Food franchise success is often determined by location. There are many important considerations in choosing the right location.
By Lori Karpman (Published in Canadian Business on May 11th, 2020)
Anyone in the food industry will agree that the three most important elements of success in franchising are location, location, and location. Where one chooses to set up their business has a direct, substantial impact on customer inflow, top-line sales, and bottom-line profits. The restaurant’s setting needs to be able to support the business now and in the future as most franchise agreements have an initial term of 10 years (and often undergo renewals).
Before choosing a location, it is important to have an understanding of the consumer and their eating habits, as well as many other aspects of business operations. Franchisees must consider the following questions:
- Who is the ideal/target customer? Where do they live, what are their ages, and eating habits?
- How long are people willing to travel to get to the restaurant? Do they walk, drive, or take public transit? In the case of the latter, easy access to local transportation is vital
- What is the ‘customer traffic’ in the area? This refers to the number of consumers visiting the location, vehicles passing by the area, and the number of pedestrians who can walk to the place.
Note: The best way to assess customer traffic is to visit the area several times a day, including weekends.
- What does the franchise sell—is it a product or service?
- What size location is required? Does the site require additional storage space and, if so, does it have to be on-site, or can it be a remote location?
- What are the demographics of the area? Do they constitute the business’s target market?
Note: It is important to gather additional information about the people who live in the area, such as their age, income, family size, number of cars each person owns, etc.
- Does the franchise demand a parking area or a terrace? Are there any other space requirements?
Note: It is a good idea for franchises to have around five to eight parking spaces per 93 m2 (1000 sf) of retail area.
- Does the store need special ventilation or a certain amount of frontage
- Does the business involve both online and in-store sales and, if so, will extra inventory be required—as this will call for additional dedicated space.
- Does the business cater to only certain times of the day? For instance, is it a breakfast-only place that closes at 3 p.m., or do the customers come at all times of the day?
- Who is going to go on the head lease? Is it the franchisee or the franchisor? If it is the latter, they will sublet the space to the franchisee.
- What side of the road should the franchise be on—access or egress?
Note: Franchisees should make sure their restaurant is on the ‘right side of the street.’ For example, a breakfast place should ideally be on the side of the street people take in the morning to get to work. If it is a diner, it should be on the evening traffic side of the street. While it sounds silly, truth is customers do not like to cross medians or droves of oncoming traffic.
- How much can one spend on total occupancy cost, including the rent and any common area expenses, or are there other financial tenant obligations
- Is there anything unique about the franchise’s concept that requires special accommodations?
- Will the restaurant require distinct lighting, fixtures, or other hardware installations?
- Are there restrooms for staff and customers? Does one need an accessible washroom?
- Is there adequate fire and police protection for the area?
- Is there a sanitation service available? Are there any recycling measures in place?
- Are there any laws restricting sales to certain days or hours?
- Are there any laws or restrictions on the sale of the franchise’s product or service?
- Does one plan to work in the restaurant? How far is the place from where one lives?
Note: Commuting can take up a lot of time, and travelling may not be feasible.
Addressing the above concerns is essential in selecting the right location for the business. One must remember the selection of space is a long-term commitment and requires a high capital investment.
Certain types of products dictate the choice of location. For a convenience purchase, such as takeout food, easy access to let the customers in and out is important, as is parking; however, if it is a full-service specialty restaurant, people are willing to drive a little longer. Parking remains important no matter what kind of service the restaurant provides.
Before one signs any lease, it must be reviewed by an attorney and approved by the franchisor. There are often sets of rules and procedures related to franchise locations (e.g. non-competition clause). Franchisees may also want to contact the local city hall and/or zoning commission to make sure the franchisor’s signage package is acceptable, or if it is under any restrictions. For instance, in the case of the latter, there may be limits on the size and/or imagery one can use to advertise their business. It would also be nice to know what, if any, construction projects are planned for the area as this may affect the customer’s ability to reach the store, or it can signal higher sales volumes in future years if there is a highway or new residential area on the horizon.
