The economic backdrop for restaurant chains is changing, and smart franchisors will adjust accordingly, said Todd Jones, managing director of brand management and business development for GE Capital, Franchise Finance. He offered these specific tips for brands’ home office:
1. Build company stores first. “They help to prove the strength of a concept” in new market territory, Jones explained.
2. Expand in reasonably contiguous markets.
3. Strive for balance in system composition. Small franchisees lack infrastructure and resources, while large franchisees will be more likely to talk at costly equipment upgrades or brand shifts. Try to find the right mix of large and small.
4. The best franchising prospects may be the franchisees of other chains, particularly if they operate a variety of non-competing concepts.
5. Don’t oversell a territory. Avoid awarding development rights for more units than you want one franchisee to operate. At some point you might want to sign other operators, or adjust your growth thresholds. “Leave some protection in your territory for future expansion,” Jones suggested.
6. Heed the old maxim of “location, location, location.” Think not only in terms of population and income, but also factors like visibility, ease of access, and ease of egress. And don’t compromise. “You can’t sacrifice location for growth,” said Jones.
7. Avoid cannibalization, which will hurt the brand as well as the local franchisee’s sales comps. “Think very carefully when you’re doing market planning about how many stores a market can tolerate,” Jones said. The revenue benefits of opening more restaurants might not be worth the damage to the franchisee’s bottom line and prospects’ impression of the concept.
8. Mistakes happen. Learn from them. “That’s how we get better, that’s how we get stronger,” Jones said. “Have a process to go back and look at what worked, and, equally important, what didn’t.”
9. Do your homework. “We’re in the midst of a pretty fundamental demographic shift in this country,” said Jones. “So when you think about where and how you expand your concepts, these differences are critical about making a decision about where to grow.”