Published in Franchise Buyer Jan/Feb 2016
This should be the biggest question asked in selecting and opening a new business.
If the business is already operating, then the past sales are a fairly good indication for the future sales.
On the other hand, if the business is a new business, how do you estimate what your revenue is likely to be? Whether it is a large franchised brand, your own independent coffee and/or cake shop, an ice cream or yoghurt store or any other retail business, the same basic questions need to be addressed.
How do you realistically estimate the sales in dollar terms that your new business will do?
If you are joining an established franchise chain, the Franchisor may offer to provide some information, such as the demographics of the area, and maybe a listing of phone numbers of other Franchisees for you to talk to. The final word from the Franchisor is along the lines of “Do your own due diligence, as I cannot say what sales revenues you will generate” (and you will probably be asked to sign a document confirming this).
When you are about to buy a franchise you must look at the competition both from others companies, and from the franchise brand, and ask what is a reasonable distance between stores?
Competitors are normally not a great problem, and in fact, as in the case of homemaker centres and certain types of shopping centres or shopping strips, neighbouring competition can actually be an advantage.
This is what we call “clustering”. Name a reasonably sized homemaker centre/precinct, and count the bed stores, furniture outlets and electrical retailers. Experience has shown that these retail outlets actually work best together, as the combined drawing power of the homemaker centre far outweighs the advantage of being out on their own.
Published in Franchise Asia 2015
I am surprised by how many businesses decide to opt for a franchising model with no plan for how to properly achieve it. I see businesses that have tried to do it themselves, engaged a lawyer as a consultant, or just tried a shotgun approach and fired off volleys whenever they see a problem fail miserably.
Let’s start with a franchise consultant who can take an overview of the development of the franchise.
Franchise consultants are specialists who act like conductors of an orchestra, Their job is bring in (and out) the various instruments as and when required. In our case I say our business is the first violin – needed for strategic network planning, site selection policies and territory planning – and then we pass our work back to the conductor and the client to move to the next steps.
If you are buying a retail franchise you need to understand what makes a great location.
While we can list 10 or 20 drivers or factors that lead to the success of a retail business, they have different levels of importance depending on what you are selling, and how.
For example if you are selling petrol and convenience goods, your first driver is probably the numbers of cars passing the site. If you are a restaurant owner, and have a drive through as a major part of your business, this still may be your number one driver. If you have a local restaurant – sit down and wine and dine – then the area, demographics, competition and other factors will probably be more important than traffic driving past.
Should a franchise that operates out of a “bricks and mortar” store give territories or not? That is one of the biggest questions in Franchising today.
There are many opinions, and companies do it differently depending on their size, brand awareness, level of investment required by the Franchisee and basically, the view of the CEO or his franchise advisors.
The Franchisor’s views are normally around the line of let’s keep it to a minimum as it gives us more flexibility for the future. The Franchisees view is normally around thinking of it as an exclusion zone and therefore a guarantee that the Franchisor (or his successor) cannot introduce another store into the area.
Fast food and Quick Serve Restaurants across Asia have traditionally been “inline” stores in a shopping strip. Across the western world, the trend over the last 30 years has been to Drive Thru’ s, almost at the exclusion of any free standing restaurant that cannot offer a Drive Thru being sold, or knocked down.
In many countries such as Australia and the USA, we would be expecting around 60 - 70% of all major fast food restaurants like McDonalds and KFC to be what they call FSDT – Free Standing Drive Thru, and probably selling well over 60% of their revenue thru the Drive Thru windows
The science of drive thru’ s has greatly improved over the years where the process now starts well away from the store where you read the menu boards and place your order into the microphone. In many large stores you then drive forward into a window where you pay your money, and then drive on again to the window where you collect your food before heading out. This maximises the efficiency and moves the maximum number of customers thru the service lanes.
Bridge Rd retail vacancy at 25.5%: A Longitudinal study update on shop vacancy rates on Bridge Rd, Richmond (Melbourne)
Today I did exactly the same walk and counted 203 retail stores....
Article was published in Business Franchise AU & NZ Magazine Jan/Feb 2014
Where should I go?
How do I know my territory is sufficient to support me? Do I get what I am paying for?
Service franchises have a great range of entry costs, from free entry and a high level of royalties, to a high entry cost, with lower royalties, or a medium entry cost and a flat weekly or monthly payment. No matter which model you are working with, over a period of time you can estimate the payments to your Franchisor, and is this value for what you receive?
In the Service businesses, we often see large areas set out with very strict boundaries. The Financial institutions such as ANZ, Mortgage Choice, Aussie and CBA all have models like this, as they then allocate leads, and it needs to go to the right franchisee (who has paid for that area).
Before you sign up to a shopping centre site, there are some points to consider...
I was speaking with a few senior executives of some of our largest coffee and cake franchise chains over the last few weeks, and asked the open question: “How are you finding dealing with the big shopping centres at the moment?”
The common thread is that times are relatively tough, and so franchisors are having more success in negotiating new lease deals with lower rentals than probably ever before. The last thing a shopping centre needs is vacancies, and the queue of “Ma and Pa” individual businesses wanting a site has reduced greatly, so the need to fill the big shopping centres falls back onto the retail chains.
If you want to secure a site, this puts you in a far better position than two years ago. One retail chain told me how they had been prepared to walk away from some locations and actually had done so. Playing bluff with leasing agents really only works when you are prepared to close some stores, and actually do so and walk away.
Whilst the very big centres can handle this, and possibly find new tenants, the medium and smaller centres quickly start to take on a look of despair if there are more than a few vacancies on the floor.
In some states, where the law forces the registration of leases (New South Wales for example), it is possible to find out what the other tenants in the building are paying.
Published in Business Franchisor Mar 2013
Building a business is normally a long term affair. When we do a business plan, we envisage what will happen over the next few years, and use our best forecasts to make the long term decisions, and hope all goes to plan.
Why is it then when many businesses look at their long term network planning, there is a huge variety of processes used, from being proactive, such as companies like McDonalds and Caltex, through to companies that are totally reactive – where they can be led like a bull with a ring through the nose?
In many cases the location strategy for a business is driven by minimising expenses, and to that end, minimal staff (and in some cases the property department is the waiting room for retirement). When working in the oil industry, I must confess that was our assessment of many of the property managers of the time!
However the decisions this group makes for your business are some of the most important long term decisions that can make or break a company over the next 10 or 20 years.
Poor planning in new store development leads to the closures of the next 5 – 10 years, and the costs of those can be astronomical. Think of companies that rose like comets and sunk down just as quickly (some to try and re energise again). Names like Starbucks, Klein’s Jewellers, Allan’s Music and Clive Peeters come to mind.
Peter Buckingham is the Managing Director of Spectrum Analysis Australia. He is a certified Management Consultant, and a Fellow of the FCA and IMC.