Looking to expand your franchise in a new country, or try multi-unit franchising to grow faster? Becoming a master franchisor is a great way to grow, but it does mean handing over some control. Here’s all the pros and cons of master franchising.
There are two things that might happen in the life of a franchisor. First, your business could thrive locally and you’ll want to expand into international markets. Second, you might want to grow faster locally or internationally, but not bear the load of recruiting and training hundreds of franchisees yourself. Using a master franchise system is a popular way to achieve both.
What is master franchising?
Master franchising involves selling the franchise rights for an entire country or region to one master franchisee who is based in that territory. In a nutshell, either one franchisee then manages multiple units in that area, or you give them rights to operate as the franchisor in that region – letting them recruit their own network of franchisees (known as sub-franchisees) to open and run franchise units there.
For years, international franchises have used this model to expand into the UK, including Bagel Corner and Card Group. According to the Franchise Centre, around 20% of franchise systems here have their parent office in another country. It’s also a model commonly used by fast-food chains. For example, Akram Khan, owner of Gastronomy Foods, is a franchisee that oversees some 37 KFC restaurants in the UK.
As with anything in running your own business, there are advantages and disadvantages to this system. Before we go into them, let’s first explore the role of a master franchisor.
What does a master franchisor do?
A master franchisor has the same responsibilities as a standard franchisor, only on a different scale.
You’ll still need to draw up a business plan, recruit franchisees and offer ongoing training and support. Only, your business plan will require more extensive market research if you’re looking to expand into new territories. You’ll need to look for a different skillset when recruiting master franchisees. And you’ll only be responsible for recruiting, training and guiding your master franchisee, not their network of sub-franchisees.
This means that while master franchising requires a significant amount of effort at first, once your master franchisee is up and running, you’ll have more breathing room, but still enjoy the rewards.
Advantages of being a master franchisor
Handing the reins over to a master franchisee has its benefits. These are:
1. Access to local expertise
If you’re looking to expand – especially internationally – master franchising eases the challenge. Pursuing a new market and venturing into the unknown is daunting. Languages, cultures, pricing, suppliers, laws and customers are all different.
But a master franchisor doesn’t have to go it alone, or be an expert in the territories you’re targeting. That’s what your master franchisee is for. Yes, you’ll need to do your homework to set them up for success and ensure expansion is viable, but you can also rely on their market knowledge.
You’ll work in partnership with your franchisee, drawing up a business plan together. You’ll bring the brand-specific knowledge on branding, marketing and training. And they’ll bring the market-specific knowledge on local regulations, suppliers, pricing and customer preferences.
Although this means giving master franchisees more authority and flexibility to tailor the brand (with your approval), you’ll be giving your business the best chance of success – especially if you’re unfamiliar with the area and customs.
2. Less recruitment and training required (on your part)
Franchisors have a few obligations, one of which is to recruit franchisees and provide ongoing training and support. In master franchising, this load is less. Either the master franchisee operates multiple units in a region, saving you the time and risk of finding, screening and training a new franchisee for each. Or, if your master franchisee operates as the regional franchisor, the responsibility of recruiting and training sub-franchisees falls on them.
All you need to do is recruit and guide your master franchisee. For franchisors with large networks, this can be a big weight off their shoulders.
Bear in mind that training for master franchisees will look different to what you typically offer. You’ll be guiding them on running multiple units or training them to be like you – a franchisor.
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3. Faster business growth
With more local market expertise, multi-unit franchising and time saved on recruiting and training franchisees, your business will grow in a target territory more effectively and rapidly. You’ll be freed up to focus on other business priorities, while your master franchisee drives brand awareness and profits in a designated region.
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Disadvantages of being a master franchisor
Master franchising can be the king of opportunities, but its success depends largely on recruiting a good and trusted master franchisee. You’re putting a lot of faith into one person, which can be risky (you know what they say about eggs in one basket).
If your master franchisee handles multiple units in a region and they fail, every unit is at risk as opposed to just one. If your master franchisee is a regional franchisor and their local market knowledge is off, expansion in that region hits a wall.
Being a master franchisor means taking that risk. It means giving up a level of control, trusting the franchisee to run multiple businesses well, and hire sub-franchisees who will do your brand justice.
Because of this, you’ll want to spend considerable time recruiting your master franchisee, or waiting for a good track record before awarding them multiple units. During Discovery Days or recruitment efforts, it’s helpful to know what characteristics to look for in a master franchisee. For international expansion, also consider running a pilot unit with them first before going too big.
It may be lots of effort and a sacrifice at first. But taking the time to make a good, considered choice will reap rewards for you and your business later.
Mastering the art of franchising
Sophie Cole, Point Franchise ©