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Franchisors like yourself must actively choose new locations to fuel network growth. The decision to select the right franchise location is crucial. Assessing factors like local competition and demand is essential in this process. This article provides franchisors with practical tips for choosing new franchise locations and explores the pertinent legal implications tied to this decision.
1. Conduct Thorough Market Research
In a growing franchise network, you should have a good idea of your brand’s target market. Determining whether they are within reach of a potential new location is essential, as this can significantly impact its profitability.
Before selecting a new location, you must conduct comprehensive market research to understand:
- the local demographics;
- consumer preferences;
- competition; and
- trends.
You might choose locations with high foot traffic and visibility for brick-and-mortar locations. For alternative locations, including mobile franchises, market demand and accessibility remain essential considerations. You can assess factors such as population density and consumer behaviour to determine the feasibility of the franchise.
2. Setting Site Selection Criteria
If you give franchisees responsibility for finding new locations, consider setting site selection criteria. The criteria can help franchisees find an appropriate location that upholds your brand’s image.
Such criteria might include particular standards and specifications, for example:
- access to target demographics;
- areas with high foot traffic, such as shopping centres;
- sites with specific characteristics or certain levels of accessibility, such as near busy roads; and
- avoiding over-saturated markets.
Beyond setting precise site selection criteria, consider creating a standard approval process for new sites. Doing so can give you control over the final decision. It is vital to include the site selection process in the franchise agreement. Additionally, you should detail the process in the franchise operations manual to ensure your franchisees follow the procedure.
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3. Scope the Competition
Competition can promote healthy business practices in a new area. However, oversaturation can pose risks. This can potentially exacerbate the chance of a new franchise location being unsuccessful.
When evaluating the competition in a potential area, consider the following:
- what and how many competitors exist within this area;
- the products and services competitors are providing;
- whether your brand offers distinct products and services; and
- ways you can make your brand stand out in this market.
4. Consider Cost
Cost can be an influential factor when selecting a new franchise location. It can impact set-up costs and, thus, the investment you require from new franchisees. Across the UK, business’s operating costs vary significantly. Aspects such as location, your franchise’s business model, and the type of space franchisees need will contribute to the price of a new franchise location. For example, a new franchise business based in Manchester might cost less than a London-based location.
5. Collaborate With Franchisees
Deciding on a new location for your franchise brand also means choosing a location for your franchisee’s new business. It is essential for your business relationship that you collaborate with and support franchisees through the location selection process. Some franchisors allow franchisees to lead the process using site selection criteria. Your level of control will depend on the terms of the franchise agreement.
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Legal Considerations Relating to Franchise Location
1. Exclusive Territory Rights
Some franchisors provide exclusive territory rights to franchisees. Granting exclusive territory means defining boundaries in which a franchisee operates exclusively. You will not permit other franchisees to work within another’s exclusive territory.
Granting territory rights allows you to divide the brand into distinct geographic areas. Each franchisee will serve a specific customer base without overlapping with others. They can also enable you to rapidly develop your brand in new markets, especially if you incorporate master franchisees into your networks.
If you provide franchisees exclusive territory, you will do so in the franchise agreement. You must ensure that new franchise locations do not infringe the rights of other franchisees. Otherwise, you risk breaching existing franchise agreements.
2. Licenses and Permits
You should be aware of the relevant licensing requirements in the potential area. For example, the rules of each local authority’s street vending or food operations will vary.
3. Lease Agreements
Franchisees may need to enter lease agreements for new franchise locations. You can help them review and negotiate these agreements, seeking legal advice to understand the terms and obligations if necessary.
Key Takeaways
As a franchisor, ensure successful location selection by first understanding your target market through comprehensive research on local demographics and consumer preferences. Establish clear site criteria such as demographics and foot traffic. Implement a standardised approval process outlined in your franchise agreement and operations manual. Evaluate competition actively to encourage healthy business practices and avoid oversaturation risks. Consider financial implications by factoring in costs and collaborating closely with franchisees in the decision-making process. Lastly, prioritise legal compliance, including granting exclusive territory rights, understanding local licensing requirements, and providing support for lease agreements. Following these streamlined steps will facilitate effective franchise location selection for network growth.
If you need legal advice about growing your franchise network, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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