The where, how and why of franchise site selection

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.One of the most important decisions faced by any business, franchised or not, is where to locate outlets or branches.

While many property managers and business owners feel that a good knowledge of their industry is all that is required to make these important decisions, a quick look around the Australian retail environment shows just how many get even the basics wrong.

The stakes can be particularly high if a franchisor gets it wrong. Several landmark cases in recent times underscore the importance of having a logical and well thought-out methodology for grading potential sites. In addition, the supply of information regarding a site to potential franchisees needs to be carefully considered.

The following outlines some of the basics to be considered when developing a site selection process for a franchise business, and some of the pitfalls to be avoided.

Impulse versus destination

Before rushing out to vet prospective sites, some quiet reflection about the nature of your business and its customer base is vital. One of the first things to consider is whether your offer is impulse or destination driven.

An impulse business is one in which most business comes as a direct result of passing traffic. Examples of impulse businesses include drink vending machines and convenience stores.

At the other extreme, a destination business is one in which customers would set out on a specific journey with the primary intention of visiting a specific business type. Examples of destination businesses include tyre outlets and car retailers.

Most businesses are not as clearly defined as the examples above, so the best strategy is to estimate the proportion of your business you feel is impulse as opposed to destination driven. As a general rule, the more impulse trade you can expect to attract, the more important it is to locate in a position with high volumes of your target market passing directly past your door. As an example, impulse businesses can benefit greatly from locating within shopping malls.

Generators

Any facility that attracts a high number of people is defined as a ‘generator’. Generators can be shopping malls, train stations, entertainment facilities or even an entire precinct such as a CBD.

Being located near appropriate generators can prove very beneficial to sales, particularly for impulse business. While rentals are usually higher in these settings, the benefits to sales will usually more than compensate.

There are some pitfalls, however. When considering paying a higher rental to be located alongside a quality generator, you need to ensure that the generator is attracting the right sort of people at an appropriate time of the day, otherwise you will be paying a rental premium for little or no return.

Visibility

Most businesses (be they impulse or destination) benefit from being seen by local passing traffic. This can be one of the best forms of advertising available to a retail or service business. Being seen ensures that when the time comes for purchase, your outlet will be recalled and considered by a prospective customer.

Many prospective tenants do not consider visibility adequately, as they are so focused on the facility itself. When evaluating a potential site’s visibility, try to look at how visible the site is to approaching traffic. Ask yourself: will the nature of the business stand out even if someone is not specifically looking for it?

Convenience

Convenience is another important factor, especially where a customer has choice of multiple outlets within a local area. Consumers in Australia are becoming more and more convenience driven, and will often make choices based largely on issues of convenience. In addition to proximity and travel time, other important convenience factors include perceived ease and availability of parking, ease of access and security.

Clustering

While impulse businesses will typically do better away from direct competition, many destination type retailers benefit from being located in close proximity to other similar outlets, be they direct competitors or complementary businesses.

The core issue is whether customers are going to gravitate to locations with a number of similar businesses so they can compare products and prices. This will be the case where customers are shopping around for variety (for example, fashion and furniture) or shopping around on price (eg. consumer electronics). In such circumstances, some retailers benefit significantly from clustering.

Defining the target market

When evaluating a site, consider the people living and working in the local area, and how this profile compares to the profile of your highest spending customers. It is important to clearly define the characteristics of potential customers so as to locate in areas as close to these people as possible.

Some basic questions to be answered include: ‘Is your client base likely to originate from a place of business or a place of residence?’ and ‘are there demographic characteristics that define your highest spending customers?’

For instance, it may be that a company specialising in corporate catering needs to locate in a position near white-collar businesses, while a children’s clothing store needs to locate in residential areas with young families.

Market information and maps

Now that you have a strong mental picture of the type of environment you should be locating within, how do you go about creating a short-list of potential locations? Unless you have unlimited time, the best way of consolidating all site selection criteria is to utilise available market information and maps.

By placing the location of competition, generators and the target market onto maps, areas of highest potential can be quickly identified.

While the cost of purchasing the required data and mapping software can be inhibitive to all but the largest companies, a number of marketing consultants as well as the Australian Bureau of Statistics now specialise in producing these type of maps.

Learning from history

While all of the above theory is useful in developing a site selection criteria for a relatively new, up-and-coming franchise, once a network becomes large enough (say, 20 to 30 outlets), higher level analysis can be undertaken to better understand the brand-specific drivers of sales and to predict sales performance for future outlets.

With an existing network, all of the rules governing what is making the good stores good and the bad stores bad is there waiting to be uncovered, and a bit of statistical analysis can unlock the secrets. Failure to undertake such analysis is to ignore the lessons of those that have gone before.

Here, techniques such as correlation analysis, regression modelling and others can be used to great effect.

Summary

Do not assume that because you work in a business every day, gut feel is all that is required to locate an ideal site. Planning, coupled with appropriate market information, maps and analysis will go a long way toward making every site a winner.