Chapter 10: Site Selection and Real Estate Strategies for Selling a Franchise

Selling a franchise involves several intricate processes, among which site selection and real estate strategy planning stand out as fundamental. An effective location decision can directly impact the profitability of your franchise, making this a critical consideration for potential franchisees.

Identifying Ideal Locations

The process of identifying ideal locations for franchise units hinges on two central components — market demand and site characteristics.

Market demand is influenced by the demographics of the area. Consider key factors such as population size, age distribution, income levels and local consumption trends. The synergy between your target customer profile, target franchisee profile and the local demographic profile can provide valuable insights.

For instance, if you're franchising a high-end dining restaurant, your ideal location might be in upscale neighborhoods with a higher-income population. Conversely, a budget-friendly quick-service restaurant (QSR) might flourish in areas with higher student populations or bustling commercial zones.

”Is there an on- and off-ramp or ease of getting in and out of the business park?” said Jesse Curry, vice president of franchise development for Eat the Frog Fitness. “Does your business cater to day, evening or both traffic opportunities? In most retail businesses, it is all about location, location, location. With online shopping, COVID-19 and possibly a depressed real estate development period, suddenly today’s real estate environment can favor the tenant and save thousands of dollars over the life of the lease.”

Site characteristics incorporate elements like footfall, vehicle traffic, visibility, parking availability and proximity to complementary businesses. Your chosen location should align with your franchise's operational needs and customer accessibility. For instance, a QSR franchise might benefit from high foot traffic areas, while a fitness franchise might seek ample parking space for convenience.

Navigating Site Selection and Lease Negotiation

Identifying an ideal location is the first step, but securing it is another challenge altogether. Engaging a commercial real estate broker with local market knowledge can be extremely beneficial during this stage. They can assist with identifying potential sites, assessing market rents and negotiating lease terms.

“The number-one key to success in commercial real estate is partnering with the right local broker,” said Drew McWilliams, founder of commercial real estate brokerage Franchise Realty Partners. “When franchisors are starting out, they usually grow in their home state, where they already have real estate connections. But when they enter a new state, those local real estate connections can’t help anymore. Especially right now, when demand outpaces supply, it is incredibly important to connect with the best local real estate experts who have pocket listings ready in each market.”

Lease negotiation is another critical part of the site selection process. Key lease terms to consider include rent amount, lease length, maintenance responsibilities, renewal options and exit clauses. It's crucial to balance your operational needs with potential risks. For instance, a longer lease term might provide stability but can be risky if the business does not perform as expected.

Additionally, considering the requirements for any necessary remodels or build-outs to the premises is crucial. These modifications can be costly, so negotiating a tenant improvement allowance as part of the lease agreement can offset some of these expenses.

Understanding Demographics and Site Attributes

When it comes to selling a franchise, demonstrating the impact of demographics and site attributes on a franchise's potential success is critical. Prospective franchisees must understand that site selection is not a one-size-fits-all process and that different franchise concepts will thrive in different environments.

“Find out what differentiators you have or can easily implement,” said Curry. “For example, some of the features that may work particularly well in a market include on-demand video, drive-thru lanes, 24/7 access, in-home services, stand out pricing, customer service, rewards programs or other defining characteristics.”

Demographics can greatly influence customer behaviors and preferences, as well as dictate potential labor challenges. Age, income level, lifestyle and other socio-economic factors can influence both consumer-spending patterns and the labor pool. Moreover, local cultural nuances can impact the franchise's operations and marketing strategies.

Site attributes, like the physical characteristics of the location, its layout, size and nearby businesses, also play a significant role in determining a franchise's success. A well-selected site can boost visibility, attract more customers and, ultimately, generate more revenue.

As a franchisor, understanding and strategically applying these elements in the site selection and real estate negotiation process is essential to provide your franchisees with the best possible start. Communicating these strategies effectively is a key aspect of selling your franchise, as it demonstrates your commitment to their success and builds trust with your potential franchisees.

Overall, site location and real estate strategies are integral components of selling a franchise.