A multi-unit franchise is a business concept whereby a franchisor (original owner/licensor) allows a franchisee (secondary owner/licensee) to operate more than one unit of the business. Multi-unit franchising differs from single-unit franchising in that a franchisee can only be allowed to purchase a single business unit in the case of single-unit franchising. This means that a single-unit franchisee is responsible for only one business while a multi-unit franchisee owns and manages several businesses.
Multi-unit franchising is a new concept, it was largely unrecognised and unutilised in the past. It has only become popular in the last decade after many companies and brands in North America and Australia started adopting it. It is mostly popular with businesses in the food and beverage industry, beauty and salon industry, construction and home improvement industry, hospitality industry, and even the education sector among others.
A franchisor may take two different approaches when awarding a multi-unit ownership permit to a franchisee. The first of these is sequential franchising. Under sequential franchising, a franchisee is allowed to operate a second business after he has proved to be successful in operating the first business. If he again proves his business capability by successfully running the second business, the franchisor can let him open a third business and so on and so forth.
The second approach involves letting a franchisee open a multiple number of businesses all at once. Not just anyone can be allowed this kind of privileges. Only individuals whose portfolios show that they have a world-class business acumen can be allowed to be this kind of franchise owners. In addition to individuals who have proved their prowess in business, successful companies can also be allowed by franchisors to open multiple business units all at once. Franchisors are cautious with this kind of approach because of the financial and operational risks involved. If a franchisee fails to manage the multiple units under a certain territory well, the franchise's competitors within that territory may overtake it leading to poor performance. This happened to McDonald's when it gave one person the entire Canada to manage. Its business competitors soon overtook it in Canada leading to McDonald's recalling the franchise permit to salvage the situation.
In the case of a multi-unit franchise, the franchisee has authority over the running of multiple units under his care. The franchise headquarter however still guides him in matters such as location of the businesses to avoid things such as market saturation and internal competition.
Multi-unit franchising can be suitable for restaurants. This is because restaurants fall under an industry where demand is always high and the turnover is also fast. A franchise can therefore make more profit by letting franchisees open multiple units. Restaurants also have the advantage that several of them can comfortably share a single locality.