April 22, 2021 marked day four of Dealmakers Week, presented by Franchise Times. It was also the day the magazine announced its 2020 Deal of the Year. Not surprisingly, the award went to Inspire Brands for its $11.3 billion purchase of Dunkin’ Brands. On hand to receive the award was David Pipes, Inspire Brands chief financial officer at the time. Appearing via remote video technology, Pipes refuted the notion that Inspire overpaid for the Dunkin’ and Baskin Robbins brands.
“They’re both fantastic brands, [and] they’ve really changed the whole mix for us in terms of geographic diversity which has improved dramatically,” he told moderator Beth Ewen.
Pipes has since retired and was replaced as CFO by Kate Jaspon, who had been promoted to Dunkin’s chief of finance in 2017. That notwithstanding, Pipes’ comments at Dealmakers Week offer insight into Inspire’s long-term strategy to maximize the value of the Dunkin’ and Baskin brands. In comments published by Franchise Times, Pipes noted the acquisition will provide more opportunities for Inspire in the consumer-packaged goods (CPG) business, which he said was “not something we had much of before,” adding as an example, “We sold a few Arby’s Curly Fries in grocery stores, but that’s a huge business for Dunkin’ and we’re happy to add that to the portfolio as well.”
But what was more telling–and potentially of interest to all Dunkin’ franchise owners – was Pipes’ comment about what the addition of Dunkin’ Brands to the Inspire roster means to its existing franchisees. “Current franchisees of Inspire’s other concepts have been lining up and asking for other opportunities in their brands, including opening Dunkin’ and Baskin Robbins stores,” he said, adding, “We expect to see many more franchisees with multiple of our brands in the near term.”
A multiple of brands
Multi-brand franchising is the term used to describe franchisees who own multiple units of multiple franchise brands. Multi-brand franchising allows for diversification within a tighter geographic area while increasing the overall revenue stream, according to Ed Teixeira, an author, economist and vice president of Franchise Grade. He says the concept “has exploded in recent years, especially within the QSR industry.”
According to research compiled by Franchise Grade, 9% of all franchisees owned multiple units of more than one brand in 2019, compared to 14.6% of franchisees in the QSR space who were operating multiple brands. In an August 2020 blog post, Teixeira listed these three reasons why the trend is growing, especially in the quick-service restaurant space:
1. Industry consolidation: Big franchisors are getting bigger, acquiring more brands;
2. There are tremendous advantages to having multi-brands;
3. The role of private equity has increased tremendously, bringing more capital to the table.
Teixeira underscored that point in another blog post, writing, “There is a growing interest from private equity and other financial firms in franchising because of [the data], and because they can see millions of dollars in profit in joining a system with a predictable result.”
For a franchisee considering going the multi-brand route, there are many issues to consider. Among them is whether the infrastructure they have developed – along with their restaurants – is well-positioned to adapt to the differences that come with operating different brands. Some functions, like IT, accounting and building services, can be centralized to improve efficiency, but others can require extensive training for managers and staff. Even more importantly, a franchisee considering flying the flags of multiple brands should also consider how long it could take to realize a sufficient ROI after investing valuable capital and resources.
Inspire is in a unique position to help would-be multi-brand franchisees navigate some of the challenges. As the owner of seven different franchise chains, all of which could eventually run on similar systems and have built-in back office efficiencies, Inspire can offer a lower-risk proposition to veteran Dunkin’ operators who have already satisfied their development agreements and want to keep on building.
Similarly, as DDIFO Restaurant Analyst John Gordon points out, Inspire knows full well it bought a tremendous roster of “well-heeled Dunkin’ franchisees [who are] a resource for additional franchise development because they have existing infrastructure, banking relationships and an organizational structure.” He believes that was an important consideration for Inspire as it looked at how to jump start selling development rights to franchisees who are already in the family.
‘Opportunities abound’
A March 16 headline in QSR magazine underscored the importance of multi-brand franchising as a strategy for success at Inspire. “Franchise Opportunities Abound at Inspire Brands,” it said, quoting Don Crocker, the company’s chief development officer. “We’ve come into play with a highly differentiated and complementary set of brands that spans the full breadth of dayparts and occasions,” Crocker told the magazine, adding. “We want franchisees who want to be great operators and who want to grow. This has been an extraordinary time, and our diverse portfolio has helped us navigate the obstacles our industry has faced. As we continue to accelerate growth, we have an opportunity to help franchisees find success this year.”
As Gordon points out, Inspire’s vision for multi-brand franchising may be something unfamiliar to veteran Dunkin’ operators. For years, he says, “Dunkin’ franchisees were held back from joining other systems.” Now, however, Inspire is looking towards its collection of “wealthy and experienced Dunkin’ franchisees to develop other brands.” He commends the strategy for franchisors, but says franchisees should act with caution.
“A prudent franchisee would say, ‘I need to learn these brands one at a time and there is a risk in operating too many brands under my portfolio.’ A franchisee has to be sold on the economics because committing to multi-brand franchising will require taking on debt or using existing cash.” Additionally, he says, a franchisee should consider whether his existing management team would be able to seamlessly adapt to a different brand’s economics, operations, supply chain and more.
A well-known advocate for multi-brand franchising is Sultan Kurani, who runs Kurani Global Restaurants, operator of Pizza Hut, Long John Silver’s and Dunkin’ in Georgia. In 2015, he was a featured guest at the DDIFO National Conference in Las Vegas and told the crowd becoming a multi-brand owner “was the best decision I ever made,” but he cautioned, “Every business is different, so make sure you have the right people and the right structure.”
Gordon also cautions that a franchisor can gain tremendous leverage over a franchisee who signs contracts to operate multiple brands.
From the data he has seen, Teixeira believes multi-brand franchising gives franchisees the ability to corner the market in their own territory. “If you have a competent franchisee with capital and staff and experience, they could develop a network of franchises within their own territory.” Having ownership of multiple brands, he says, would allow franchisees to create more revenue and insulate themselves in the event of a market downturn.
Teixeira suggests franchisees who step up to develop other brands within the Inspire system, should seek incentives, like a lower franchise fee, for keeping it all in the family.
“Multi-unit and multi-brand franchising have grown so much over the last few years that some franchisors are recruiting and requiring it as their primary franchise development model. By operating non-competing restaurant brands, multi-brand franchisees can take advantage of the same benefits of multi-unit franchising, while staying within their original territory and avoiding oversaturating the market,” according to Teixeira.
Experts believe the trend toward large multi-brand ownership within QSR franchising will continue—especially as low interest rates make the cost of borrowing almost negligible. The opportunities are out there, but a franchisee has to vet each one to insure it is the right step for their organization and future planning. Of course, the old adage “Buyer Beware” continues to ring true.
