Except for very large franchisors with significant financial and human resources, the expansion of a franchise network often poses serious challenges.
In making decisions regarding the allocation and use of its resources, a franchisor must maintain a sometimes delicate balance between its need to grow its network through the addition of new franchises and the ongoing support it must provide to all of its franchisees (and, even more so, to its new franchisees) to enable their franchised businesses to achieve their rate of growth and their goals of market penetration and financial success.
Unless the franchisor has the financial and human resources to focus on these two very different objectives (network growth and franchisee support) simultaneously, the franchisor may be faced with some difficult decisions.
Which should be prioritized: growth or franchisee support?
On another level, to really benefit from the impact of a network's reputation, it is not enough to establish a single franchised outlet in a new market. In order to acquire a certain notoriety in a new market, the franchisor must in fact open, in a relatively short period of time, several points of sale in order to ensure that the network has a sufficient presence to create the synergy necessary for the creation of such a positive impact for both the network and the points of sale thus established.
The franchisor must therefore proceed quickly with the development of several points of sale in order to make its presence felt in a new market.
How can we achieve this when our resources are limited?
Three strategies can help us: by waves, by clusters and by concentric circles...
Three Practical Development Strategies:
By Waves...
A first strategy, especially useful during the first years of a franchise network, consists in alternating the development phases with those of support to the franchisees.
This allows the franchisor to concentrate its resources, during certain periods, on the development of its network and, during other periods, on the support of its franchisees, especially the new ones who need it more.
For example, a new franchisor can, for a period of four months, devote a significant portion of its resources to adding two or three franchised outlets and then, for the next six months, concentrate its efforts on supporting its franchisees to ensure their success.
Thereafter, it can repeat this strategy in successive waves, each time increasing the number of outlets added during the growth phase according to the increase in its resources and the experience acquired during the previous phases.
Obviously, during the development phases, the franchisor will still need to retain sufficient resources to ensure adequate support for its franchisees and operations.
By Clusters...
The second strategy is for the franchisor to focus its development rather than spreading himself too thin.
Many new franchisors make the mistake of developing their network on the basis of opportunities (a promising franchisee, an interesting location, etc.).
This can lead them to open a few establishments, each located in a different market.
By doing so, they miss the impact of a network in each market (since they only have one, or two, outlets per market) and increase their costs both for the distribution of goods and for their own follow-up and support activities for franchisees.
An often more profitable strategy is to develop in clusters, i.e., by setting up several outlets in the same market in a short (or relatively short) period of time.
This allows the network to ensure a better presence, to have a better impact and, also, to maximize the benefits of its advertising and promotional efforts (which then benefit several outlets rather than just one).
By Concentric Circles...
A third strategy, which can very well follow the second one (growth by clusters), consists in expanding a franchise network in concentric circles by progressively attacking markets located around those in which the network is already known and well established rather than attacking more distant markets that the franchisor is less familiar with, and in which it is also less known.
The advantages of this method of growth are similar to those of cluster development. However, we can add the fact that the franchisor will be more familiar with the new markets it chooses to enter (since they are located near markets in which its network is already active) and that it will often benefit, from the outset, from a certain notoriety due to the presence of establishments in its network not very far from these new markets.
Fasken has the experience and resources to help you prepare and execute any expansion project, whether in Quebec, other Canadian provinces, the United States or anywhere else in the world.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
