What are MUMBOs?
What are MUMBOs?
Successful franchise operators can expand their businesses by taking on multiple units for a particular brand usually within the same region, and subject to their franchisor’s consent. An alternative option is to start a second franchise business. This may well be in the same region but it will not be competitive with the first franchise. People who operate multiple units for more than one brand are referred to as multi-unit multi-brand operators or ‘MUMBOs’. They are also sometimes called ‘multi-brand franchises’.
In this article, we will cover some of the most common questions related to MUMBOs, including how they work, what reasons are there to become a MUMBO, the advantages and disadvantages of this business model and the legal risks.
While we hope this information will be helpful for anyone considering the MUMBO business model or franchisors dealing with MUMBOs, please note that it should not be taken as specific legal advice. Every situation is unique, so we strongly recommend speaking to an expert in franchise law for tailored advice.
How do MUMBOs work?
Multi-unit multi-brand operators will typically operate two or more franchises that do not directly compete with each other. This might mean operating different types of franchise businesses in the same geographic area e.g. a chain of fast-food restaurants and a chain of coffee shops. Larger MUMBO operators will own businesses across the country.
MUMBOs will often operate different brands that belong to the same parent company but can potentially operate franchises for brands that are entirely unrelated.
What reasons are there to become a MUMBO?
There are various reasons businesses operating multiple units of a single franchise might wish to expand into other brands and become multi-unit multi-brand franchises. Perhaps most commonly, it is where they wish to diversify their business, so they are less reliant on the success of a single brand, or where there are limited opportunities to expand further with an existing brand, preventing further growth.
What are the advantages of MUMBOs?
Expanding from a multi-unit single-brand franchise into a MUMBO can offer various rewards for franchise businesses, including:
- Diversifying their business (as covered above, this can reduce the franchisee’s reliance on the success of a single brand, putting them in a stronger position to withstand any market shocks)
- Increased opportunities for growth (multi-unit expansion with a single brand can be limited e.g. if a particular geographic area the franchisee covers is already saturated and there are no other areas available to expand into)
- Increasing profitability by sharing costs and overheads (certain business costs and overheads could potentially be shared between different brands operated by a MUMBO e.g. Head Office, legal and accountancy costs)
- Gaining operational knowledge (MUMBOs can learn from the different brands they operate and, where applicable and allowable, use that knowledge across all of their brands)
- Improving staff retention (multi-unit multi-brand operators can offer staff more opportunities for career progression due to having more units and brands that employees can potentially move to)
For franchisors, benefits of working with MUMBOs can include:
- Giving access to experienced franchise operators (this can remove a lot of the risk of taking on a new franchisee, giving confidence that the franchisee knows how to successfully operate a multi-unit franchise)
- Increasing profitability (as experienced franchise operators are more likely to be able to run a franchise efficiently, there is a good chance that they will operate it more profitably for the franchisor as well)
- Reducing the number of franchisees the franchisor needs to work with (multi-unit multi-brand franchises will normally have the desire and capacity to take on multiple units for a brand, so fewer franchisees will be needed for the same number of units compared to working with smaller scale franchisees)
What are the disadvantages of MUMBOs?
For franchisees, some potential issues to consider before becoming a MUMBO are:
- Maintaining an efficient and effective management structure (operating multi-unit multi-brand franchises often involves having a more complicated management structure, with each brand needing a separate management team – it is important to make sure this does not end up slowing down decision-making or lead to reduced efficiency in the business)
- Losing control of day-to-day operations (As any business becomes bigger, the business leader or leaders will normally have less control over the day-to-day running of the business – it is, therefore, important to have clearly defined leadership roles and the right management support at every level)
- Increasing personal liability (whether expanding a multi-unit franchise or becoming a multi-brand franchise, it is likely that additional financing will be required – business owners are therefore likely to be at increased personal risk due to greater secured lending and any personal guarantees in place)
- Securing exclusivity agreements from the franchisor (the MUMBO will want to be certain that they have exclusive rights to operate units within a certain geographic area or other equivalent territorial rights)
- Making a realistic assessment of the business opportunity (it is strongly recommended to make a rigorous assessment of the market to make sure the potential for growth matches your requirements)
For franchisors, some potential issues to think about when working with MUMBOs include:
- Protecting trade secrets (multi-brand franchise operators could possibly use sensitive knowledge from your brand to benefit other brands, so comprehensive confidentiality agreements should be considered)
- Creating sufficient separation between a franchisee’s brands (this can help to protect you if another brand that a franchisee operates runs into financial difficulties or experiences negative brand PR)
- Avoiding conflicts of interest with other brands (franchisors need to be confident that the brand they are franchising will receive the appropriate financial resources, time and staffing from a MUMBO and that other brands will not be favoured – this can also apply to other issues, such as selecting sites for franchise units)
- Maintaining brand standards (it must be made certain that the MUMBO will not do anything to undermine the brand, such as using suppliers or business practices that do not meet set brand standards simply to save their own costs e.g. by using their existing suppliers for other brands they operate)
What are the legal risks of MUMBOs?
Some of the main legal risks related to MUMBOs are:
- Disputes over whether a multi-brand franchise operator has used trade secrets from one brand in their operation of another
- An employee of a MUMBO breaching the terms of one of the business’s franchise agreements – this can be more likely with MUMBOs due to the business owner having less day-to-day control of how the business operates at the unit level
- Termination of the franchise agreement due to a breach of cross-default provisions (e.g. where there is an agreement to create a certain number of franchise units within a specific timeframe and the MUMBO fails to meet this)
These are just some of the things that can go wrong with MUMBOs, so it is important to have expert legal advice when entering a franchise agreement and through the operation of a franchise.
How IBB Owen White can help with multi-unit multi-brand operators
The Franchising team at IBB Owen White can advise on all aspects of franchise law, including in relation to MUMBOs.
Our expertise has been independently recognised by leading client guides Chambers & Partners and the Legal 500. Our lawyers have strong skills in negotiation and a keen understanding of both the legal and commercial aspects of franchise business models, so can give you the best chance of maximising your franchising opportunities while successfully managing your risks.