By Joe Tagliente
is one of the most critical strategic decisions that you can make when you are building your business. Whether you’re a franchisee, or you’re a franchisor and you’re trying to make your brand ubiquitous, you cannot be cheap with the real estate. You have to spend the money to get the best locations, because if you don’t get the best locations, you won’t be where the business is.
So many chains these days are trying to break through, but they’re trying to save money, so they end up building in a mall that might be past it’s prime, or they’re building on one of the off-streets in a popular town, instead of on a street that’s more centrally located. They’re hoping that crowds will find them — and it rarely works.
What makes for a good franchise location?
Let’s say you have a choice between two sites. With site A, you only get 1,400 square feet, but it’s a fantastic location right next to a that does $3 million in revenue and a Chipotle that does $2.5 million. With site B, you can get 2,500 square feet and it’s cheaper, but there’s not the same audience. You’re better off going with site A. Maybe the space is tighter, and you have to be creative in the way that you develop it, but the crowds will be there and you can build a great business.
There’s all sorts of empirical data you can analyze to determine whether or not a location is good to develop for a franchise — demographic studies, traffic, prognostications of future development, and so on. But in the end, the best thing you can do is to find other businesses nearby that are competitors and see how they’re doing. If they’re doing really, really well, you build right next door to them.
I learned how to select sites from my dad, who is a , and he was very well respected for being great at picking locations, His formula was very simple: Here’s a McDonald’s that’s doing $3 million in sales, and we’re going to build right next to them and do 80% of whatever their sales are, and have a fabulously profitable restaurant. And like clockwork, it worked every single time. So, it helps to keep good company when trying to figure out where to build the next location for your business.
How has the decline in mall traffic affected restaurant franchises?
Over the last 20 years, there has been a change in the mentality of real estate developers with regards to restaurants and as tenants in their various developments, particularly malls. It used to be that the landlord would focus on having Sears or Macy’s or Nordstrom as their anchor tenant in order to carry the mall, and then things like restaurants and so forth were just sort of nice accoutrements and conveniences for the shoppers while they’re there.
Now that we have the Internet, and people are shopping online all the time and they don’t feel the absolute need to get in the car and go through the brain-damage of walking through a mall, the foot traffic that goes through malls and centers has diminished. As a result, the importance of good restaurants and those types of quality tenants in retail centers and malls has increased significantly, since those are now the draws that bring crowds to those retail centers — because you can’t go out to dinner online. I mean, you can , but then you’ve got to get in the car and pick it up.
So now it has become more important to have and franchises in these retail centers to increase the foot traffic so that it creates a benefit to the Macy’s and the Nordstroms and the big retailers of the world. Landlords have become much more focused on restaurant tenants, and that has created huge opportunities for restaurant developers, franchisees, and so forth to get really great locations and concessions from landlords that they wouldn’t have gotten 10 or 20 years ago.
The post appeared first on .