Multi-brand franchise: what is it exactly?

In the article "Advantages and disadvantages of multi-unit franchise" the pros and cons for franchisor and franchisee are thoroughly discussed, if a franchisee opens multiple locations. In this, we focused on expanding locations within the franchise formula. In the Netherlands, it is usually common for a franchisee to join only one franchise formula. A franchise agreement often states that a franchisee may not join another (competing) franchise formula. In America, and other European countries, however, it is quite normal for a franchisee to join multiple (franchise) formulas. This is also known as multi-brand franchise, a trend we are increasingly seeing in the Netherlands.

What is multi-brand franchise?

In a multi-brand franchise, a franchisee operates multiple locations under different brand names. This is very different from owning multiple franchise locations under one brand name. Instead of operating under one umbrella, each franchisee and franchise location operates separately. Each brand has a different target group, agreements, and execution. Multi-brand franchise is becoming an increasingly popular strategy, partly because of the advantage that a franchisee can spread their risks.

Why is multi-brand franchise suddenly popular?

1. When it turns out that a franchise location has reached its potential in the market, less time is required from the franchisee, because everything runs like a "well-oiled machine". It can also be that a franchisee no longer sees a challenge in opening a franchise location of the same brand, as it is essentially performing the same "trick". By franchising multiple brands, a franchisee can grow in the number of locations and in revenue, while simultaneously being exposed to new and exciting business challenges.
2. It can also work to their advantage in franchise formulas that are seasonal, like an ice cream shop. As a franchisee of an ice cream shop, you depend on the results of the summer season and hope to build a buffer for the winter season. With these peaks and troughs in business, it can be beneficial to have more stability in the income stream. Multi-brand franchising can provide that. By opening a second franchise (or a third or fourth) in a different industry, it is possible to sufficiently spread the income streams.
3. If the different brands complement each other, this can further strengthen each other in marketing. It also offers synergistic sales opportunities. Suppose a consumer is renovating their house and looking for a new floor. During a visit to a showroom, the consumer sees that not only floors are sold but also curtains. Just what they also needed. In this way, the service can strengthen each other in sales.
4. A franchisee can also choose to add a brand in the same industry, such as opening a second restaurant. This brings the advantage that the franchisee is already familiar with the market. There is also specific knowledge of the type of business and thus knowledge of the type of staff that needs to be hired, how to find them quickly and retain them. Having this existing knowledge offers a huge advantage and acts as a kind of fuel for the fire of the new franchise location. With each new brand that a franchisee adds to their portfolio, the franchisee increases their knowledge and can use these lessons to be faster and more effective in future efforts. Additionally, a franchisee will not make the same mistakes that they have made in the past.

This approach has many benefits, but it is not suitable for every franchisee. If a franchisee opens a second location, it may result in a loss of focus on the first location and, consequently, poorer results. However, as described above, there are many advantages, also for the franchisor. The brands can complement each other, causing an increase in revenue that the franchisor benefits from in the revenue-related franchise fee. In a seasonal franchise formula, the franchisor can experience less pressure from their duty of care if a franchisee finds it difficult to manage during the low season if good results were not achieved in the high season. Finally, a franchisor can benefit from the knowledge that a franchisee gains at another company and the current franchisee can perform better with renewed energy. In short, if a franchisee is looking for a new challenge, a complementary brand, or a new revenue model, then multi-brand franchise is worth considering. Of course, the right legal conditions must be in place for this to happen.