"Focus Trends" highlights one retail topic every month. ** For more on Franchising listen to our August 2016 webinar with Jania Bailey of FranNet.
The Importance of Franchising
Franchises are a critical element of retail that is not widely understood. This lack of awareness belies the significance of franchised businesses, even beyond the retail sector. There are over 3,100 franchised businesses supporting over 9.1 million jobs, according to the International Franchise Association. But how do cities support franchises in their community?
Companies that want to grow their market share often use the franchise model and become a franchisor. Franchising allows owners to leverage the capital of their franchisees rather than relying solely on their own capital to open up new stores.
A franchisor creates and maintains its brand, products, trademarks, distribution and operating systems. Franchisors also help train and provide support to their franchisees. A local franchisee pays an upfront franchise fee and recurring royalties to use the company’s materials while operating a store or stores within a certain market. Once contracted, a local franchisee is the only entity allowed to operate any of the franchisor’s stores in the decided market, usually under strict guidelines established by the franchisor.
Diversity of Franchises
Companies that franchise are fairly diverse. Some have thousands of stores, and others have a just a few. Many of the growing franchisors today are quick-service restaurants though they range from hotels to cleaning services and educational facilities, as well as auto sales and services. The initial investment to become a franchisee varies, too. According to Entreprenuer.com, starting a RE/MAX business may cost as little as $38 thousand, but starting a Pizza Hut may cost up to $2.1 million. Either way, a franchisee’s return on investment does not correlate with the size of the initial investment.
Cities and franchisees benefit from franchising in several ways. Franchise businesses have a lower failure rate than small businesses due to the company’s ongoing support and careful selection of locations and operators. Also, with potentially low initial investment costs, local entrepreneurs have the ability to create jobs and sales tax revenue for their communities with corporate reliability. Franchises can also bring a local feel to a national brand with local operators and managers. Zaxby’s unique local décor serves as one example of this phenomenon.
The Role of Municipalities
Often times, a national retailer or business may pass on a city because of the absence of an identified operator or franchisee. Cities that want national retailers and brands should cultivate potential local franchisees in partnership with their chambers of commerce and other business development entities to connect them with national franchises. Cities with qualified individuals can make a much stronger case to these brands. A resource such as FranNet provides free consultation for those interested in becoming a franchisee.
The real estate required to attract franchisees is similar to that desired by corporate stores. The traditional factors of visibility, traffic counts, access, parking, co-tenancy and demographics remain the critically important. Downtown locations remain a challenge for franchisees due to increased construction costs, higher rents, challenges to the above mentioned factors, and additional regulations. Cities should take these concerns into consideration as they seek to attract retailers, whose success often relies on good real estate.
“Franchise Businesses Continue to Grow” Franchise [link]”Franchise Times Top 200″ Franchise Times [link]
“2016 Top Franchises from Entrepreneur’s Franchise 500 List” Entrepreneur [link]
“Franchisees: How to Make it in a Big City” by Jason Daly, Entrepreneur [link]