This article was originally published on Entrepreneur.com
The Covid-19 pandemic proved the wisdom of the adage, “don’t put all your eggs in one basket.” Businesses that continued to thrive or stayed afloat over the past few years understand the power of this mentality, either because they already had multiple revenue streams, or because they pivoted quickly to adapt to the changing landscape.
We often hear about the importance of diversifying a financial portfolio, but the same holds true for a franchise portfolio. Forward-thinking, multi-unit franchise operators should look to diversify their businesses to reduce risk, no matter if they’re grappling with the ongoing effects of a global pandemic or simply an underperforming unit or brand.
Building a franchise empire of non-competing brands also helps a franchisee create a robust conglomerate in one location, allowing them to stay in their home city while expanding. Also, the franchisee can leverage their knowledge of the local market for the new concept.
Investing in different franchise categories might seem intimidating, but there are several strategies to help franchisees and investors determine which new brands are optimal additions to broaden their franchise holdings.
Financial disclosure: Dan Rowe is the CEO of Fransmart, the franchising group partnered with Brooklyn Dumpling Shop, Rise, Taffer’s Tavern, PayMore, Ike’s Love & Sandwiches and Jars.
Look for complementary brands
Restaurant franchisees who want to expand with another food-related brand should look towards a non-competing, but complementary, concept. For example, if a franchisee already owns an Ike’s Love and Sandwiches shop, adding Jars, an all-dessert restaurant from celebrity chef Fabio Viviano, would be a strategic addition. If they were in the same location, it’s natural that customers would gravitate for something sweet after a meal at Ike’s, especially if it’s right next door.
The complementary nature of two brands also gives franchisees the ability to cross-promote. In this scenario, the customer database for their Ike’s franchise would be the ideal place to direct marketing when announcing a new Jars location in town. Because their customers already love dining at their local Ike’s, they will be receptive to a new dessert concept from the same owner. Having an existing, loyal customer base also makes a second or third complementary concept easier to launch than the first brand.
Find a new industry
The past few years have been challenging for many restaurant franchisees, because the industry was one of the hardest hit during the pandemic. Understanding that restaurant concepts have some limitations and are more susceptible to public health restrictions (now and in the future), franchisees should also consider looking outside the food industry when adding to their franchise portfolio.
With labor shortages and supply chain challenges still affecting restaurants, a lot of restaurant franchisees are looking at an alternative like PayMore, the fastest-growing new and used electronics and gaming franchise in America. The concept has a low startup cost, and current franchisees have been satisfied with consistent profits.
Chris Phillips is an experienced franchisee with several Elevation Burger stores in Philadelphia. He was looking to expand his franchise portfolio and initially planned to add another Elevation location, until he found PayMore.
“I really felt PayMore was a great idea. Everyone, even little kids, has electronics, and the retail market is huge,” Phillips said. “I could open two or two and a half PayMore locations for the same cost of opening one restaurant, with a lot fewer headaches. The hours are better, and I won’t have to deal with the labor, cost and supply chain issues that restaurants have now.”
Some restaurant owners might never consider finding a brand outside of food service, but it’s a strong safeguard to consider against issues that negatively impact this specific industry.
Find operational synergies
On the surface, an Asian dumpling restaurant like Brooklyn Dumpling Shop and a Southern chicken concept like Rise might have nothing in common, but looking closely, their similarities are accutely saturated. Both concepts were at the forefront of the technology revolution in restaurants. They both operate with online and kiosk ordering, use food lockers for take-out orders and employ useful technology in the back of the house. If a franchisee of Rise decided to add a Brooklyn Dumpling Shop to their portfolio — or vice versa — they would easily understand and adapt to the systems and operations of the other. Similarly, their tech-savvy customers would likely patronize the other concept if the franchisee added it to their portfolio. Looking for operational synergies like this is a smart strategy for a franchisee to keep in mind when selecting a new brand.
Expand to different categories
For franchisees who love the food industry and want to diversify within it, one option is to choose a different category. For example, many franchisees with quick service restaurants (QSRs) should consider adding a full-service restaurant to their portfolio. Taffer’s Tavern, recently launched by Bar Rescue star Jon Taffer, is a modern full-service eatery that utilizes technology and a robotic kitchen to drastically reduce build-out costs and ticket times, making its operations more in line with a QSR franchise.
The pandemic demonstrated how the utterly unbelievable can quickly become a new reality. While no one can predict if, when or what the next crisis might be, smart entrepreneurs are learning from what just happened and crafting businesses that are structured to better withstand whatever future challenges lie ahead. Diversifying a franchise portfolio is one solid and simple way entrepreneurs can act now to hedge their bets in the future.