The location of your franchise outlet is critical to the success or failure of your new business. For this reason alone, you should carefully research all your new Franchise Site Options, taking a wide range of factors into consideration.
To maximize your chances of success, you have to have a thorough understanding of the demographic makeup of the territory in which you want to open your franchise. It is critical to understand that not every concept will do well in every location, and not every Franchise Site is an automatic winner.
In any business, gut instinct and experience go a long way to help you make important decisions. When you are risking your own capital on the purchase of a franchise business, however, be sure that you back up your instincts with research and hard data.
The Basic Franchise Location Questions
Before you get into researching your new Franchise Business Site, make sure you have a firm grip of the Franchising Concept. Work closely with your Franchisor to ensure you can answer these questions:
- What drives traffic to the business?
- Who is the target market?
- Where do target customers live?
- How and when do those customers interact with the concept? (For example: a restaurant that caters for office workers during lunch, etc.)
- Is it a destination concept? (Do your customers come to you, or do you go to them?)
- Does the business rely on impulse sales, making a highly visible location very important?
Do your homework
Every franchisor has its own specific set of requirements and regulations for selecting a business location, which will be outlined in the Franchise Disclosure Document.
A good franchisor would also have done much of the market research already, it is in his/her best interest to be up-to-date with relevant demographics. In addition, as a first-time franchisee, the franchisor will have information that you don’t have yet: experience. He/she will know what has been done in the past and how the franchise concept has performed in different locations.
Many franchisors already have consultants in various regions, who look for potential sites, keep track of all commercial developments, and work with real estate agents.
- Talk to fellow franchisees
Getting input from current franchisees about business site selection is also a good strategy.
The franchisor may want to give their best locations to franchisees with a proven track record, potentially leavingfirst-time franchisees struggling to secure prime commercial development sites.
- Carefully evaluate your Franchise Site
More than half of all franchises are retail businesses, for which location is especially important. To ensure that you secure the best site for your concept, take these factors into account:
- Demographics of your Franchise’s Catchment Area
It is vitally important to have a thorough understanding of the demographics of your business’ catchment area. Investigate whether local residents will want to buy goods or services from your franchise outlet. “You can achieve this by understanding the psychographics of the area-based target audience – their psychological needs, aspirations and preferences,” says Sybrand Strauss, MD of Fernridge Consulting. In other words, “… who lives in the houses; what do they earn and how do they spend their salaries.”
Fernridge Consulting has developed a unique method of gathering income demographic data through aerial photography. The company’s online application, AfricaEye (www.africaeye.co.za), can help you gather accurate demographic information and retail expenditure for major African cities.
Strauss stresses that it is also extremely important to consider the growth potential of the area. “Are new houses being built? A business will stagnate in an area of low growth. In sub-Saharan Africa there is massive growth potential for new retail stores. Prospective customers have money to spend on aspirational goods and services,” he says.
Other considerations include whether the area is safe and whether the centre provides visible security. “In South Africa, shoppers are mobile and spoilt for choice, and if an area doesn’t offer exactly what they want, they tend to drive on to the next store or mall,” says Strauss.
“Competition is also an important factor, but contrary to common thinking, this is not always a negative. If you are opening a liquor store, you would like to be near a grocery, butchery or video store, but no other liquor outlet. This is called complimentary attractiveness.
“On the other hand, fast food or fashion outlets benefit from synergy with similar stores in the proximity. In these instances, customers like variety so that they can compare items before purchasing, or please different people in their group. We call this accumulative attractiveness,” he adds.
The next step should be to compare the population break-down of the franchisor’s successful franchises to the population in your area:
- Total population – Most franchise concepts’ success is dependent on a minimum population in an area to ensure that there are enough potential customers.
- Population density – Each type of franchise will draw customers within a finite radius. Once you have determined the actual radius for drawing customers, study the data to see whether there are sufficient people to keep your business thriving.
- Demographic characteristics – Will your franchise concept appeal to a broad demographic cross-section of the population, or does it have specialised appeal? Does the area in which you want to open your franchise have sufficient numbers of the appropriate customers for your business?
- Income levels – In addition to age and ethnicity, the income level of your target market is vitally important. If your business will be offering products which most would consider ‘luxury items’, you have to ensure that the average income is the area is sufficient to support your business.
Other important considerations are:
- Traffic patterns and access – Is the site located on a desirable side of the street? How convenient is the access to your outlet? Can customers turn into your parking area with ease and exit it just as smoothly?
- Sufficient parking – Visit the proposed site at several different times during the day to determine, for example, whether the parking area is monopolised by a popular restaurant in the same shopping centre during lunch and dinner periods.
- Visibility – Visibility is critical and you have to consider whether your storefront and signage will be clearly visible from the main traffic flow.
- Research your neighbours – Make sure you know everything you need to know about your co-tenants in the shopping centre or area.
- Competitors – Keep your direct competitors in mind, not just in the shopping centre, but also within a close radius. Are you in a better position than them? (If many of your customers drive to your franchise from a particular office park, you need to be closer to them than your direct competitors). Similar companies that are doing well and attracting customers to your area will, however, ensure greater success for your outlet.
- Tenant mix – Take note of the other tenants in your shopping centre or nearby area. Try to find a space close to companies with complementary products or services.
- Anchor store – A major store like a large national supermarket could greatly benefit your store. But your strategy should not rely entirely on the biggest tenant in a shopping centre to help drive your franchise’s sales, as it could easily close or relocate, and can even end up harming your business if its customers take up all the parking spaces.
- Be financially realistic – A site is only perfect if you can afford it, it is therefore, vital to understand the economic realities of your concept. Franchise owners must, for example, be confident that the projected increase in sales for an upmarket area will justify the higher rental charged. “The most expensive store is not necessarily the best option for your specific offering,” Strauss explains.
Different criteria for non-retail sites
Retail franchise businesses only account for part of the wide range of franchise concepts available.
If your franchise concept involves going to your customers, rather than them coming to you, a home-based franchise will make sense. Similarly, for industrial franchises a highly visible or easily accessible location is of less importance. Instead, you can focus on finding a low rent manufacturing facility or warehouse.
In all these scenarios you still need to think about your target market, and select an area with the greatest density of customers.
Real estate professionals
Once you have found your perfect site, it is important to engage the services of an experienced commercial real estate agent and a franchise attorney. Your franchisor will also provide a great deal of support in the final negotiations. A professional will carefully examine details that you may overlook.
It must be stressed however, that your franchise’s location can only take your business so far. Great business sites are a limited commodity and there are many successful businesses that operate in sites with conditions that are far from being desirable locations.
It is up to you as the owner of your new Franchise Business to ensure that you attract the right target audience to your new store. Without a compelling product offering, exceptional customer service, well-trained staff, a targeted marketing plan, and functional store layout, etc., a new store in the right location can also run the risk of failing.