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The importance of location when buying a franchise

Article by Mike Gatti

Kyros Franchising

It would be trite to start any article on ‘Location’ by quoting the title of that well known television series regarding house hunting, but the similarities between that and franchising are actually a lot closer than you might think.

When searching for a house, you will take into account the size of property you need, your budget, your style of living, your income, the amenities you need close at hand, whether you want urban or rural, an area you know or completely new, commute times and school runs and how much you will compromise on your perfect new home!

When looking to invest in a franchise then there are as many considerations and probably more…

The best starting place is probably you – forget about the franchise to start with. Having interviewed thousands of individuals looking to invest in a franchise it is surprising how many initially say they will ‘move anywhere for the perfect opportunity’. It is only after suggesting a few potential locations that the individual will actually admit they don’t really want to move to London or the South East, they wouldn’t really want to move to Scotland or Wales and actually they would be much better off staying where they are and seeking an available franchise that will suit them rather than the other way round.
After all there is not a shortage of good franchisors looking for good franchisees!

‘Local knowledge’ and a ‘stable home environment’ are actually quite important when a franchisor looks for a franchisee – starting a new business is stressful enough without having the additional burden of finding somewhere new to live.

But let’s look at some different types of franchise and try to put things in perspective where location is concerned.

At one end of the spectrum is the retail franchise. The investment here can often run into 6 figures due to shopfitting and stock as well as the franchise fee. The choice and cost of location here can make or break the franchisee. There is always going to be a mix of factors but you would want the franchisor to know the demographic s of their customer base, to know the type and size of premises required, the relationship between footfall and rent and service charges (i.e. you don’t want to be paying high rent/lease charges if the footfall doesn’t justify it), and how you might leverage the franchisor’s reputation to get better rental/leasing deals. Indeed some franchisors will lease premises on the franchisee’s behalf and sublet to them – this usually means the franchisor’s covenant enables better lease rates and conditions than if the franchisee tried to negotiate themselves.

Other franchise concepts requiring premises will still require sound advice from the franchisor in terms of site location, size, rent etc. Whilst not as critical as retail premises there will still be elements of the choice that will help determine the success of the franchise. For example, if the franchise is territory based then it would make sense for the premises to be fairly central within the territory, or perhaps close to where the potential customer base is. The franchisee can help here with local knowledge.

The type of franchise here is where perhaps a serviced office or industrial unit is required.

Where premises are unnecessary, such as for home-based white collar or ‘man-and-van’ franchises, you still have to establish if working from home will suit you – for some it means working 24 hours a day (work is always open) or succumbing to the constant temptation to nip into the kitchen for another coffee and just see what’s on TV for half an hour.
There are also the neighbours and local bye-laws to consider – especially where you might need to park a van at home or take deliveries during unsociable hours. Location within a territory is also important – the less time you spend travelling to your customers the more time you spend earning money.

In terms of the franchise to choose– a key consideration is the brand identity in or near your chosen territory. For example, if the franchisor is fairly new and has no franchisees anywhere near you, then it will be largely up to you to build the brand in your territory. If you are looking to start your franchise fairly adjacent to an existing franchisee or the franchisor then the brand awareness will be increased for all parties.

A ‘mature’ franchisor may have already franchised the ‘prime’ territories so you need to consider if the franchise model will be successful enough in a ‘secondary’ territory. The density of potential customers can be key – whilst all territories of a particular franchise may be based around numbers of businesses or numbers of people in an area – if the area is huge you’ll be spending your life behind the wheel.

The key to remember about location is that generally the higher the investment the more critical the choice of location. It is also true that a ‘great’ location doesn’t guarantee success – a lot of that is down to you. It is probably very true however, that a poor location at too high a price will be doomed!

 

Last Updated: 29-July-2014

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