Through my 26 years working in franchise development, I have seen first-hand the intrinsic value of the franchise business model. It’s a model that helps both franchisors and franchisees expand their businesses and gives both parties the opportunity to benefit from shared learnings, systems and best practices.
Refranchising is another opportunity that exemplifies how the model can benefit both parties. Refranchising involves the purchase of a corporate-owned location that is already constructed, operating and has existing cash flow. Refranchising enables a franchisee to take over an existing business without the startup timeline and headaches, while also giving the franchisor the bandwidth to shift their focus to managing the overall brand.
From the franchisee perspective, refranchising accelerates the learning curve by allowing them to step into an operating unit, as opposed to focusing time and energy on site search, development, construction and opening. From the franchisor perspective, refranchising accelerates the process of putting stores in the hands of franchisees, which helps increase profitability and frees up bandwidth for other tasks.
Think that a refranchising effort could benefit your brand? Here’s some additional information to consider:
Benefits of Refranchising
As the Franchisor
- Increased management engagement: It is anticipated that a franchisee-owned location will have greater opportunity to achieve performance goals compared to managers and staff of a corporate-owned unit. The reason being, a franchisee typically represents a local presence and has the ability to devote more time in the business. Many franchisees live in the same area where their locations are based, so they not only do they possess extensive knowledge of the market, but they are embedded in the community and may even have existing relationships with other nearby business owners. This can be invaluable to building brand awareness and deploying local store marketing.
- Lower costs: By bringing on a franchisee to own a location, the franchisor can reduce operational overhead and significantly reduce administrative costs.
- More exposure and potential growth: When a local franchisee buys a location, there is an opportunity to re-launch the unit and get news out in the local area. Not only does this serve to spark and accelerate interest among other potential franchisees, but it can regenerate local excitement and awareness among consumers.
As the Franchisee
- The backing of an established brand: Purchasing an existing franchise location is essentially starting your own business without the initial opening process. Franchisees can take control of a business that already has an existing cash flow, staff and presence in the market. There’s no need to plan around starting from the ground up.
- A chance to grow in your community: With your knowledge and connections to the area, there’s plenty of potential to become a fixture in your community. You’ll be able to create lasting bonds with your customers and other local business owners.
Is Refranchising the Right Move for Your Business?
Refranchising, when approached thoughtfully and structured to benefit the operator is an appealing strategy. While there are benefits, it’s important to take stock in your company’s current state and weigh the benefits and risks of reducing the corporate portfolio. Here are some considerations:
- Current performance: It might make the most sense to try refranchising your low-performing corporate locations to see if new local ownership/leadership can improve their performance. But, for high-performing corporate stores, refranchising them can be a benefit too. A change in store leadership at a high-performing location can reenergize employees, offer a new take on running the business and help the store reach its full potential. Putting a new franchisee operator at a high-performing location can also add instant validation for future franchisee interest and commitment.
- Pace of growth: It’s important to consider the speed at which your franchise-owned stores are growing compared to corporate-owned stores. If you’ve been opening up more corporate stores than franchised ones, refranchising is a strategy that you should seriously evaluate. You also want to ensure that the cross functional team is broad enough to service the two portfolios: franchise and corporate operated restaurants. Corporate stores allow you to prove the business model and test new initiatives, which is something that franchisees can appreciate.
Refranchising can certainly be a solid strategy for a brand looking to grow. Costs can be reduced and your ties in the community can strengthen by bringing on a local franchisee. Franchise development professionals are encouraged to weigh all of the options and benefits when refranchising is on the table.