Franchising: An Entrepreneur’s Guide

4e

By
Jonathan Comish, Scott Julian,
Richard J. Judd and Robert T. Justis
 CHAPTER 10

LOCATION AND SITE SELECTION

• Q: I'm looking to purchase a franchise but am concerned
that all the great locations for my new business will have
already been taken. How do I know what makes for a
great location, and once I find it, how do I negotiate a fair
lease? Then how do I go about building out the location?
• A: You've asked some of the most important questions
for getting your new business off to a great start. To do
your questions justice, we're going to spend the
chapter/issue focusing on site selection and
development.
 Introduction
• The overall goal of a franchise, or any business
venture for that matter, is to be profitable –
preferably as quick as possible. ... With so
much on the line, finding the right location is
one of the most important decisions of any
new business owner, whether franchise or
independent.
• There are a few factors relating to your
franchise that can make or break you, and
location is definitely at the top of that list.
• Locating your franchise in the wrong place can
single-handedly cause it to fail, no matter how
many other things you do right. Here are some
tips on how to choose a good location for your
franchise.
 Why Location Matters?

• Franchise location will affects initial costs,

forecast profitability and allow business
growth projection.
 10.1 Franchise Site Selection
• The approval of new site will typically be made
from 3 perspectives:-
Operations
Marketing
Real Estate Characteristics and
• Sales Forecast
•Appropriate zoning
• Determining customers
• Clearances from Local • Size of proposed unit demographic profiles
Authorities • Break-even point of sales in • Customer preferences
• Lease or purchase land relation to operational cost and tastes
• Property development • Calculation of 1-year, 3-year
and facilities provided and 5-year financial ROI
• Site accessibility
• Traffic flow
 Understand Your Franchise Concept

• Before choosing a location, it is helpful to fully understand the

concept of your particular franchise.
• The target customer is the centerpiece of the concept, so it is
very important to profile your target customers - where they
live and work, where and how they play, and what drives
people to the business.
• Once you understand the franchise concept and target
customer, it is easier to understand the factors that go into
choosing a good location.
 10.1a Site Profile
Major demographic factors that give significant
weight to open the new franchise include:-
a) Concentration of young families with
children
b)Proximity to schools, colleges or universities
c) 24-hour institutions; hospitals or industrial plants
d) Median-family income households within the primary
service area
 10.1b Types of Franchised Businesses
3 Types of businesses:-
a) Unique Business

A craft or high quality product/ delivery of service.

Very limited numbers of competition and often
with limited options available in the community.
e.g: franchised garden centres, picture frame shop,
automobile undercoating business
 10.1b Types of Franchised Businesses
b) Competitive business

offers similar products / services that other franchised or

independent businesses offer in the community
e.g: convenience food stores, ice-creams shops, fast-food
restaurants, pharmacies
 10.1b Types of Franchised Businesses
c) Comparative Business

Often located along the business strips within shopping centres

or malls, or on neighbouring street corners.
e.g: cosmetics, home furnishing, hardware and paints,
computers, shoes
• Other than choosing a good franchise concept,
it’s one of the most important factors in being
successful as a franchisee. And honestly,
location factors into whether a franchise
concept is a good fit for you as well. Does the
area you want to open a franchise within
actually need (or can it support) that product
or service? 
 Do Your Research
The next step to choosing the best location is to research the area. When looking at a
possible location for your franchise, some important considerations are the following:

How easy is it to get to the location (and park there)? Can traffic turn into the location
from both sides of the street, or does a median prevent access on one side? Is it an
out-of-the-way location? Is it visible from highly traveled areas?

What similar businesses are nearby, and is their location advantageous compared to
yours? Just because there's a business like yours nearby doesn't mean yours can't
succeed, but it may make it harder to get the market share you need to be profitable.

Find out what construction projects are planned for the near future. If a similar
business is going to be built soon after yours in the same area, that may not be the
best location for your franchise to move into.
 Site Evaluation Questionnaire
1. Name Recognition 13. Strategic Position 25. Entertainment Activity
2. Type of Site 14. Parking 26. Evening Activity
3. City / Town Description 15. Drive-By Influence 27. Students
4. Area Description 16. Travel Influence 28. Offices
5. Visibility 17. Commuter Potential 29. Surrounding Area
6. Prototype Look 18. Public Transportation 30. Surrounding Retail
7. Sign Quality 19. Traffic 31. Major Discount Stores
8. Access 20. Competition 32. Mall Information
9. Access Time 21. Direct Competition 33. Retail Trade Zone History
10. Office Access Corridor 22. Cannibalism 34. Retail Trace Zone Age
11. Resident Access Corridor 23. Restaurant Activity 35. Retail Clusters
12. Trade Area Access 24. Retail Activity 36. Critical Factors

Figure 10.2
 Sales
10.2 Location Selection Ratio: Costs

The best ratio for location selection ratio is

equals to one (1) or higher.

