Amie Larter (00:30):
Hello and welcome. My name is Amie Larter and this is the Buying a Franchise podcast. It’s vital listening for anyone interested in buying or that’s in the process of buying a franchise. I am joined as always by Sarah Stowe, editor of Inside Franchise Business, Australia’s leading franchise hub to help us guide through everything we need to know about the franchise buyer’s journey. Now, Sarah, if you’re searching for a franchise, finding the right location is going to be a pretty significant step, I’d say. Um, and that’s the topic of our conversation today. Um, Sarah, I know the phrase location, location, location is considered something of a mantra when it comes to buying a house. Tell me, is it the same thing for franchising?
Sarah Stowe (01:15):
Well, location can be hugely important to a business. I mean, it’s one of the pillars of a good business. I guess the only time it isn’t relevant is if you are operating an online only business.
Amie Larter (01:26):
Mm-hmm. <affirmative>. So what are some, what are some of the golden rules for finding the right location for your business?
Sarah Stowe (01:31):
The first thing to do is find out from the f what kind of location consistently works well for the brand. That will obviously depend on certain factors including the type of business and what kind of customers it attracts. Um, if you think about it, if you’re a convenience based business, you need a lot of passing traffic. That could be foot traffic if you’re in a high street. Um, if you’re a convenience store or fast food outlet, that really relies on impulse buys. But it could be vehicles driving past if you run a tire shop or drive through fast food outlet. If the franchise is a destination business, it will require access to customer parking. If you think of a fitness centre or a beauty salon, both of these can work in shopping centre environments where there is plenty of parking space.
Amie Larter (02:17):
Okay. True. And so assuming that, you know, some businesses there’ll be more, uh, focus on location. Can you tell us more about how a customer profile can affect the choice of a location?
Sarah Stowe (02:28):
Yeah. Demographics are, are really a key part of this. If the location looks busy but the people passing by aren’t going to buy your products and service, it’s a poor choice. So sheer numbers really aren’t, um, enough of a guide alone. Digging down to get more details about the exact location and who visits it is really important.
For instance, if you run a toy store, it’s probably beneficial to be placed near lifts and restrooms in the shopping centre. So not only do you need to know who the customers are, it’s crucial to understand their shopping patterns. So if you think about operating a service station on a busy thoroughfare you need to know when drivers are most likely to stop and stock up on convenient items, which is probably after work. So that makes it crucial to be on the right side of the street to pick up the commuter traffic, driving past the optimum purchasing time.
Visiting a site on different days of the week and different kinds of day will give you a good idea of visitor numbers and traffic flow. And then there’s a link between demographics and cost to consider. The cost of your product should align with the socioeconomic demographics of the area. There’s no point having a top quality product, pictures the premium price if you are situated in a lower socioeconomic neighbourhood.
Amie Larter (03:44):
Okay. So let’s focus in on cost. One of one of my favourite topics, Sarah. What you’ve mentioned is quite detailed. Is it difficult for a franchise buyer to assess the value of a location if they don’t have any experience in it?
Sarah Stowe (04:01):
Yeah, that’s, it’s a good point. This is probably one of the distinct advantages of buying into a franchise rather than purchasing an independent business because many franchisors will be able to offer guidance on what a good location is for their business. And many of them will even negotiate leases on behalf of the franchise,
Amie Larter (04:19):
Which I’m assuming is a massive advantage. It is if you’re a new business owner.
Sarah Stowe (04:23):
Yeah, it is. And the franchisor’s expertise and power is a valuable asset in the whole site selection process because finding the right location isn’t just about sourcing a suitable site in an area that attracts the appropriate customers. It’s also about getting a viable rental deal so that the business can thrive.
Amie Larter (04:42):
And how has Covid changed anything in, in terms of the process around location?
