Master or Regional Development, is it in your future?
evolved in the last few decades to include a third party inserted between the franchisor and the unit operator. This is the Master Franchisor or Regional Developer. The Master purchases the rights to sell franchises in a certain large area (e.g. Phoenix, Southern California, Florida, or France). This three-party relationship has several advantages:
- It relieves the franchisor of the job of marketing unit sales in a particular area
- It offers the Master the opportunity of profits from building a large network of franchisees
- It puts franchisee support far closer to the operators
However, this structure can also create special problems because, if not managed properly, three can become a crowd. Here are some of the challenges that may arise.
The Challenges of Master or Regional Development
Franchising is a business. As in any business there is a need for expertise, contacts, growth, market penetration to ensure long-term success. There is also another factor that becomes very important, that is servicing franchisees in highly diverse markets. In the Master Franchisor or Regional Development model, the Master is tasked with representing the franchisor in their market. It is possible that the Master may present a different “version” of the company to individual franchises in his territory.
Now, as challenging as that may seem, try imagining having 40 Masters around the country or around the world. To manage the expectations of the franchisees, the franchisor, must be able to exert enough control to keep their message strong and consistent throughout their franchise network.
Then there is the issue of quotas. The regional development agreement usually has a minimum number of units that must be developed in a market within a set time frame to allow the developer to maintain their rights. Of course the franchisor wants all of the regions developed to some minimum standard, but what happens if the developer has difficulty in meeting the quotas? The list of what can happen is very long but here are a few potential problems:
- Because “Class A” locations are scarce, the developer begins to sell franchisees “B” and “C” locations. Franchisees struggle in the poorer locations and failures start to escalate. This hurts the brand, breeds litigation and causes everyone to suffer.
- Economic conditions can change leading to a shortage of financially capable franchisees; the immediate answer is to take the risker franchisees. Less qualified franchises have a greater chance of mismanagement and failure.
- The developer may not live up to their responsibilities to provide service to the franchisee leading to complaints, litigation, etc. hurting the brand and prospects for future franchise sales.
The purpose of this article is not to scare you. Franchising is a great way to expand, whether you do it with individual sales, master development or a combination. That is simply an opportunity for you to start carefully thinking about your expansion plans. It is wise not to be seduced by the promise of rapid growth. Talk to experts and make sure that you get the full story before deciding on a strategic growth plan.