Multi-Unit Franchisee Magazine Issue III, 2014 | Page 85

FranchiseMarketUpdate
BY DARRELL JOHNSON

MU Domination Grows

marketing influencers and also enjoy the
greater efficiency by distributing local
marketing expenses across many units.
A measure of how important marketing
has become is the rapid growth in attendance at Franchise Update’s Franchise
1) Sales growth becomes a market Consumer Marketing Conference.
share game because the overall market
M&A activity, cost efficiencies, and
is not growing quickly enough. The very low (by historical standards) costs
implication is that gains higher than 2 of debt capital for the foreseeable future
to 3 percent must come at the expense all suggest the continuing, and perhaps
of competitors. Product differentiation accelerating, consolidation of franchising
and rising marketing budgets reflect this by multi-unit operators. One indicator is
competitive condition.
that transfer activity is rising at a faster
2) M&A activity significantly picks rate than new unit growth.
As noted, the fastest-growing multiup as an alternative to living with slow
growth. In many industries, that means unit categories are in the 26–100 unit
a consolidation phase.
range. These same economic conditions
3) A greater emphasis is placed on cost of slow growth, low cost of debt capital,
efficiencies to achieve profit growth. These and especially efficiency pressure of retwo considerations often are addressed ally small and really large operators are
in tandem: acquire another company and particularly favorable for this group.
Therefore, I expect to see
of Franchisees by # Units Operated
operators in the 26–50 and
51–100 unit categories continue to gain overall share.
That growth will continue
to come from new unit expansion, but increasingly
by acquiring existing units.
These trends have significant implications to franchisors, who face the same
economic considerations.
Cost efficiencies are particularly relevant because
a high percentage of franchisor budgets is allocated
for meeting the functional
support needs of franchisees.
consolidate operations.
But as multi-unit franchisee categories
4) The cost of capital becomes a ma- shift, so do their functional needs. How
jor consideration for both M&A and cost franchisors adjust their services while
efficiencies.
focusing on their own cost efficiencies
will be big influencers on the success of
their brands in coming years.
What’s ahead
Let’s look at what these factors suggest
for multi-unit operators over the next 3
Darrell Johnson is CEO of
to 5 years. Clearly, brand marketing efFRANdata, an independent
forts are on the rise. Regional and local
research company supplying
marketing programs are getting a lot
information and analysis for
more attention as wel