Multi-Unit, Area Development and Master Franchise Ownership
By Jocelyn Chavez
For prospective franchise owners who are interested in high growth, larger investment opportunities, multi-unit, area development and master franchise ownership opportunities can be an ideal choice. Multi-unit, area development and master franchise ownership options offer franchise owners many benefits including, increased negotiating power with real estate developers, preferred pricing on supplies, reduced labor, product and marketing costs, and more.
Under multi-unit, area development and master franchise agreements, the franchisor grants the franchisee the right to develop more than one location. However, aspects of the various forms of ownership vary.
Multi-Unit Ownership-
A multi-unit franchise owner owns more than one franchise unit, however they may not have an area development agreement. Multiple units may be offered at a reduced rate per unit.
Area Development Rights-
The area developer franchisee pays a fee for the development rights and signs an agreement that obligates the franchisee to open a specific number of locations or units, within a particular geographic area, during a defined time period. In addition to enjoying increased negotiating power with suppliers and vendors, and streamlining the coordination of local advertising and promotional programs, area developer franchisees also benefit from locking in a territory in which they can develop multiple locations.
Master Franchise Ownership-
Master franchise ownership agreements are similar to area development ownership agreements, in that the master franchisee has the right and obligation to open and operate a specific number of locations in a particular geographic area, within a certain timeframe. However, master franchise agreements feature one significant difference- under master franchise agreements, master franchisees also have the right to offer and sell the rights to open additional franchise locations within the master franchisees’ market to other franchisees (typically referred to as sub-franchisees) who are interested in opening and operating the franchise in the territory.
Upon signing the master franchise agreement, master franchisees pay a master franchise fee. Often times, the master franchisee may be required to own and operate one or two locations themselves. Once the master franchisee has opened those locations, they can sell the rights to open additional locations in their territory to other franchisees/sub-franchisees.
The master franchisee becomes a sort of franchisor to the sub-franchisees who buy franchises through their master franchise. The sub-franchisee may execute a franchise agreement directly with the franchisor, or with the master franchisee. Either the franchisor or the master franchisee, or a combination of both parties may provide the sub-franchisees with training and ongoing support. The sub-franchisees pay a franchise fee and a royalty, both of which are typically shared between the master franchisee and the franchisor. Master franchise relationships are complex and vary depending on the organization.
Increased purchasing power, preferred pricing and the chance to develop a market and control a territory are some of the advantages that area developer and master franchise owners enjoy.
