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Selecting a Restaurant Site is Key to Franchise Unit's Success

The survival of a franchise, restaurant, or retail outlet is based on three critical criteria:

• Location
• Location
• Location

While, at first this fundamental truth may seem like a tired, old axiom, it still holds true especially in today's highly competitive commercial real estate marketplace.

As a management consultant who specializes in the restaurant, foodservice, hospitality and franchise sectors, one of the most lucrative aspects of my consulting practice is litigation support, and of that over 50 per cent deals with proving negligence on the part of the franchisor in site selection for franchisees.

Every franchisor emphatically suggests that they place a great deal of emphasis on site selection, however, poor site selection, strategy and location analysis is one of the most prevalent and persistent problems in the franchise industry today.

The bottom line is that the result of a poor site selection is an unhappy franchisee and in turn, an unhappy franchisor, whose livelihood depends on the steady stream of royalties the franchisees remit.
When a franchisee feels that the site selection is the prime reason that the franchise unit is failing, the outcome can be a lawsuit. The outcome of the lawsuit where no reasonable and independent site analysis was conducted can mean substantial financial losses to the franchisor.

SITES THAT DO NOT MEET THE MARK

Let's review a few franchise situations where I have worked for the franchisee in lawsuits against the franchisor:

The franchisor placed a white collar family-style restaurant on a fast food strip. the franchisor1s requirement for automobile traffic flow was 20,000 to 40,000 cars per day. (This site was 19,500 according to the City statistics). Half of the traffic could not access the site as there was a median in the road making access impossible. Traffic coming in the opposite direction could not see the site as the site was below grade, set back and the landlord refused street signage.

When asked how the site was chosen, the franchisor's representative - who conducted the analysis - stated that he was from the particular area, knew it well and watched the traffic near the site for an hour on a Friday night. At that time, the traffic flow seemed able to support the location.

The franchisee sued the franchisor based on the fact that the initial site analysis was poorly conducted and as a result their business was not achieving the gross sales anticipated. The franchisee won.

In another situation the franchisor selected a superior site (at least in his mind). The franchisor indicated that the location was great because it was right on the highway and a busy interchange and, therefore, it had a wonderful exposure.

The site was located on the north side of the highway while the traffic generally exited the highway and went south. South-bound traffic, north of the highway, could not access the restaurant as there was a median in the road blocking the access to the restaurant's driveway.

In addition, there was a building blocking the exposure to the highway and as a result there was no visibility to cars passing by. The site was also located at the back of side of a mall ,and, therefore had no exposure to the side street either. The franchisee sued the franchisor after finding out that the franchisor received a huge financial inducement for leasing the location and that the location was likely leased based solely on the inducement. Of all the restaurants in the chain, this one was doing the worst due to it1s location. The franchisee won the lawsuit.

SELECTING THE RIGHT SITE: AN EFFECTIVE SITE SELECTION PROCESS

Selecting a site for a new franchise unit differs from generalized site selection for a restaurant or retail unit in that there are already existing units in the franchise system that are performing well. So there are already "known factors" of what makes a specific franchise system succeed.

There are eight steps to effective site selection which are analyzed in two phases (with approximately fifty sub-categories) as follows:

Phase One:

Analyze the current markets of your best operations, thus creating a demographic profile of your most successful operations based on criteria such as age, income, education level, expenditures on your product.

Determine the customer profile and make-up of your most successful operation.

Determine how your customers at your most successful operations access these those locations. Bus? Car? Subway?

Define the access, egress and visibility of your best locations. For example, access, egress, visibility, parking, support, services, sunny side of the street?
Determine what constitutes your ideal store in terms of physical attributes.

Count both the pedestrian and automobile traffic in front of your best locations and set them as an ideal standard for your new operation.

Assess whether or not there is a clustering effect of competitive stores within your most successful operation areas. In some cases a clustering helps build demand. In other cases, clustering means too much competition.

Finally, determine how economic indicators have an impact on your site. For example, areas of business growth, like the construction of a new office tower may be a positive influence, while the building of residential homes may have a negative impact on your business as people are mortgaged strapped and have no disposable income.

TAKING THE PROCESS ONE PHASE FURTHER

Phase Two:

Now is the time to match up the potential sites with the attributes and market generators of the franchise system's best sites by finding the answers to each of the eight steps outlined above.

In other words, to develop a comparison or ranking of the proposed sites in relation to the most successful existing sites.

This is the active part of the process that will likely take two days to complete. In fact, at FHG International, Inc. the process is done with detailed charts and tabulations that determine an actual "score" of each potential site.

Some franchisors may feel that the effort in finding the right site for a particular unit is unnecessary, that the franchise system is strong enough to withstand even a so-so location. But in my experience, this is not the case.

Ultimately franchisees are not coming to a franchise organization for it's best "gut feel" based on the franchisor's experience within the industry. One of the most important reasons is the franchisor's ability to provide them with a site which most closely matches current successful operations, operations which support both their franchise locations and the franchisee's financial goals.

Reprinted from Ontario Restaurant News, May 1995

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