Bringing Cold Stone on board gave Kahala a well-established brand.

Numbers tell the story: Focus Brands has a portfolio of more than 2,200 stores in the United States, Puerto Rico and abroad, and New York City-based NexCen Brands runs more than 800 quick-service restaurant units. Scottsdale, Ariz.-based Kahala Corp., owner of a dozen concepts, has a whopping 4,600-plus locations worldwide—more than big-name chains such as Orlando-based Olive Garden, Minneapolis-based Dairy Queen and Tampa, Fla.-based Outback Steakhouse.

“The advantages are multiple,” says Steve Romaniello, president and CEO of Focus Brands, the Atlanta-based parent company of Carvel, Schlotzsky’s, Moe’s Southwest Grill and Cinnabon. “First, size and scale allow you to get bigger faster, and there can be a great [many] efficiencies to operate more cost-effectively. Also, like any well-put-together portfolio, you can spread out the risk associated with individual brands by competing in different segments of the industry.”

Yet building diverse portfolios—and, of more importance, building them to last—requires more strategy and know-how than simply acquiring and/or developing a hodgepodge of concepts.

“If all you want to do is sell franchises, I don’t really see it working,” says Neil Culbertson, a former chief marketing officer for Greenwood Village, Colo.-based Red Robin Gourmet Burgers and the founder and president of Growth Partners, a Denver-based foodservice consulting firm. “One of the easier things to do is sell the franchise. The harder thing is to train that franchisee and give them the tools to be successful as they go from basically not knowing anything about your brand to executing it flawlessly day in, day out.”

Acquiring Moe’s Southwest Grill gave Focus Brands a fast-casual foothold; bringing Cold Stone on board gave Kahala a well-established brand.

The smart approach for multibrand chain companies, then, is to create a solid corporate structure that allocates dedicated resources to individual brands as needed and that capitalizes on combined assets where it makes sense to do so.

Shared services at Kahala Corp., Focus Brands and Raving Brands include accounting, legal, finance, purchasing, and franchise sales and development. Functions such as marketing, franchise operations, and menu research and development typically are handled by individual concepts, although employees charged with these roles may report to higher-up managers at Kahala as well.

“The back-of-the-house stuff is where the economies of scale are,” says Kevin Blackwell, chairman and CEO of Kahala, where each concept has its own president, marketing manager and director of operations. “We tried it the other way—where we had, for example, field people covering three different brands—and we learned you can’t be an expert at three brands at the same time.”

The development of Shane’s Rib Shack illustrates Raving Brands’ entrepreneurial approach.

Some chain holding companies develop concepts in-house, but more often, firms build their portfolios through strategic acquisitions.

Each of Focus Brands’ four concepts brings something vital to the table, Romaniello says. Carvel and Cinnabon, for example, are complementary treat concepts because they operated previously in different arenas (street locations for the former and malls and airports for the latter) and prime-sales periods (summer for Carvel, winter shopping season for Cinnabon). Schlotzsky’s gives the company a presence in the still-hot sandwich category, whereas Moe’s Southwest Grill brings the fast-casual format into the company fold. Focus is not actively pursuing a fifth brand, Romaniello says, but the company plans eventually to add another fast-casual concept.

Kahala’s initial strategy called for purchasing smaller-scale brands that the company deemed strong enough for broader growth, Blackwell says. The company now targets larger, well-branded concepts (such as recent additions Cold Stone Creamery and Blimpie Subs & Salads) that hold appeal in the international market, which Blackwell sees generating as much as 40% of Kahala’s business in the next few years.

So what does this latest wave of acquisitions mean for the industry?

Blackwell, who predicts more consolidation to come, views combining resources as a positive development for all parties. Franchisors gain more real-estate leverage with more concepts to offer, he says, and franchisees have expanded freedom to operate different brands and take advantage of co-branding opportunities.

Yet New York City-based restaurant consultant and longtime industry observer Malcolm Knapp doesn’t see large holding companies taking over the chain segment at any time in the foreseeable future.

“There will always be a mix,” he says. “There is a value in scale, but there are also well-run, stand-alone companies such as Red Robin and [Oklahoma City-based] Sonic that have no reason to become part of anything else.”

Contact writer at aperlik@reedbusiness.com