Sarah Stowe (04:47):
I don’t think the process itself has really changed, but obviously there’s been a shift in working habits and that’s made a difference. So it’s much more common to find office-based businesses operating a hybrid working model with more people working from home one or two days a week. And that’s inevitably shifted the dynamics for retailers. So traditionally what have been high traffic areas, the central CBD malls and um, city thoroughfares are not seeing the same volume of people and neighbourhood areas, town centres, you know, shopping centres, these are retaining more midweek custom. You’ve probably noticed that yourself.
So landlords have had to adapt and be a little bit more flexible as franchisors are following the customer traffic into the suburbs. And typically large shopping centres, particularly those with two or more supermarkets charge higher rent because they attract lots of people. Those rules still apply. Shopping strips can vary from a few small outlets to more than 800 shops. So the amount of trade they attract also varies. It’s really important to establish those details before you go further.
Amie Larter (05:53):
Okay. So if establishing the details are important, what do you think the point of potential franchisee should consider when looking at a shopping centre site?
Sarah Stowe (06:03):
There are some, there are some distinct advantages and disadvantages. A controlled and consistent traffic flow, ample parking and the opportunity obviously to leverage other tenants and their successes are definite benefits in the shopping centre. In some cases, as part of the initial deal, the landlord will contribute to the fit out of the store and give a marketing contribution that, that helps attract visitors to the centre.
Of course, on the downside, larger landlords will drive rents very hard, which can make it difficult to, um, maintain a profitable business. The mix of tenants can change and you could suffer a negative impact that is out of your control if you end up with a poor centre manager. So franchise buyers really need to evaluate the opportunity and see how it aligns with their goals and of course the retail model that they are buying.
Amie Larter (06:55):
Okay. And one thing I’ve noticed, Sarah, cause we’ve obviously worked very closely with the retail industry here, is more retailers in a category are choosing to pitch themselves near competitors.
Sarah Stowe (07:05):
Well, that’s right Amie, and I think, um, sometimes people think a nearby competitor will halve their business. But according to geo, geologistics firm Spectrum Analysis, data actually shows the opposite can be true. And that’s because grouping stores together can help attract customers for specific types of product.
And you only have to think about the classic food court. Um, everyone is clustered together because you’re going to go there and you’re going to choose from a variety of places to eat. And that works whether it’s um, electrical stores in homemaker centres or, um, fashion stores perhaps, and shopping strips.
So we all think about retail stores and the importance of being in the right strip or shopping centre. But location is also important of course. Because if you take a wider view of it and um, include territories, franchisees might operate from. So that’s not necessarily retail.
Amie Larter (07:56):
Okay. So that sounds like a whole new topic. <laugh>. Can, can you explain, please explain Sarah.
Sarah Stowe (08:03):
Well, in simple terms, the territories are like an area with a hard border, um, into which other franchises cannot cross. And in most cases, territories are provided based on a certain geographical area, which is often a particular suburb. It’s important that the territory is clearly defined to ensure there can be no disagreements over the area that are given to a franchisee. And franchisors can attach a map to a franchise agreement to clearly mark out the area.
The point of a territory is to give each franchisee the ability to market and offer their product to a similar number of people without canabalising business. This means the franchisor should agree not to locate any more stores in this area, at least for a certain period of time. But the territory rules most often apply to any franchise operates as a mobile business. It’s not really a, a, um, a retail model. So the leads generated within the territory go to the franchisee to follow up and service the franchise territory is extremely important in a business, for instance, like mortgage broking, where the franchisee territories directly correlated to incoming leads and potential income. So it’s ideal for a franchise territory to have a rigid geographical border.
Amie Larter (09:23):
Okay. And are there any variations in the territory model?
Sarah Stowe (09:26):
There are, and the distinctions are important to understand. Franchisees might be offered an exclusive or a non-exclusive territory. So an exclusive territory prevents oversaturation of a particular brand in the marketplace and ensures that other franchisees can’t intrude on the space. But while a franchisee might have exclusivity in a particular area, they will not have exclusivity over customers who may choose to use another franchisees services in a different area. Franchisee must also be mindful that their own marketing activities cannot encroach on the area of another franchisee in the network. A non-exclusive agreement doesn’t have the same protections, so the franchisor is free to introduce other franchisees or its own outlets in the area.
