. The acquisition nearly doubled Sunshine Fitness’s total ownership to 64 business.[4]

Even franchisors have realized the importance of having more experienced and more sophisticated franchisees in their folds, as a result we are seeing more and more franchisors incentivizing multi-unit developers. Like Buffalo Wings and Rings created a “One Franchise Fee for Life” franchise development incentive in 2018, wherein franchisees paid a one-time $40,000 fee, allowing them to open as many approved locations as they please within a development schedule and within current strategic growth areas.[5] On the other hand, private equity and other institutional investors have begun taking a structured and systematic approach to scout successful operators within high performing brands. This includes hiring franchise business model experts to analyze franchisee and franchisor performance and developing rating models to ensure that their investment and consolidation strategy would yield long term results.

[1] Press Release issued by the company

[2] Restaurant Business Online

[3] Franchising.com

[4] Press Release issued by the company

[5] FSR Magazine

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