Location is crucial for many businesses, so how can you ensure you get the right site when you buy a franchise?
So you have decided to join the “XYZ” franchise system, which involves a commitment to open a store. Whether XYZ is a food, home goods or an office services (B2B) business, the franchisor is likely to make the following statements:
- We will assist you in finding a site
- It is up to you to do your own due diligence as to the suitability of the site
- While we can assist you in this, it will be your final responsibility (as normally your name is on the lease).
- We have undertaken some franchise network planning, and retail site analytics, but cannot share this with you by law.
You may be paying “XYZ $50,000 to $100,000 to join the franchise system, $20,000 for your training, and you are about to commit for a five year lease at $150,000 per annum, and a $350,000 fit out cost – much of what needs to be paid before you open.
While your immediate outgoings may be about $500,000, you are actually committed (in legal documents) to about $1.4m over the next five years. Hopefully it is going to make you a profit!
So while all the words are great, and you are being asked to sign a document indemnifying the franchisor that they have NOT given you any iron clad commitment as to sales forecast or profits, you want to go ahead.
What should you be looking for in your own due diligence before committing to this new franchise system and the suggested site?
Searching for a site: 5 issues to consider
What should you be looking for in a site, in conjunction with the network development manager? The priority may change depending on if you are looking inside a shopping centre, a shopping strip or a free standing store. Hopefully the franchisor has undertaken what we call retail location planning and has some logic and priority on areas for new stores.
1. The demographics
How do I know there are enough people living around the area, and are they the right type of people for what I am selling? The first point of call is the ABS website www.abs.gov.au and look up Census and Quikstats. You can look at any area, discover the number and type of people living in each suburb or postcode, and some relevant demographics to understand the area.
If you are a B2B business, then think in terms of what businesses surround you, and how many people work in the vicinity. This is most relevant to businesses like accountants, print businesses, lunch time food and many others.
2. The physical site
It’s no good leasing 200 sq m if you need 500 sq m Make sure the site fits what you are trying to do. If it is in a food court, is there enough frontage, and do you get a remote store room? Think for the future, and what you expect the business to look like in two to five years’ time.
3. Traffic, access, visibility and parking
Traffic, both pedestrian and vehicles can be measured, and in many cases is extremely important. For vehicle traffic data maybe your franchisor should subscribe to www.zenithtraffic.com.au which will give traffic estimates in all metro areas.
As well as passing traffic, can potential customers see you (visibility), can they get to you easily (access) and can they park? A great site is wasted if nobody knows you are there and can’t park to visit you. Onsite parking may be an essential – is there enough?
4. Generators
Think in terms of what is around you and therefore drawing opportunity near to your store. Twenty years ago Bunnings was considered a category killer to the corner hardware store.
These days many similar and ancillary businesses want to be as close to a Bunnings as possible, as they recognise the sheer drawing power of the DIY and blue collar type customers into the immediate area, and to the store.
5. Competition
Some people over react to competition, some businesses actually like to be with their competitors. Why do Homemaker Centres exist – each with up to four bed shops and electrical retailers?
While you may not want your competitor next door, it normally is not the end of the world if they are neighbours.
Seek advice
You will always be told in franchising that it is up to you to perform your own due diligence. Do it wisely, or seek assistance from an expert for the property decisions you will be required to make – probably the largest commitments you will ever make, besides your residential home.