Amie Larter (10:13):
Uh, and is there a guide to the right sort of size when looking at territory?
Sarah Stowe (10:18):
Oh, no, there isn’t. That would be great <laugh>. Um, fundamentally a franchise system is obliged to provide you with a business operation that is in their best view, viable, but how big it’s geographically or how many potential customers houses, whether the area can be managed by the franchisee is all up for scrutiny each time a new franchisee looks at the proposed territory.
It’s an important thing to remember that the design, that the designation of the territory needs to be based on logic and science. So it’s really important to ask franchisors how they have come to create these zones and what the sources are for their data. And I’ll just add here though, that franchise buyers really need to collate information from a number of sources and not rely solely on the information the franchisor provides them. My message would be, don’t underestimate the value of doing your own research.
Amie Larter (11:11):
I am sure. So there’s certainly a lot to consider and I know Inside Franchise business would be one of those valuable resources, Sarah, but are there any tools that can help listeners in their research?
Sarah Stowe (11:25):
There are some great resources that can provide independence information when you’re getting down to, uh, particular sites that you’re looking for. So the Property Council of Australia reports on key facts and statistics, so that’s a great starting point if you’re looking at shopping centre venues for demographics.
The Australian Bureau of Statistics has an online quick stats site, and you can visit this to evaluate any area in the country as mentioned before. Of course, there’s also no substitute for visiting a site if it’s a retail area and observing the traffic flow for yourself. Um, and if you’re considering a franchise opportunity, really make sure that you understand the requirements and the boundaries of your franchise territory because ultimately this is going to be the framework of your business growth.
Amie Larter (12:12):
Well, thank you Sarah, for highlighting some of the key points around territory.
Now, well you did mention some very valuable resources. So as, uh, usual in the show notes below, we’ve got links and references if you want to follow this further and get more in-depth information before you continue your journey to buy a franchise. As with everything in franchising, there are crossovers and connections with other topics. So don’t forget to check out crucial podcasts, including the franchise agreement, the Franchising Code of Conduct, and the disclosure document.
And, and if you need a little inspiration, have a listen to our Spill the Biz Series interviews with founders and leaders in Australian business. Thank you for listening.
It’s the mantra in real estate but what does getting the right location look like if you’re buying a business?
When it comes to developing any service or retail business that is not purely online, location is an important part of the mix that can lead to success. Even the best operator with a popular brand can struggle to achieve their goals if the business is poorly located.
Key points highlighted
In this podcast we consider the golden rules of site selection, the role of demographics, how the franchisor can help secure a good location, and the pros and cons of shopping centres.
We also look at the important differences between types of territories for mobile and service-based businesses, and what franchisors should be doing to right-size their territories.
Finding a good location is dependent on a number of factors. There are independent resources available that provide useful data to help inform your decision.
Your franchisor should be using a scientific approach to finding locations and shaping territories by harnessing third-party data.
The Property Council of Australia provides data including shopping centre research useful for franchisors to shape their strategies. Ask if your franchisor is using this information.
You can access demographic data and trends at the Australian Bureau of Statistics too.
It helps to know what you are looking for, and how to interpret it, and your franchisor is your first port of call here. There are also independent mapping services who work with firms to create viable territories.
Check with your local planning department to find if there are any developments scheduled for the area you are looking at.
Download your free handbook
Inside Franchise Business has produced aFranchise Handbook. This free downloadable guide brings together the most useful and important information and expert advice on buying a franchise. It’s also available in bite-sized articles so you can select what you want, when you want.
You can also listen to the Buying a franchise podcast series. This is an easy way to digest useful information about the buying process and what to look out for as you research franchising.
We recommend obtaining professional advice from an accredited advisor before relying on information in this podcast. The publisher, the authors, the editors, as well as all their respective employees and agents, shall not accept responsibility for loss or damage arising from reliance on information in this publication.