Diversification

DIVERSIFICATION Franchisees keep adding new units at a record pace

Adding franchise brands gives multi-unit operators the ability to spread their risk and survive the uncertaintiesof the marketplace in a number of ways:

• ECONOMIC CYCLES. Operating brands in different industries can help minimize the ups and downs of an uncertain economy—and the changes those cycles cause in consumer behavior. Casual dining as a segment took a huge hit in the recession, while bargain-priced fast food continued to do fairly well; and new car dealers suffered while automotive maintenance and repair businesses held their own and expanded.

• SEASONAL CYCLES. A lawn care franchise in a four-season climate slows to a crawl in the winter in many parts of the country. Ice cream, lemonade, and frozen desserts peak in the warm weather, so why not add soup and sandwiches as the weather cools? Adding a second business to balance out the seasons will keep employees engaged and the cash flowing. New brands can be in related sectors (maid service, electrical, plumbing, home insulation), or in completely different areas (food, rental centers, children’s fitness).

• CASH FLOW. A franchisee with several units of a casual restaurant brand ventured into rental stores. Stocking a new rental store with merchandise is expensive, and monthly rental fees don’t cover the purchase price for 6, 12, or 18 months, tying up valuable cash in inventory. The daily cash flow from the restaurants was the perfect complement to keep the organization healthy until the rental stores started showing a profit—which they did handsomely in time.

• DAY PARTS. Breakfast, lunch, dinner, late night, and in-between. Whether it’s food or services, consumers and businesses have needs 24 hours a day. If your business makes the majority of its sales at breakfast and lunch, adding a brand that peaks in the afternoon and evening will make for a longer day, but also a stronger bottom line.

• SURPRISES. Fast food operators have been hit hard over the years by news of salmonella, E. coli, employee misbehavior, and other developments beyond their control. Having other brands in your portfolio can help you stay afloat until a negative situation is remedied and trust in the brand restored.