With an Increased Focus on Real Estate, Franchisors can Help Franchisees Succeed
Franchising is having its moment in a big way. After franchise financial output jumped more than 16% between 2020 and 2021, franchises have continued to expand through 2022, according to the “2022 Franchising Economic Outlook” report published by the International Franchising Association. The IFA’s figures suggest that franchise businesses contribute roughly $787.7 billion to the American economy.
This is good news for both franchisors and franchisees. However, the good news remains tempered by the reality that plenty of franchises don’t make it. Franchise Times found that just one-third of completed franchise deals end in grand opening celebrations. The others languish in sold-not-open stasis, which benefits neither stakeholder.
So, why do so many franchises wither rather than bloom? A major problem that’s not always discussed is the franchisor’s focus on helping the franchisee navigate the analysis and purchase of real estate.
A Need for Modernized Real Estate Strategies
Franchises with physical footprints rely on real estate for everything from corporate branding to sales conversions. Yet site selection can be hard to master, especially for new franchisees with little or no prior business experience. This is where the franchisor can step in to help fuel the opportunity for franchise growth.
Franchisors are uniquely qualified to assist franchisees because of their expertise. They’ve been through the brick-and-mortar location analysis journey. They understand how to approach leases. And they’ve asked the tough questions: Is the location convenient, visible, and accessible? Are the terms competitive based on the market comps? Is the tenant mix going to drive traffic?
It might seem strange to assume franchisees won’t automatically have those same concerns. However, franchisees might be more focused on other aspects of running a company. Consequently, they might not put as high a premium on site selection as they should. This is where leaning into the real estate expertise of a tenant-rep broker can help. Otherwise, franchise survival — and the local to regional to national franchisee growth that franchisors hope to experience — could be at risk.
Flipping the Traditional Script When Picking a Franchised Location
Traditionally, franchisors haven’t taken on much responsibility or authority in choosing real estate for franchisees. They can’t assume that franchisees are being pragmatic, though. Rather, they would be wise to step in at the beginning to help secure a winning site.
Of course, this takes upfront time, energy, and resources. However, it can pay dividends down the road. Some forward-leaning franchisors even take it upon themselves to purchase real estate for franchisees. They can then lease to the franchisee temporarily with the plan to sell the real estate later, either to the franchisee or another buyer interested in owning turnkey commercial real estate.
Not all franchisors want to own the premises where their franchises operate. But if you’re a franchisor, you might want to set up a repeatable real estate strategies and solutions business model that you can share with your franchisees during onboarding and training. Below are some steps to fold real estate selection and negotiation into your franchise growth systems:
1. Set expectations about brick-and-mortar site selections.
A fast way to maintain consistency and control over franchisees is to turn site selection into one of your franchise’s core processes. Strive to put all the steps into a clear recipe for success. Not only will you see more predictable outcomes, but you also might end up with fewer franchises that never get the lift they need to soar.
Remember that the more you prioritize real estate as integral to your franchise growth strategy, the more your franchisees will follow suit. Feel free to educate your franchisees on ways to use programs and data to determine true market viability. That way, franchisees aren’t tempted to make decisions based on gut instincts.
2. Talk about leasing with your franchisees.
The world of commercial lease agreements can be overwhelming to first-time franchisees. Work with yours to understand the different types of leases that are on the table. For example, a full service or gross lease is one where the tenant pays once per month. In exchange, the landlord — whether that’s you as the franchisor or another entity — covers expenses such as insurance and taxes.
The inverse of a full service lease is a net lease. Under a net lease, a commercial tenant pays for base rent, as well as the property’s maintenance and operating expenses. Accordingly, the rent tends to be lower. Nevertheless, net leases aren’t all alike, and there are plenty of other leasing variations, too. The more information you can give to franchisees about lease options, the more well-versed they will be to make the right decisions for their needs.
3. Keep omnichannel retail strategies in mind with any real estate lease.
Retailers everywhere are talking about omnichannel marketing and buying behaviors. It’s not unusual for customers to use several touchpoints to interact with a franchise. For instance, a consumer might place an order online and pick it up at the retail location. Every experience must stay on-brand, meaning the real estate selection must dovetail with the franchise’s branding.
It can be beneficial to walk franchisees through the many omnichannel customer buying roadmaps to see how and where the physical real estate comes into play. This encourages franchisees to see beyond bricks and into the customer experience.
There are so many franchise growth solutions for franchisors and franchisees to keep in mind. Just make sure that, as a franchisor, you’re implementing and passing along innovative real estate strategies to reach the full potential of all your franchisee locations.