Paul Flick is the CEO of Premium Service Brands, a leader in home services franchise opportunities.
High inflation, international strife and the aftershocks of the pandemic all contributed to an economic slowdown and sweeping layoffs over the last six months. Despite the uncertainty on Wall Street, many franchise owners continue to drive growth by relying on brand stacking to increase market share.
In the franchise community, brand stacking refers to adding complementary concepts in the same industry to your portfolio. For example, my company franchises nine home services brands that help with everything from painting, to grout cleaning and restoration, and more to equip franchisees with complementary choices to weather a recession and generate year-round opportunities.
Understanding Brand Stacking
The popularity of multiunit franchising is growing. From 2010 to 2022, there has been a 25.4% jump in multiunit franchising among small players with less than five units. There are 43,230 multiunit franchisees, and approximately 84% have two to five locations. While the increase in multiunit franchisees can be attributed partly to consolidation in the industry, I think the rise in brand stacking also plays a role.
A surge in private equity funding is also enabling franchisors to snap up emerging brands to provide franchisees with another tool to increase sales. By owning multiple brands in a single market, franchisees can boost revenue and drive repeat business. In addition to offering a competitive advantage, brand stacking helps cut the customer retention budget. Franchisees can leverage their existing customer base to reduce marketing expenses and customer acquisition costs.
Brand stacking can be particularly helpful during an economic downturn. Franchise owners can cut costs by sharing resources across multiple brands, such as staff and equipment. Brand stacking also helps limit the seasonal nature of some franchise businesses. For example, if a franchise owner does the bulk of their business during the summer season, adding a brand with the potential for income during the winter months can create steady, year-round sales and multiple revenue streams.
The concept of brand stacking is popular in the restaurant industry. Many fast food chains have added brands to their lineup to capture hungry customers throughout the day. For example, Dunkin’ teamed up with Baskin-Robbins to corner the coffee and ice cream markets. And Pizza Hut and KFC launched co-branded locations to appeal to the palates of both fried chicken and pizza lovers. Having more options provides franchisees with economies of scale and can attract a wider array of customers.
While brand stacking can be beneficial, you do run the risk of diluting your brand identity. To mitigate issues, make sure the brands offer complementary services and that the new concept aligns with your core values and positioning.
Determining Whether Brand Stacking Is The Right Move
If you’re wondering if adding a new brand is right for you, here are the criteria my company uses to determine if a franchisee is ready to expand services—and the advice I give them when it comes to selecting another brand.
1. Established Infrastructure
A franchise is often a low-investment, high-reward opportunity. Franchise owners can start as owner-operators and grow at their own pace. You’re ready to forge ahead with brand stacking when you’ve built an infrastructure to support your business and have a manager and reliable employees in place at your existing brand. Having a solid infrastructure will give you the time and resources to take your business to the next level.
Make sure each brand has its own brand manager or team responsible for day-to-day operations, marketing and communication. Sharing resources is a perk of brand stacking, but having clearly defined teams will enable operations to run smoothly.
2. Capital
The franchise community provides numerous options for financing business ventures. When you start generating a profit and have access to additional capital, brand stacking is a tool you can implement to scale your business.
Before you add another brand, it’s important to trim expenses. Work with the franchisor to ensure you get the best prices from suppliers, and consider refinancing debt to lower interest rates. A good rule of thumb is to wait until your first brand starts turning a profit before adding an additional concept to your portfolio.
3. Leadership
Franchisees with more than one brand need to be strategic leaders who can delegate responsibilities to achieve success. In the early days of opening a business, franchisees juggle numerous responsibilities. You’re diligently building a loyal customer base on any given day, exploring growth opportunities and conducting back-office administrative tasks. Wearing a lot of hats is essential as you get your business off the ground. But a valuable leader quickly learns the art of delegating.
Make sure you clearly define tasks and expectations for each team. Empower your managers to make decisions to encourage ownership and accountability. Set clear checkpoints and deadlines to monitor progress and ensure timely completion of delegated tasks. Regularly follow up with your team members to review their progress and address challenges.
Brand stacking should be driven by a strategic vision and a well-defined plan. Without a clear strategy, businesses may end up with a fragmented brand portfolio that lacks coherence and fails to deliver meaningful value to consumers.
Brand stacking can be a profitable investment, but achieving success requires hard work. Leaders need to focus on being an authority in the industry. Staying abreast of market trends and consumer preferences for each brand will help you hit growth targets and generate loyal customers.
Coping with an economic slowdown poses many challenges, but taking proactive steps to weather the storm by diversifying your portfolio can help limit the negative impact.
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