When choosing a city or province to locate the food franchise, one must research the area thoroughly before making a final decision. This includes reading local papers, speaking to other small businesses in the area, and obtaining area demographics from the local library, Chamber of Commerce, or the Census Bureau. Specialty research firms that cater to retailers also provide demographic information. Any of these sources should be able to provide details about the area’s population, income brackets, and median age. Once franchisees are able to figure out who their target customers are, they must work toward finding a location closer to where the consumers live, work, and shop.
One must never confuse the volume of traffic in the area for the number of customers. Franchisees often want to set up their food business in densely populated areas. That said, the people should meet the definition of the franchise’s target market for the business to be successful. Small restaurants may benefit from the traffic generated by nearby larger stores. When considering visibility, franchisees must look at the location from the customer’s viewpoint. In many cases, the more conspicuous a restaurant is, the less advertising is needed. A food franchise located several miles out of town in a free-standing building will need more marketing than one located inside a mall.
As far as local competition is concerned, other shops in the franchise’s prospective location can actually help or hurt the business. One must determine if the nearby stores are compatible with their business. For example, a takeout pizza shop is best in a strip/service mall with tenants such as banks, pharmacies, and other such services. These malls usually have ample parking, so customers generally shop at two or three stores at a time. However, a full-service dine-in restaurant can be less finicky about the location as they are a destination people will actively drive to.
Types of trade areas
A good location is the primary element for attracting customers. Further, the area type can also make supply and distribution easier. The ‘zones’ from which the restaurant draws its customers are called ‘trade areas.’
There are three basic types of trade areas or zones franchisees must consider, depending on the business’s product or service.
Solitary sites or Free-standing locations
These are single, free-standing shops, which are isolated from other retailers, even though they may be on a pad space in a local shopping centre. These locations are often selected for restaurants.
The cost of occupancy for a free-standing space is relatively low compared to other more prime locations. These sites are generally away from direct competition and often have fewer operating restrictions such as a use clause, which is added to lease agreements to grant the tenant exclusivity for the sale of one or a series of items. For example, a local shopping centre with a pizzeria will not likely allow another pizza shop on the property.
The disadvantage of such locations is that there is much less pedestrian traffic—the place must be a destination people are willing to drive to. As such, these spaces are ideal for restaurants as they generally have ample parking.
Unplanned shopping areas
These locations have retail spaces that have evolved over time. The shopping area includes multiple retail stores, downtown locations, retail strips along a highway, or the local main street. There is high traffic, but only during business hours. Secondary business districts are in larger cities, on the town’s main thoroughfare. If the franchise’s demographic consists of business owners, then these types of sites may fit the bill as the customers can come before or after work on their way home. There are many advantages if the shop is situated near a complimentary business (e.g. a dry cleaner near a coffee shop).
Planned shopping areas
These expansive outdoor centres, expressly built to hold multiple tenants, are called ‘power centres’ or ‘lifestyle centres,’ and they are always designed to be strictly retail. The shopping area may be located on one road, or it may even look like a small city with a large pad and a variety of tenants. These shopping destinations have ample parking, though occupancy costs can be higher in these centres as they have large areas of land and parking spaces to clean, as well as higher business and property taxes. With easy access and egress, these locations have greater visibility. They have very high traffic, and people will generally shop at a few outlets.
Franchisees should not feel rushed into making a decision on the perfect location. They should take their time and research the area. If they have to change their schedule and push back the date of the store’s opening, they must do so. Waiting to find the perfect store location is better than settling for the first place that comes along.
For a convenience purchase, such as takeout food, easy access to let the customers in and out is important.
A food franchise located inside a mall will need less advertising than one situated several miles out of town in a free-standing building.
A full-service dine-in restaurant can be less finicky about the location as they are a destination people will actively drive to.