A GOOD POSITION
How to choose the right location.
When joining the world of franchising, one of the biggest decisions you will make is where to locate your business. This is particularly pertinent for highercost, retail-based franchises with the financial obligations entailed.
Think of a lease fee not as a monthly expense but as a long-term commitment - if all else fails, the landlord will still be expecting to receive payment until the end of your lease. Add that up over five to 10 years, and it will probably be the biggest expenditure you ever make outside your personal home.
So where should you start to make an informed decision?
The first thing you need to address is location - the ideal site for your store. You can be reactive and listen to every real estate agent in the market, or do your own preliminary research and set out your own site-selection criteria.
Firstly consider your customer - where do they sit in the socio-economic world? Some items that everyone uses or buys may be described as demographically agnostic, but most franchise systems have a target audience. Use demographics to match the area to the product you sell.
WEALTH OF INFORMATION
With census results released, look for Quikstats on the Australian Bureau of Statistics website. Enter a suburb or postcode, and up will come a wealth of information. Once you filter down to the People segment, you will see the figures for that area. It is easy to see whether a particular area is suitable for your enterprise.
There is no need to be concerned about the size of the population of a single suburb or postcode in a metropolitan area because neighbouring districts add to the numbers. However, a rural location (town or city) is a different matter as the market is more finite.
Suburbs and postcodes are rather random in size and can vary from 803 people (in Kooyong) to 47,637 people (Reservoir), both suburbs in Melbourne.
You need to have a 360o overview of the area, which a map offers. Areas such as Williamstown (Melbourne), Newport (Sydney) and Cottesloe (Perth) may look great on face value, but you are in water
Choosing the right location is one of the most important decisions you will make when becoming a franchisee.
within 1km in at least two directions. That restricts such markets to the number of potential customers within a 3km radius.
Census data should also help you answer a range of questions, and depending on the type of franchise you considering, these can be critical...
• Are the people in the area younger or
older than average?
• Is the locality full of young families?
• Does the area have more of a student feel? • Is there high ethnicity in the area?
• What is the average household income? • Are the locals car drivers?
• Are householders renters or homeowners?
Most franchisors will do their best to help you, and in some cases may provide a datapak, or can help you with researching and understanding census data. However, it is vitally important to do your own research or due diligence.
It is vitally important to do your own
research or due diligence.
NOT ALWAYS REALISTIC
If you are researching a shopping centre, I am sure the leasing agent will be able to provide the best demographic information possible.
There is a tendency for agents to provide a map and classify areas as primary, secondary or tertiary catchments. In our experience, these may not be realistic assessments so you need to have some basic knowledge of the area to be able to draw your own conclusions.
Here are some terms you might come across:
GLAR: Gross Leasable Area Retail is the total floor space used for calculating tenancies. The space can be measured either from the internal finished surface of external walls or from the central line of walls between tenancies.
MAT: M oving Annual Turnover is the total consumer spend at a shopping centre in a 12-month rolling period.
Once you understand the data, you can suggest to the franchisor the areas that interest you for a store, confident the sites are not just local agent recommendations.
When you have pinpointed an area, you need to match your expectations with what is available and within your budget. Depending on the merchandise or service you will be offering, and whether you are going into a shopping centre or a strip, these are the points to look at:
SHOPPING CENTRE
1. Size of the centre and the gross lettable retail area, moving annual turnover and pedestrian count
2. Whether the shops being offered are
the correct size for your business
3. The suitability of the precinct, matching you with similar businesses in the same market
4. Whether your near neighbours benefit
or hinder your brand 5. Whether the rent is affordable for your
expected turnover
SHOPPING STRIP
1. The location of the strip’s busiest
section
2. Whether you are prepared to pay the rent for this busiest section or look further out from the centre of the strip 3. The size of the store
4. Available parking
5. Visibility – will signs be easily seen?
FREESTANDING SITE
1. The strongest traffic flow
2. Site suitability for product or service 3. Level of access from both directions 4. Visibility (from both directions) 5. Traffic speed going past and the
capacity for drivers to pull in.
While it is quite easy to talk about the perfect site, before you even start that discussion it is crucial to have an understanding of the areas available. It is most important to choose an area suitable for your product or service, rather than setting up in a great site within a totally mismatched area.
Peter Buckingham is both a Certified Franchise Executive (CFE) and a Certified Management Consultant (CMC). Spectrum Analysis Australia is a geodemographic and statistical consultancy.
