Joel Libava
It used to be that location meant everything. Covid-19 has changed that.
For instance, if you were looking to buy a Subway franchise, you were told that “the location is key.” For the most part it was. In fact, choosing a good great location for your franchise business has always been a crucial piece of the puzzle.
Note: investing in a franchise is a fairly complex undertaking. It’s definitely one that should be done with the help of experts.
Speaking of experts, most franchisors that require a location have a dedicated real estate person on staff (sometimes an entire department). Their job is to help you find suitable property to lease for your new franchise business. And they’re probably experts at it.
With that in mind, you should know that they usually have real estate contacts in local markets. However, it’s likely that they don’t know your area like you do.
In view of that, it’s important for you to listen to their ideas. At the same time, you need to remember that ultimately, both parties (you and your franchisor) need to agree on the location. In other words, you do have some leverage.
Equally important, and a point often overlooked, is the fact that the franchisor needs the location to be an excellent one. That’s because the better the location, the better the chances are that the franchisee (you) will make money.
Franchise Rule #1
In franchising, the more money the franchisee makes, the more money the franchisor makes.
It’s Survey Time
The Washington Post and the University of Maryland just did a survey about consumer shopping habits. The results are ugly.
They found that while a majority of consumers (56%) are comfortable shopping in a grocery store, 67% are not comfortable with the idea of going into a retail clothing store and 78% don’t want to go into a restaurant for a sit-down meal. Feel me?
The results of another survey, this one focused on retail space, stated that “more than 15,000 stores could shutter in 2020, far surpassing 2019’s record 9,548 closures.” I’m actually convinced that number is going to be higher, but let’s stick with theirs for now.
Some Cold, Hard Facts About “Location, Location, Location”
To begin with, It’s no secret that Amazon, and to some extent, Wayfair, and the like, have been hammering the crap out of retail stores. Even so, the potential store closure numbers above are off the charts.
As if that’s not enough, rising rents and more competition have made it tougher for more than a few retailers and food franchise businesses to gain enough market share to be profitable.
In view of that, my question to you is this:
Are “locations” as important as they were a few, short months ago?
It’s something to ponder.
How Important Is Location In An Amazon, Covid-19 World?
Without question, if you’re buying a franchise that requires a commercial space, location is still important. But, again, is it as important as it was last year… or even a few months ago?
Suddenly, it depends on the type of business it is. How weird is that?
For example, if you own a pizza franchise like Domino’s, where delivery is the focus, your location isn’t that important. It just needs to be easy for your employees to get to. Case-in-point: they can’t hire delivery drivers fast enough!
So if you’re interested in buying a food franchise with serious delivery revenue-like Domino’s or Little Caesar’s, instead of looking for space in a high-visibility strip center, you may permitted to investigate alternative (and cheaper) locations to setup your business.
Franchise Location Alternatives
One idea for your franchise location; rent space in a secondary strip center. It would be less visible, but it shouldn’t matter that much.
Better yet, you could take a look at putting your store in a light industrial park. As long as it was easily accessible for your drivers and the few customers who would pick up their food themselves, it should work.
As a result, you should be able to reduce the cost of rent. That means more money for you!
Finally, what about sit-down restaurants?
In a nutshell, full-service restaurant franchises, like Eggs Up Grill, are a different story.
I say that because most full-service restaurants may not have full dining rooms again for a while-because of social distancing guidelines. That’s horrible news for franchisees who’ve invested hundreds of thousands of dollars into these franchises.
That said, if you’re the owner of a full-service food franchise, there are two things you can do to try to keep your business afloat until things change.
- Sit down with your accountant and go through all of your expenses, line-by-line. Get them down to the bare minimum, and then go back and chop them more.
- Call the CEO of your franchise.
The reason you need to do make that call is to see if you can work something out.
Maybe you can negotiate a lower monthly royalty, or even a complete royalty payment waiver for a set amount of time. Believe me, your franchisor does not want to see you go under, as it’s not a good look for the company.
(Image Courtesy of Phillip Pessar, Flickr)
Are You Still Bound And Determined To Purchase A Retail Franchise Or A Food Franchise?
If you’ve been leaning towards franchise opportunities that require a physical location, have you started to change your thinking a bit? If so, I certainly can’t blame you. But wait. There may be an opportunity for you here.
Namely, have you thought about the fact that commercial space is going to be plentiful in the coming months?
Translation: if there’s a lot of empty retail space around, landlords are going to deal more. With that in mind…
I hereby decree that the law of supply and demand is now in force.
What does that mean for you?
In a nutshell, cheaper rent.
Imagine for a moment how nice it would be if you could score a prime piece of super-visible space that normally goes for $8,000 a month…for only $5000 a month?
If that happened, you just lowered your expenses 25%. That’s huge! Think about what you could do* with that money?
*I would take some of it and invest in marketing. But that’s me.
The bottom line?
If you purchase a location-based franchise this year, chances are rather good you’ll be paying less for it. Plus, you’ll have more choices.
This Needs To Be Said
It’s a fact that (some) property owners have had a reputation for being rather difficult to deal with.
Not only that, some of the prices they’ve been charging over the years for their commercial spaces have been outrageous. It’s not a good combination.
Is it any wonder that retail and restaurants close so often?
Tip: Make sure you hire an attorney who’s familiar with commercial leases. They’re wordy, complicated, and they totally favor the landlord.
Where Do You Stand?
Without question, Covid-19 has changed the way we do business.
Will it be a permanent one?
Only time will tell.
Do you think you should forget everything you’ve heard about “location, location, location?”
Or, will your choice of location once again determine your chances of success as a franchise business owner?
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