Conglomerate Investing: Cash Cow Or Franchise Fizzle?

Blue MauMau:

Is buying a franchise unit from a holding company that contains various brands a good or bad idea? Some franchise experts are saying that buyers should be wary.

Franchise conglomerates, those holding companies that own multiple franchise systems and brands, can buy various brands within their own niche, such as Raving Brands buying restaurant brands. Or conglomerates can be as diversified as athletic shoes and ice cream, as troubled NexCen Brands is. And such firms have been making the news with increasing frequency of late, like the announcement of insolvency issues at NexCen, the acquisition of Wendy’s by Triarc or an aggressive selling presence at this year’s International Franchise Expo.

Boom of Buying Brands Now a Bust
Darren Tristano, Executive Vice President for Technomic, Inc., a restaurant and vendor consultancy that tracks the 500 largest restaurant chains, thinks there has been a surge of franchise conglomerates over the past few years. Tristano states, “If you go back about 10 years, there was a trend by the major chains to really go after different non-competitive brands within their portfolio. This occurred within full service and limited service [restaurants].”

Tristano says that franchisors saw having multi-brands as a benefit to franchisees. “If you look at McDonald’s, they acquired Boston Market, Donato’s Pizza and Chipotle.” He continues, “What they were trying to do was give their franchisees an opportunity to own other restaurants within their area without being competitive with the McDonald’s brand.”

But where conglomerates were once buying companies, they now are trimming down. Continue reading.