Pros and Cons of greenfield opportunities

Developing a greenfield site or territory is an opportunity not without a challenge. That challenge becomes even greater when the greenfield territory or site is part of a new, developing area.

To make the most of the opportunity, thorough planning and assessment can be the difference between success and failure. Don't take a short term view either. Evaluate the strength of the opportunity and the risks for the immediate and long term future.

On the upside

1. By building the business at a greenfield site, from the ground up, you appreciate the value of creating not buying goodwill.
2. The premises can be designed to cater for your specific requirements maximising exposure, accessibility and operational efficiencies.
3. A new site will feature the latest in design and presentation making it an attractive drawcard for customers.
4. Greenfield and new growth areas, give you a greater choice of sites and a chance to acquire a strong strategic position.
5. Sales will often grow more significantly in a greenfield location, as other development in the area is realised.

On the downside

1. Without a trading history there is guesswork in the expected sales and it is difficult to gauge how long it will take to break even. This can impact on the franchisee's earnings and working capital. Equally, the build up phase and growth potential are unknown.
2. The cost to fit-out and launch the business can run over budget, often causing angst.
3. There are often lengthy delays to the scheduled opening date of the new centre or building. As a result there is a loss of critical cashflow and drawings, and possibly finance costs, wages and rent.
4. In a developing area testing the competitor landscape is difficult. The likely impact of competitors is less predictable and riskier.
5. In mortgage belt greenfield areas, disposable income is usually much lower. Residents are usually new home owners with mortgages and very specific expenditure priorities.

Weighing it up

Choosing between a greenfield and an established site comes down to a few factors: the franchisee's risk profile, available choices, and an evaluation of how the service or product fits the profile of such an area.

Greenfield sites present great opportunities but not without pitfalls. The importance of thorough ar disciplined site or territory analysis cannot be overstated when presented with a greenfield or new growth area opportunity.

Don't leave it to gut feeling, there is simply too much at risk. Successful franchisors apply sophisticated methodology and extensive experience to assess critical factors such as demographics, population growth rates, traffic counts and flows public transport, infrastructure, developments and competitor activity.

By Sergio Alderuccio, Director private client services at PriceWaterhouseCoopers .

This article appears courtesy of Franchising Magazine