Sales
Location Selection Ratio = = 1.0 or higher
Cost

Example:
If it costs RM 650,000 to open a store (include the cost of land,
building, furniture and equipment) then sales should be
exceeding or at RM 650,000 for that start-up year
 10.2a Market Share
Market share refers to portion of total market
volume a business would likely to have under
normal operating conditions

3 ways to ascertain market share:-

a) Total Populations
b) Average amount of money spent by
consumers
c) Buying Power of the community
 10.2a Market Share
a) Number of Facilities and Total Populations

Most common method applied by determining the

total number of population in the area, identify the
average amount of money spent for the proposed
product/services offered and multiply with the
area’s annual sales.
Individual purchases fast food x Population =
Area Estimated Annual Sales
 10.2a Market Share
a) Number of Facilities and Total Populations
Example:
If Suzy is interested to start a fast food restaurant franchise, she must first
determine the basic trade area in the community. If the trade
community has 30,000 people and average person spend RM 750 per
year on fast food, then the area total sales is estimated to be RM 22.5
million.
RM750 X 30,000 = RM 22,500,000
 10.2a Market Share
b) Dollar (Ringgit) Amounts

Second method to determine the market share is by calculating

the exact amount of money spent a year on the specific
product/services that we intended to offer in the specific
trade area.
The method of finding the amount spending:-

Population x Individual annual purchase = Estimated sales per store

Number of competitors
 10.2a Market Share
b) Dollar (Ringgit) Amounts
Example:
If Suzy determined individual expenditure on fast food is RM771
per year and with population of 30,000 in the trade area then
the total sales of fast food at that area would be
RM23,130,000. Thus , with 25 number of competitors, the
estimated sales (or market share) will approximately at
RM925,200.
 10.3 Use Franchisor Resources

• Your franchisor should be able to provide a

great deal of help in choosing the best
location for your franchise. They likely already
have volumes of information about what
locations are best for franchises, and some
franchisors even have realtor connections and
legal help to make the process easier.
 Why Information Systems are Important
• 1) Operational Excellence – businesses can constantly improve their efficiency of
their operations in order to achieve higher profitability. They can do this by
constantly having the correct amount of stock in store so consumers can always
get want they want.
• 2) New product services and business models – I.S systems play a major role for
businesses in creating new products and services. New business models can be
created and these can describe how a company produce, create and sell there
products. 
• 3) Customer and Supplier intimacy – the better services a company provides its
consumers with more likely they are too come back to them and as result the
more they will buy off the supplier therefore creating a good relationship with
both parties. 
• 4) Improved decision making – I.S systems make it possibly for managers to use
real time data when making a decision to therefore make better decisions and
not have to waste time looking for  information.
• 5) Competitive advantage – if companies achieve any of these 6 reasons to use
I.S they will generally create a competitive advantage over their rivals.
• 6) Day to day survival – business invest in these systems to make their jobs as
easy as possibly.
• One theory the McDonald's approach, is to go where your competitors are already located,
especially if they‘re successful. They’ve already proven the franchise location works, and your
job is to out perform them.
• A bit scary? Another theory is the pioneer approach, find a franchise location where there's
no competition and stake out the turf. Do a good job and you might be able to scare off any
future competitors from your franchise location.
• Somewhere in between is the deliberative approach to finding the right franchise location,
which includes identifying your customers - who are they? where do they live? where do they
shop? what are the local market conditions? is the area in decline or on the rise? what's going
on with housing prices, schools, crime rates, traffic, planned road improvements? These are
all factors that should go into your franchise location decision-making process.
• You’ve done your homework, and now you're ready to find a franchise location. What's next?
Sure you can drive around and look for leasing signs, contact the landlord, negotiate your
deal and hope for the best in acquiring your franchise location or you can work with a real
estate specialist who focuses on this area of expertise to help you find the best possible
franchise location.