⛫ How to Roll Up Franchises

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For whatever reason, lately I’ve been getting more outreach from searchers looking to get into franchise ownership and execute a roll-up.

Perhaps it’s past podcasts I’ve done with:

• Michael Horowitz - who successfully entered & executed Wingstop

• Jon Smith - who was at 48 locations of Club Pilates when I interviewed him, and continues to grow

• Jack Foster & Jake McLaughlin - who have grown to 25+ Meinekes in two years, and are still building

Either way, searchers typically ask me for a framework of what to look for, so here is my simplified version of that:

You need a brand with hundreds of locations (ideally 500+) that demonstrably show consistent unit level economics in the ~20% EBITDA range and/or 3 year payback or less.

Top franchise brands in any sector are bringing those metrics to the table, so you’re settling for less if you pick a brand that doesn’t meet that benchmark.

Note: the number of locations within the brand is especially key, as you need a certain volume to be able to have enough internal M&A opportunity

The brand needs to have fragmented ownership. If you tried entering Club Pilates or Wingstop today, you’ll be competing with numerous groups who already have scale, reputation, and deal flow.

All of which would make it an uphill battle to execute a roll up.

You need to get there before others figure it out - which is what Nick Mindel did with Nothing Bundt Cakes about ~20 months ago

> "My number one rule is, I don't care what the brand is—if the leadership isn't right, I'm not investing” - Raj Patel, 100+ unit Dunkin’ Owner

You want to be up front about your intentions with the franchisor, as I have seen so many examples of brands doing all they can to skew M&A activity in the direction they want. This can be, but isn’t always, in your best interest as an aspiring large multi-unit operator.

It has to be taken on a case-by-case basis, but there are many scenarios when it benefits the franchisor to start consolidating ownership. Ultimately, the way to figure this out is to have open discussions with the brand before you sign a franchise agreement!

This was an amazing conversation with Andrea, who has a fascinating operating background. Her parents owned a McDonald’s as she grew up, so her first job was working there.

Eventually, she led the family in expanding a multi-unit portfolio of El Pollo Loco. It is there where she credits her operating prowess.

In that segment of her journey, we touch on how she successfully added kiosks to her units in a way that reduced total labor hours, but increased throughput, order accuracy, and average ticket size….all while maintaining a hospitable environment.

When it comes to Handel’s, we touch on all things related to the brand origin story, operating model, and her unit economics - which she believes is strongly correlated to the store format she chose to go with.

> “They make the ice cream in-house, and I was like, ‘That’s why it’s so good.’”

> “They’ve won every award. National Geographic has rated us best ice cream on the planet.

> “By 9:00pm on a Saturday night for us, we’re running $1,000 to like 12, 13, $1,400 hours.”

> “We projected ourselves out at about a million [in revenue], and I think we will be well above that for this year.”

> “One of the things I love about Handel’s is that like it is a perfect job for teenagers, for students, or for someone who just wants kind of like a side gig. It’s easy work, it’s really easy to train, and, you know, the work itself is fun and joyful.”

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