Multi-Unit Franchisee Magazine Issue II, 2016 | Page 70

Consolidation Nation

Greg Flynn

in 2011, undertook a very strategic survey of the whole industry, and chose Taco
Bell.” His reasons included how the brand
dominates its niche and its strong management team. His strategy to stay focused
in concepts and diversify geographically
is clearly working for him: his company
has a 33 percent compound annual growth
rate since its founding in 1999, and a $1.8
billion sales run rate.
Perales, who has grown his company
from a single Golden Corral financed with
an SBA loan, took a different approach
to growth, concentrating his holdings
geographically in Texas and Florida, but
signing on with many different brands.
Today his holdings include Golden Corral, Burger King, Popeyes, Arby’s, Cicis,
Krispy Kreme, and T-Mobile, along with
10 restaurants in airports, and he was

Multi-Unit Growth by the Numbers

When it comes to third-party funding, private equity firms today are focusing more
on franchisees because franchisors have extremely high valuation multiples, says
Anthony Crews, director of research at FRANdata. Franchisees, he says, offer a safe
investment that can scale, and multi-unit operators are attractive targets because
they have large capital requirements for growth and are capital-hungry. Finally, he
says, a large franchisee’s assets are salable individually or in groups, providing a fund
with a defined exit strategy from the start.
1) Multi-Unit Franchisees Continue To Grow
The percentage of units owned by multi-unit operators has grown steadily since 2007.
2007

2011

2015

Units owned by single-unit franchisees

49%

47%

46%

Units owned by multi-unit franchisees

51%

53%

54%

2) Growth in Units Owned by Multi-Unit Franchisees
The number of franchisees owning more than 25 units increased by 92 in the past 5
years, while the number owning more than 50 units increased by 52.
2011

2015

2–25 units

37,719

41,675

26–50 units

446

486

51+ units

236

288
Source: FRANdata

3) Growth Among the Largest 100 Franchisees
At 6.1 percent, the compound annual growth rate for the 100 largest franchisees was
more than double the rate (2.9 percent) for all of franchising from 2011 through
2015. Total units controlled by the top 100 franchisees increased by 5,245, or about
27 percent.
Total units (largest 100)
% of all units

2011

2015

CAGR

19,785

25,030

6.1%

5.8%

6.5%
Source: FRANdata

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busy working on an 80-unit deal when
interviewed for this story.
“It’s impossible to make money with a
few units. The only way to make money
is through scale,” he says. “Each brand
grows organically and by acquisitions.
We keep pushing each of the brands with
remodels and acquisitions for ones that
are growing.” And the ones not growing?
He sells them, or tries to.
His approach is to dominate his markets by buying and building as many units
of a single brand as he can in each, allowing him operational efficiencies, as well
as control over the marketing and brand
image in that DMA. In a 2012 interview
in Entrepreneur magazine, he said, “Owning the market allows you to close, move,
and build stores, and to set uniform pricing and promotions without ruffling the
feathers of customers who notice different deals at different locations, or have
disagreements with other franchisees. It’s
only one price, one promotion, one message.” Perales added, “When you have the
whole market you can do what you think
is the right thing.”
While highly effective—Perales was
named the IFA’s 2015 Entrepreneur of
the Year, and his company is trending
toward $600–$700 million in sales—his
approach is not for everyone.
“For me that’s too much diversification. I can’t keep my eye on that many
brands,” says Dhanani, whose 651-unit
empire includes only two brands. He prefers an approach more like Flynn’s: many
units with a small number of brands and
a large geographical spread. While he has
108 Burger Kings in the Houston area, he
also has 100 in New England, and the 255
units he acquired from Heartland further
diversified his holdings into several new
markets, including Chicago, Minneapolis, and Omaha.
“Even if Texas is in a down cycle, we’ll
still have plenty of areas doing well,” he
says. While last winter was rough in some
parts of Texas, he says, his other markets
are doing well. And contrary to popular
perception, he adds, the Houston market,
where his company is based, is not only
not in a slump, “it’s doing great.”
So why these two brands? He’s been
in the Burger King system for the past 21
years and has done well with it. In 2009,
with his brother Amin Dhanani (see his
profile in the Q3 2015 issue), he bought
19 Popeyes in Houston and San Antonio.
“We thought Popeyes was a brand that

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