Guide to Buying Another Franchise: Verifying a Brand's Availability in a Prime, Manageable Market

If you’re looking to expand your franchise portfolio, buying into another brand can be a strategic, straightforward move. However, if you want to make the most of your newest acquisition, you need to make sure the brand you’re interested in has availability in a prime, manageable market.

1851 Franchise recently sat down with Matt Lucas, co-founder (along with his wife, Jennifer) of The Franchising Company, to offer some expert advice and insights on verifying a brand’s availability in your desired market.

Assessing Market Demand

Before committing to a new franchise, it’s essential to evaluate the market demand in your target area. This involves taking a long, hard look at:

• Demographic Research. Analyze the local population's age, income, and lifestyle to confirm there's a sufficient customer base for the franchise.
• Economic Conditions. Investigate local economic indicators like employment rates and income levels to gauge potential spending power.
• Consumer Trends. Stay updated on relevant consumer trends that align with the franchise’s offerings to ensure sustained demand.

“We coach prospective franchisees to find markets comparable to the one they desire, where the franchise already has a successfully operating franchisee, and then validate the franchise’s performance with these owners,” Lucas said. “We also recommend performing due diligence to find and research potential competitors already operating in their chosen market. Are they doing well? Do they have good reviews? Are they substantially fulfilling the need in the market?”

Evaluating Territory Availability

Once you’ve confirmed market demand, you need to determine whether or not the territory  you want is still available. “It will always be easier to launch a new business in your backyard versus trying to open hundreds of miles away,” Lucas said. “There is no need to waste your time on further due diligence if the brand doesn’t have a viable territory for you.”

Two simple ways to check the availability of the territory you want are to 1) contact the franchisor directly, and 2) review the franchise disclosure document (FDD) for detailed information on territorial rights and exclusivity agreements with current franchisees.

“Additionally, look around the country to see how fast the brand is growing/expanding,” Lucas suggested. “Some brands are slow movers — nothing wrong with that. Others are on a fast-paced growth cycle. For these opportunities, a prospect will want to decide if they want to (and are financially able to) acquire multiple territories up front to secure future growth potential. For fast-growing brands, expansion opportunities may be limited in the future unless you go about acquiring other owners in your market down the road.” 

Considering Market Saturation

One of the problems with “prime” markets is that they may already be oversaturated with comparable businesses. You need to make sure there’s room for your franchise to thrive without being overshadowed by established competitors. Some things to look for are:

• Competitive Analysis. Identify existing competitors in the area and assess their market share, strengths, and weaknesses.
• Market Gaps. Look for unmet needs or underserved segments where your franchise could excel.
• Saturation Metrics. Use metrics like the number of similar businesses per capita to determine if the market can support another franchise.

That said, competition isn’t necessarily a bad thing as it could be an indicator that the products or services you’re providing are in high demand. The important thing is to understand the differentiator you have over your competitors. “It could be better customer service provided by you than your competitors,” Lucas said. “It could be better marketing strategies. Maybe it is being able to offer the product/service at a better price.”

Lucas also suggested that new residents moving into the area could be an untapped potential market as they’ll likely be unfamiliar with your competitors. “I would never allow competition to prevent me from moving forward with a great opportunity,” Lucas said. “If the market demand is strong, I will find a way to position myself to be successful and gain my fair share of the market.”

Exploring Growth Opportunities

In addition to assessing existing markets, you should look for emerging or untapped markets where the brand has the potential to gain a foothold. Some factors to consider are:

• Infrastructure Developments. Research upcoming projects like new residential areas or commercial centers that could boost local demand.
• Business Climate. Evaluate local business-friendly policies, tax incentives, and support from local governments.
• Scalability. Consider the potential for future expansion within the market, including the possibility of opening additional units.

“If you’re not married to a specific market and are willing to relocate anywhere in the U.S.,” Lucas said, “then the first questions I would ask a franchisor are, ‘Who are your top-performing franchise owners?’ and ‘Where are they located?’ Then, find yourself an available market that is comparable and look at acquiring that territory.”

If you can obtain this information without starting at square one, all the better. “Some franchisors will have ‘target markets’ identified for growth. Ask your franchisor if they have created a list already,” Lucas suggested. “If so, you can compare these markets to those of their top-performing franchise owners to help make a decision on where you locate.”

Factoring In Operational Considerations

All other considerations aside, your new franchise needs to be operationally feasible if it’s going to run smoothly. This means taking into account:

• Logistics. Ensure the area is accessible for supply chain operations, including proximity to suppliers and efficient delivery routes.
• Labor Market. Assess the availability and cost of labor in the area to ensure you can staff your franchise adequately.
• Regulatory Environment. Familiarize yourself with local regulations, zoning laws, and the necessary permits for operating in the area.

“Obviously, you need to make sure there is market demand for the product/service you are offering, but you also need to be sure that the market has a supply of employees to help you build/grow in the area,” Lucas said. “Cost of living is a great indicator. Are you looking at a brand that requires a large, retail brick-and-mortar facility? If so, initial investments and ongoing operating expenses can vary greatly depending on the market. If you’re in an extreme rent area, are you going to be able to offset these higher costs by charging more than other franchise owners in the system for the same product/service?”

Setting Your New Franchise Up for Success

Buying another franchise is a significant investment that requires careful planning and research. By thoroughly assessing market demand, verifying territory availability, considering market saturation, exploring growth opportunities and factoring in operational considerations, you can ensure that your new franchise is set up for success in a prime, manageable market. This strategic approach will help you expand your franchise portfolio with confidence and achieve long-term growth.

If you’re currently in the market for a new franchise opportunity or simply curious about what’s available, check out 1851’s Franchise Opportunities Directory.

ABOUT THE FRANCHISING COMPANY

Matt and Jennifer Lucas are co-founders of The Franchising Company. They’ve been helping aspiring franchisees find, evaluate and buy the perfect franchise business for over a decade. They know the ins and outs of franchising; they’ve owned franchises, they’ve started their own businesses and franchised those and they currently help dozens of aspiring entrepreneurs each month navigate the franchise journey.

Visit their website at www.thefranchisingcompany.com or follow @TheFranchisingCompany on LinkedIn, Facebook or YouTube.