For a current franchisee, the idea of expanding your portfolio by adding another brand presents exciting opportunities as well as unique challenges. Whether to diversify into different sectors or deepen investments within the same industry requires careful deliberation, even for the most seasoned franchisees. Those who look to add a second brand to their portfolio believe it is easy to grow another concept in the same market because of their market knowledge. They often feel it is easier to learn the operational nuances of a second brand than it is to learn the complexities and nuances of a new city or market they have never experienced.
There are advantages and disadvantages to either option. The best decision for your portfolio will depend on several factors.
Understanding the Landscape
Becoming a multi-unit, multi-brand operator offers a path to increased revenue and market presence but comes with its own set of considerations. The synergy between different brands, operational demands, and market dynamics all play crucial roles in determining the success of such ventures. When researching the possibility of introducing another brand into your portfolio, consider the following:
- Brand compatibility: When exploring additional franchise opportunities, compatibility is key. For instance, pizza and sandwich franchises share similar operational models and customer bases, making them a natural fit within a single portfolio. This likeness can streamline operations and marketing efforts, leveraging shared resources and customer overlap.
- Market saturation: Determine if there is a need for the new business you’re looking to open. Understand the local market demands and saturation levels. Adding a brand that operates in an oversaturated market may lead to diminished returns, whereas entering a less crowded space can offer new growth avenues.
- Operational complexity: Managing multiple brands means juggling different operational requirements. Franchisees must assess their ability to maintain high standards across all units, ensuring each brand’s specific needs are met without compromising overall business integrity.
Weighing the Pros and Cons
When it comes to diversification, you only have two options — embrace it, or don’t. However, there are benefits to both options. Using foodservice as an example, staying within the industry can offer multiple advantages:
- Shared knowledge and resources: Entering a new industry requires time and resources to understand different market dynamics and operational requirements. There’s less of a learning curve when you stay within the same industry. Leveraging existing knowledge and operational practices can lead to cost savings and more efficient management.
- Cross-promotion opportunities: Brands operating in the same industry can leverage joint marketing initiatives, attracting a wider audience while preserving their individual brand identities. This approach is particularly effective in the food sector. For instance, if an entrepreneur runs both a pizza place and a sandwich shop, they could provide customers with special offers or discounts, motivating them to visit the owner’s other dining establishments.
- Better brand focus: Managing brands across different sectors can dilute focus and stretch resources thin, potentially impacting overall business performance. When you invest within the same industry, you can use a number of the same best practices to keep all your businesses running smoothly.
While you may think investing within the same industry is the ideal move for you, take a look at some of the drawbacks of not branching out:
- Risk mitigation: Operating in different sectors can protect your portfolio against market fluctuations specific to one industry. As we all saw in the last few years, anything can change — and quickly. Having a built-in safety net can protect you from unexpected shifts in the economy.
- Customer base overlap: Operating multiple franchises within the same industry can lead to cannibalization, where businesses inadvertently compete for the same customer base, diluting potential profits across your portfolio instead of expanding your overall market share. Tapping into different customer segments can open up new revenue streams and growth opportunities.
- Less innovation: Sticking to one industry can limit exposure to new ideas and business models, potentially causing your business practices to become outdated compared to competitors who diversify and innovate across different sectors.
Making the Decision
Before expanding your portfolio with an additional brand, you need to take several critical steps:
- Conduct thorough market research: Understand the specifics of the local market to gauge demand and identify key competitors. Analyze demographic data, consumer preferences, and market trends to determine whether a new brand can meet an unfulfilled need or stand out in a crowded marketplace.
- Evaluate financial implications: Review the current financial status of your existing operations to ensure they are stable and profitable. Be sure to assess cash flow, debt levels, and the overall financial health of your current business. Then, carefully consider the total investment required for your new venture, including upfront franchise fees, startup costs, and ongoing operational expenses. It’s crucial to develop a comprehensive financial plan that includes projections for revenue, expenses, and break-even analysis to ensure the new addition is financially viable.
- Consult with existing franchisors: Engage in open discussions with franchisors from your current brand(s) to explore how adding a new franchise might affect your existing agreements and operations. Understand any contractual obligations that may impact your ability to expand. Also get an idea about the level of support and resources your new franchisor will provide for you and your budding business.
The Bottom Line
For franchisees considering expansion, the decision to stay within the same industry or venture into new territories comes down to a balance of risk, reward, and personal business goals. By carefully evaluating the market, understanding the demands of different franchise models, and leveraging existing strengths, franchisees can make informed decisions that align with their long-term growth strategies.
In the ever-evolving franchising industry, the key to successful multi-unit, multi-brand franchising lies in strategic planning, diligent research, and a deep understanding of both your current portfolio and potential new ventures. Whether expanding within familiar territories or exploring new horizons, the ultimate goal remains the same: building a diversified, resilient, and thriving business portfolio.