This is a normal risk that every business owner must assume.
National franchisors who have some clout with shopping-centre landlords may be able to negotiate a restraint that prevents a landlord from granting leases of nearby premises to competitive brands, but this is rare.
And while franchise agreements guaranteeing exclusive territories are common, it is equally common to see these territories narrowly defined. For example, a retail territory might be limited to a strip shopping precinct or a particular section or level of a shopping centre. Some franchise agreements even limit the territory to the site of the franchised business.
A franchisor who grants larger territories may protect themself with provisions allowing them to split or reduce the territory if the franchisee is not meeting predetermined performance criteria.
Exclusive territory provisions also often restrict the ability of a franchisee to market outside the defined area. This becomes a problem if a franchisee wants to advertise in a publication that circulates across many franchised territories. The franchisor is unlikely to sanction this unless the other franchisees within the magazine’s distribution area agree to be part of the campaign.
Marketing restrictions usually also prohibit franchisees from maintaining their own website and social-media sites.
NON-EXCLUSIVE TERRITORY
A non-exclusive territory is one where other franchisees or the franchisor may conduct business.
Some service-based franchise systems grant a territory to a franchisee, and when allocating work (usually from a call centre) will give the franchisee first right to the work. However, if the franchisee is too busy or unable to do the job, the franchisor can re-assign the work to another franchisee.
Service-based franchise systems also often contain provisions that honour the customer's wishes. For example, a customer may use a certain franchisee for garden maintenance, and build up a good relationship with them. When the customer moves house outside the territory, they may want to keep using the same franchisee for their new garden. Rather than losing the customer, the franchise agreement may allow the franchisee to continue to provide the service even though the job has moved to another franchisee’s territory.
Where a non-exclusive territory is granted, the franchisee will usually be permitted to work outside the territory subject to compliance with the rules and guidelines in the franchise agreement and/or operations manual. Such franchisees will usually be able to work in non-franchised areas.
TERRITORIAL ENCROACHMENT
Encroachment arises where the territorial rights of the franchisee are infringed by a neighbouring franchisee working or doing business within their territory, inevitably causing anger and discontent within the network.
Some franchise agreements define territories by reference to municipal boundaries or postcodes. However, should these boundaries or postcodes change, the territory will also change, which could restrict a franchisee from continuing to service some customers.
The internet also does not sit well with territorial provisions because a franchisor or any franchisee could theoretically sell to a global market. Many franchise agreements reserve the right of the franchisor to sell via the internet. In some
cases, profits are shared with affected franchisees; in other cases, the franchisor retains all profits.
Franchise agreements may contain exceptions to the exclusivity of a franchisee’s territory. For example, a franchisor may be allowed to sell the franchise’s products in non-branded retail outlets in a franchisee’s exclusive territory, such as a supermarket. A franchisor may also be permitted to operate or allow other franchisees to operate mobile or temporary franchises inside a franchisee's exclusive territory, an example being sporting events.
The Franchising Code of Conduct requires franchisors to give a prospective franchisee a disclosure document in a prescribed form, and the franchise agreement in the form in which it will be executed by a franchisee at least 14 days before the franchisee enters into the agreement or pays any non-refundable money.
While the legal position regarding a territory is ultimately governed by the terms of the franchise agreement, franchisors must include in their disclosure document certain information about territories in order to help franchisees better understand their rights.
The disclosure document must include this information:
1. Whether the franchise is for an exclusive or non-exclusive territory, or whether the franchise is limited to a particular site.
2. Whether, within the territory of the proposed franchise agreement: a. Other franchisees, the franchisor or an associate of the franchisor, may own or run a business that is substantially the same as the franchised business; b. The franchisor or an associate may establish other franchises that are substantially the same as the franchised business; c. The franchisee may run a business that is substantially the same as the franchised business outside the territory of the franchise;
Exclusive territory provisions also often restrict the ability of a franchisee to market
outside the defined area.
d. The franchisor may change the
territory or site of the franchise. 3. The franchisor’s policy of territory
selection.
4. Details of whether, in the previous 10 years, a franchised business under the same brand has been run in the territory. If so, details of the business should be given, including the circumstances of its closure.
5. Details of whether the franchisee, the franchisor or an associate of the franchisor or other franchisees may make goods or services available online. Territorial rights can be complex and easily misunderstood. To ensure clarity about rights and obligations, franchisees must read both the disclosure document and franchising agreement carefully, and should also discuss issues relating to territory with their legal advisor.