How to Balance Control and Flexibility in Franchising with Master Franchisees

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It’s no secret that many franchisors have successfully expanded their footprint and operational reach by utilizing the Master Franchisee model. In this scenario, franchise growth is accelerated well beyond the mere unit level, ceding much larger territorial control to an individual with many more responsibilities than the average owner in the franchisee network.

Certain business models can greatly benefit from this approach, especially when expanding into a wide variety of new and different markets with varying cultural differences.

While most would initially question why every franchisor doesn’t use the Master Franchisee approach, you’ll see why utilizing these preferred intermediaries isn’t for everyone. It takes the right franchisor, with the right operational systems and the right situation, to benefit from its advantages. Not to mention, the Master Franchisee approach is also wholly dependent on finding exactly the right individual to manage the effort.

Two successful case studies

Well-known quick-service restaurant franchisors such as McDonald’s and Domino’s Pizza are two examples of brands that have successfully utilized the Master Franchisee approach. This strategy helped McDonald’s expand into many new international markets where their localized operations required adherence to certain global standards.

Domino’s Pizza not only used Master Franchisees to expand into other countries at a rapid pace, but this approach was also beneficial in helping them adapt their menu offerings to meet the expectations of local tastes on a cultural level. These two examples highlight where the Master Franchisee approach paid off.

Both are franchisors with highly proven systems (and well-known brand recognition), with product offerings easily capable of being replicated across different regions, markets, and cultures. Of course, that’s not to say the Master Franchisee approach is reserved solely for international expansion. In many cases, franchisors (including the brand I represent – Stratus Building Solutions) have successfully reaped the benefits of this scalable strategy right here in the U.S.

Ideal master franchisee situations

Any franchisor who wants to expand in the face of challenging market conditions — cultural or geographical — without requiring direct oversight from corporate headquarters can benefit from this strategy. That’s why those operating in industries such as food and beverage, retail and certain service-provider sectors typically find success with this strategy.

What it comes down to is the business model’s scalability and the franchisor’s willingness to relinquish and delegate a significant amount of operational control to an intermediary, aka the Master Franchisee. Franchisors who prefer tighter control over their brand standards and operations and who might also be worried about maintaining their consistency across multiple locations are less than an ideal fit.

One last thing to consider – it does take a reliable individual with abundant business acumen to assume the responsibilities of being a Master Franchisee. And people of this caliber don’t exactly grow on trees.

Ideal profile of a master franchisee

Finding the right individual to install as a Master Franchisee is extremely important, especially considering the high-risk, high-reward stakes involved. They must be fully committed to building the brand in the defined territory while adhering to the franchisor’s strict standards. They also must be capable of investing in and maintaining a certain level of financial stability to sustain rapid growth. In addition to being highly experienced in managing and scaling businesses, they must also possess the ideal leadership skills required to recruit, train, support, and nurture franchisees – which takes charisma.

Lastly, Master Franchisees must have a thorough knowledge of the local customs, regulations and the intricate market dynamics required for aggressive expansion within their defined territories. The considerations that must be considered when targeting a wide range of cultures, ethnicities, local customs, and regulations don’t just apply to international expansion.

In many cases, the U.S. presents an equally diverse marketplace, requiring a calculated geographical approach. In terms of scale, granting Master Franchisee licensure internationally is often divvied on a country-by-country basis. But domestically, here in the U.S., Master Franchisees can be granted territorial rights for an entire state, province, or a variation of the two determined by predetermined regional boundaries. Exactly how these territorial rights are determined and awarded, on a global or domestic scale, is up to each franchisor.

Responsibilities of the master franchisee

Many people in the industry refer to Master Franchisees as “sub-franchisors,” and for good reason. As Master Franchisees, they’re tasked to operate as a third-party intermediary within a defined territory that far exceeds the footprint of franchisees at the unit level. While managing this designated territory, Master Franchisees oversee growth, ensure full compliance with the franchisor’s brand standards, and use their local market knowledge and operational expertise to ensure the desired level of expansion goes according to plan. They must be adept in meeting the challenges that pertain to:

Localized Marketing – specific marketing strategies that apply to local preferences and cultures
Training Programs – ensuring all new franchisees are well-trained and motivated
Streamlining Operations – implementing scalable efficiencies that improve profitability
Expansion – recruiting new franchisees into the Master Franchisee’s territory
Community Engagement – establishing mutually beneficial relationships with the local community

With proficiency in these combined areas, Master Franchisees must be able to operate with little direct oversight and become the ultimate “go-between” for the brand and its new franchisees within the defined territory.

A final word of caution

Earlier, it was pointed out that the Master Franchisee approach isn’t a one-size-fits-all solution, as there are potential downsides to employing this aggressive strategy. First and foremost, it takes a highly talented and experienced individual to assume this role and its subsequent responsibilities. It takes competence and commitment to manage multiple franchisees in the challenging environment of expanding into new territories and cultures. If the brand isn’t managed well and oversight falters, subtle variations in quality and consistency are typically the first casualties. And one last thing any franchisor must consider when contemplating the Master Franchisee approach. It requires robust systems to monitor and support Master Franchisees, which many consider quite resource-intensive.

Like any entrepreneurial venture, the Master Franchisee approach can easily be described as a high-risk, high-reward strategy—when it works out for the best, of course.

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