A franchise, by it’s very nature, is a proven, replicable business model. Franchises are governed by rules, systems, and processes for how to operate the business, which also apply to entering a franchisor’s company and being granted the rights necessary to operate a business under their umbrella.
It’s surprising the number of people who want to enter a franchise system and share in the success of the system, but fail to be able to make it in the door, because they can’t follow the system for the very application. When entering a business, location is everything, for the right concept.
How does the franchisor secure the location?
Franchisors tend to work with companies to help pre-select and pre-determine locations that are suitable in various markets. They look to have sites earmarked, so that when franchisees express interest in the brand, they have locations available to show them. Most people assume that franchisors will invest money, secure a site, start building it out, and look for a franchisee at the same time. This is a very capital-intensive way of growing a franchise system, and brings with it tremendous risk to the franchisor. The preference is to grow a franchise with the franchisee’s investment. This means that franchisors are holding sites on spec with landlords who are still looking to lease them during that timeframe. So, if a franchisee is not prepared to act quickly, the site could be lost to a competing use which is ready to act sooner. At the same time, the franchisee cannot be approved for financing, and cannot build a business plan and potential return on investment, without a location and a lease. Add in that recent legislation is pushing franchisors to provide greater disclosure, including information about locations prior to entering into a franchise agreement, and you have a totally paralyzed system unable to move forward or backwards.
Yet, locations are designed with a purpose and use in mind. Landlords are aware when a space is suitable for a pizza restaurant or nail salon, and prefer those tenants. They understand that disclosure law is cumbersome, but also won’t tie up properties without some form of security. That security may come in the form of a deposit or a signed conditional offer. This gives the franchisor and franchisee enough time to work through their issues of assessing the site without unnecessary financial risk.
Why is location so important to my success as a franchisee?
Location is critical to your success, as it determines the volume of traffic you can attract to your business, and the quality of that traffic. Understanding who your customer is and making sure you are in the right area for those customers makes you more accessible, so there is a greater chance those customers will visit you. The density of your core demographic surrounding your location will help you determine the likelihood of capturing that customer base.
For example, if you are situated on the corner of state and main with a storefront facing both sides of the intersection, you have high visibility. If 30,000 cars pass by your location daily and 20 per cent of the surrounding area is your target client, then you have access to 6,000 potential customers daily. If you have nine competitors within a 1 km range of your location, then you are sharing those 6,000 potential customers with nine competitors, and you will be the 10th. This could mean that you would have access to 600 potential customers daily and fight over the remaining 5,400 with your competitors. This is a very simple example, and the ones provided by professional demographers and real estate professionals are much more extensive, taking into account market capture rates for various brands, loyalty, and hundreds of other factors to determine the likelihood of success. Having this information is critical when it comes to choosing your location.
What should I keep in mind as I undergo the site selection process?
As you undergo the site selection process with the franchisor, one piece of advice stands out: always listen to your gut. If you show up to a site and at first glance it isn’t for you, then it isn’t likely to get much better. You have to see the opportunity and believe in the strengths of the location.
I would also suggest that you don’t take for granted that the franchisor has always done the amount of work required to vet a site properly. Investigate the vetting process, speak with the most recently-opened franchisees, and test the accuracy of the site selection model against the success they are having. Due diligence is the key to establishing a successful location for your business!
Senior Vice President