Every town and city has one, a shop that keeps changing hands. You drive past it every day and think to yourself:
- Why have they set up shop there?
- Oh, I see it's empty again!
- Sheesh, another new shop.
- Did they not know the previous 10 shops there failed?
- If I was to set up a shop I WOULD NOT place it there!
It changes hands from a hairdressers, to a bookmakers, to a taxi rank,
to a pound shop to a sandwich shop and back to a hairdressers again,
each lasting several months and each time costing the new owner a good
ten grand in stock, equipment and a new refit and each time leaving the
owner in debt.
What is going wrong? As we drive past we are all critics and you need
to pay heed to your criticisms. It failed because of all the reasons
you keep saying to yourself.
- It's the wrong location
- It's not easily accessible (no parking, busy roads)
- Too much competition from better placed outlets
Hopefully you have a varied short list of franchises you are
researching and even if they are within the same industry you should
find that one of them will be a little gem that is going to work in
your target area. To ensure you are not setting up a business in an
already saturated market you need to be doing your research.
Demographics demographics demographics!
Picking up the yellow pages is a good start. Let's use cleaning franchises and food franchises as examples
Cleaning: If in your short list you have a green cleaning franchise, a
wheelie bin cleaning franchise, a domestic cleaning franchise and a dry
cleaning franchise, all within the same industry but miles apart from
each other and all having their own merits.
Food: If in your short list you have a shop based sandwich franchise, a
van based greasy spoon franchise and a Mr Potato franchise then again
you have a varied list within the same industry.
Start jotting down from the Yellow Pages how many of each different
type of business is already in your area. This will give you some good
stats to base your decision around. It will also be beneficial to take
a drive around all your target areas to note down those not listed in
the Yellow Pages. When setting up any franchise you need to be sure
that there is not too much competition. Of course low competition
could already mean that the area is not big enough to support a
particular niche market so just because you find a niche which has not
been exploited already does not necessarily mean that it is one which
will work in your area however when doing your research you need to
find these things out.
A good idea would be to phone or visit a random selection of
businesses, find out if there is a particular product in your short
list that they would be interested in, and if you are feeling
particularly adventurous then doing a survey of passer bys can also
give you a good idea of the local market.
Your next step is to gain some stats on population and business
density. Density should play a crucial role in your selection strategy
and knowing the area demographics will give you a good insight into
which franchise is going to work for you. High density of households with 2 kids
a dog and a car shows you should be looking at the domestic market
where as a high concentration of offices and outlets shows you should
be looking into the commercial area. You also need to know how to evaluate high competition. It could be that there are already 4 sandwich bars in your local area but if your local area has a high population then maybe it can support another.
Location is also very
important and depending on the type of franchise you are buying into
you should also be looking at the proximity to local schools, leisure
centres, industrial areas, office areas etc. Accessibility too, there
may be a need for a sandwich bar in your area but if no one can get to
it then footfall will be low.
With a food franchise you may find that in a more industrial area a
greasy spoon van will go down a treat where as a sandwich franchise
does not. In a business area you may find office workers coming to
your sandwich bar more than they would your bacon, egg and sausage bun
outlet. So learning as much about your target market is a great step
towards success.
With all your research to hand you should be able to swiftly select the
few that are viable options. There are many great franchise
opportunities out there but franchisee churn can be caused by the lack
of proper research into the target area. Where as a franchise may have
100 profitable "Mr Potato" franchises in operation up and down the
country, it could fail for you and will have failed for several people
simply because your area or their area could not support it.
Part 5 of my Buying A Franchise series will be on how to get the best out of your newly franchised business.