There’s a good reason why the franchise business model has withstood the test of time. The business model simply works and can benefit all stakeholders.
On the one hand, franchisees utilize what should be an operating system proven to work in similar markets. More importantly, franchisees in more mature systems benefit from an established, recognizable brand that has demonstrated great value to its customers.
Other perks for the franchise owner include ongoing training and support, property management assistance, bulk purchasing power, ability to secure additional funds and credit, and a network of like-minded professionals.
On the other hand, the franchisor can leverage the model to expand the company’s reach to new markets. In addition, the company has access to a greater pool of talent and can help minimize risk of failure.
Ultimately, franchising is one of the best ways for a business to branch out and expand without using its own capital. This begs the question: Can a franchise have too many units and get too big?
There are cases where a franchise can become too large. And yet there are special cases where the opposite is true.
For example, you can have a coffee shop on virtually every corner, and the franchise never gets too big. But this is not always true of every concept. So, what seems to be the defining factor for franchise systems that can never get too big?
How Many Stores is Too Many?
In 1990, McDonald’s had slightly over 19,000 locations worldwide. With a franchise system this big and with growth tailwinds, the company decided to keep expanding. In the next few years, however, McDonald’s system growth seems to have hit a tipping point and they ended up closing about 100 stores.
The Franchise Meets Culture Movement
So why do businesses like Starbucks (which actually is not a franchise) weather the effects of over-saturation? It all comes down to the customer’s perception and culture.
Coffee shops are more of a movement and an integral part of society than just businesses. Americans have an insatiable love for coffee; more than 400 million cups of coffee are consumed every day.
Consumers are part of the coffee shop movement, rather than considering themselves as mere Starbucks’ customers. It is this sense of belonging and culture that drives sales for all coffee shops big and small. It doesn’t matter if there’s one Starbucks or 20 in a single market; they will all get customers.
Meeting Customers’ Expectations
Can there be too much of a good thing? Certainly not. That’s precisely why some franchise systems can’t get too big in terms of the number of units. In other words, if you can meet customers’ expectations, you can expect your franchise to withstand the growth.