Here are the Pros and Cons to Investing in Established and Emerging Brands
Like humans, businesses go through various stages of development. In the infancy of a business, new processes are created through trial and error as it establishes itself. In franchising, the stages are typically broken into two categories: emerging and established.
Before investing in a franchise business, it’s important to consider if you prefer an established or emerging brand. But what are emerging and established brands, and what is the difference between them?
Emerging vs. Established Brands
An established brand, like Wendy’s or McDonald’s, is a household name with proven support and countless franchise owners to validate its success. On the other hand, an emerging brand is a system with fewer than 50-75 operating units. Since there are fewer operational units, there isn’t as large a track record of franchisee success to follow.
Depending on your goals for the business, you could invest in a franchise that has it all figured out or a concept that’s still working out the kinks. Here are the benefits and downsides of investing in emerging and established brands.
Pros and Cons of Franchising with an Established Brand
Pros of franchising with an established brand include:
- Strong name recognition and fan-base
- Support from a proven team
- Support/experience from larger pool of fellow franchisees
- Larger/national marketing and advertising support (think McDonald’s!)
All of these positive aspects of established brands are enticing to investors; it's no wonder that a brand like McDonald’s has thousands of successful franchisees globally. But there are downsides to investing in established brands, as well.
Disadvantages of franchising with an established brand include:
- Large pool of competing investors
- Decreased flexibility with how business is run/less say in system
- Prime territories may be taken
While established brands have greater documented success, yours isn’t guaranteed by simply investing in one. Maybe you are looking to invest in a brand that will grow as you do. If that’s the case, buying an emerging franchise could be the way to go.
Pros and Cons of Franchising with an Emerging Brand
With an emerging franchise, you have greater access to prime markets and multi-unit or area development opportunities. Franchise owners also have a higher likelihood of establishing a better relationship with a franchisor due to the smaller size of the franchise system.
Since the brand is new to the industry, there is also a greater opportunity to give feedback to the franchisor. Pros of franchising with an emerging brand include:
- Exciting first-to-market opportunity/new product
- You can grow with the brand
- Greater access to prime markets
- Ability to form relationships with the leadership team
- More opportunities to move up/influence in the brand
There are benefits to being one of the first to invest in a band, but there are also disadvantages to consider. These include:
- Shorter track record of success
- Generally smaller support teams
- Less name recognition
- Less established systems
- Decreased likelihood of accessing capital
Now that you know the pros and cons of investing in these brands, how do you determine which is best for you?
Emerging or Established Franchise. Which is Best for Me?
Determining which brand to invest in depends on what you’re looking for in a business. If you are looking for more control and autonomy, an emerging brand could fulfill that desire. With an established brand, you have the benefits of a larger fan-base and more franchisees to contact.
Before making a decision to go all-in, it is also important to speak with a franchise consultant.
Working with a Franchise Consultant
A franchise consultant is a professional who works with prospects to find the ideal franchise opportunity. Based on your background, financial situation, goals, and more, this professional connects you with an ideal franchise opportunity.
Their services are free, so it’s a no-brainer to meet with a franchise consultant before making a purchase. Top franchise brokers can offer a mix of established and emerging brands to pick from.
Many top consultants work at a franchise broker network like the International Franchise Professionals Group (IFPG). With great support and educational tools, IFPG Consultants stay up to date on the latest trends and best practices in the industry. Consultants also help you understand the Franchise Agreement, Franchise Disclosure Document, franchise royalty fees, and more.
Emerging vs. Established Brands: What’s the Difference?
When deciding on an established or emerging brand, there are pros and cons to consider. With an established brand, you benefit from name recognition and national marketing support, but the investor pool is large and prime territories may be taken. Franchisees with emerging brands have the opportunity to grow with the brand and have great access to prime markets. On the other hand, these franchises have a shorter track record of success and less established systems.
No matter which brands you choose, franchise ownership will likely continue to be a great investment because franchise businesses drive 1.8 times higher sales than comparable non-franchise establishments, according to Oxford Economics research.