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Franchising Out of the Box: Identifying Non-Traditional Multi-Unit Sites

July 2010 Franchising World

  Requirements and specifications for non-traditional locations will alter from franchise to franchise and location to location.

By Stuart Mathis
  
As franchisors, we are always looking for ways to grow our businesses, help our franchisees meet their financial goals and the needs of their customers, and attract new franchisees to our systems. We expand our footprint into new territories, offer new products or services, and look for operational process improvements.  
  
Expanding into non-traditional locations is yet another strategic way for franchisors and their franchisees to grow their businesses. The days of existing solely in a strip mall are gone. Nowadays, franchisors seek unmet needs and assess whether or not their product or service, or a modification of their product or service, can fulfill that need. Non-traditional locations include everything from hotels and convention centers, to military bases and universities, to airports and supermarkets. The opportunities are endless. 
  
For many franchisors, the catalyst to enter the non-traditional marketplace is seeing someone else serve a need you could be serving, perhaps more efficiently. Remember the old adage, “Imitation is the best form of flattery?” Your entry into a non-traditional site doesn’t have to be revolutionary. Rather, it needs to be the right fit. You must address a specific need of the host location.
  
Often the host location has a core competency and while it needs to provide its customers added conveniences, it can be more efficient and practical to outsource those products or services. This is where a franchise organization can step in and fills a gap in the host venue’s core competency, so it can concentrate on what it does best while you concentrate on what you and your franchisees do best. It can be the ultimate winning situation for both parties.  
  
Select the Right People 
But managing the relationship with the host venue is key to the success of your non-traditional sales strategy, not   just for the success of an individual unit. Good relationship management can lead the way for establishing multiple units of your franchise brand in the host venue’s additional sites. Often, once the franchisor initiates the relationship with the host venue and closes the deal, it will step back and allow the unit’s owner to manage the day-to-day relationship with the host venue, intervening only when necessary.  
  
Therefore, franchisee selection is critical, and considerable thought should go into the type of franchisee who is right to operate your concept in a non-traditional location. Consider limiting non-traditional units to existing franchisees. That way, you will have visibility into the way he operates his business, manages relationships and serves his customers. This will also help when selling your concept to the owner of the non-traditional site. Many may find the idea of an experienced business owner with that built-in, “skin-in-thegame” incentive more appealing than a traditional employee.
  
Furthermore, the non-traditional, unit-franchise owner should be flexible and have a balanced approach to the business, skill sets that are often developed over time and through the experience of owning multiple locations and interacting with a variety of associates, customers and landlords. This flexibility must translate into the franchisee’s understanding of the differences between operating the business in a non-traditional environment versus their other traditional locations. First and foremost, the investment requirement—from start-up costs to the cost of doing business—is often different and generally higher. Remember     to factor this into the bid process and ensure that all parties, particularly the franchisee, understand and agree to these changes. And, because of the difference in costs, most likely there will be a change to the pricing structure of the products and services offered.  
  
Modify the Concept 
   It’s hard to imagine you can apply a franchise concept to a non-traditional site without having to make modifications. The franchisor will have to work with the franchisee and host site to modify operational processes, such as:  

   • Hours of operations, which will likely be dictated by the host location’s needs,

   • Equipment requirements based on the unit space and/or a difference in products and services offered,

   • A different time table to turn around a product or service, and

   • Alterations to products and service offerings to fit the host location and its customers needs. 

You may ultimately modify the concept in ways that are outside the norm, forcing you to leave your comfort zone and think outside the box.
  
For example, doing business in an airport requires some modifications. Air travelers want breakfast at 6 a.m. so you must offer breakfast options at your airport units to compete with other food venues. Or, due to a smaller operating space, you can’t accommodate certain equipment and must limit the products or services offered at the non-traditional unit. For retail franchises, you cut the amount of product sold or alter your inventory to be more specific to air travelers. Your marketing team will have to develop a marketing plan unique to this venue type. You just entered into a different market segment, one you may not have entered without venturing into the non-traditional marketplace.  
  
Specialize the Training 
In addition to operational, product and service modifications, franchisees and their staffs need to be trained differently. Training must be specific to the type of venue. Consider holding separate training sessions for franchisees opening a specific type of non-traditional unit and develop   an operations manual unique to each type. Also, be aware if the host location has requirements for the way you train your associates. For example, if you open a location in a hotel, your associates may have to attend the hotel’s orientation for new employees. The host venue may also dictate hiring practices that differ from that of the franchisee. In an airport unit, for instance, franchisees and their staffs may be subjected to background checks and finger-printing and Transportation Security Administration screenings.   
  
Understand the Financials 
While many differences exist between a traditional and non-traditional location, the fundamental difference is the financial relationship between the tenant (franchisee) and the landlord (host location). For a traditional location, this relationship is basic: lease negotiations and generally a casual interest from the landlord in the health of the business, that is, can the tenant pay the rent on time? Whereas with non-traditional locations, the franchisee’s financial performance is often interdependent with the host venue; in many cases the financial model of a franchise location in a non-traditional venue is a revenue profit-sharing model rather than a price per-square-foot. Keep in mind that the requirements and specifications for non-traditional locations will alter from franchise to franchise and location to location.
  
With all these differences, be sure to think about how to address these variances in your franchise disclosure document. Should you have a supplemental disclosure to the FDD or altogether a different disclosure for your non-traditional sites and their franchisees?
  
Entrance and success into the nontraditional marketplace requires tremendous thought and work but it allows you to give your franchise brand a broader footprint while continuing to build brand awareness and loyalty. Non-traditional units often provide your franchisees a   captive audience. If this audience receives a high-quality product or level of service, it will hopefully develop life-long affinities to your brand. When captive customers return to the open marketplace, where choices are plentiful, they will choose to continue to seek your products and services.
  
It is never too late to start thinking about non-traditional opportunities for your franchise concept. Keep your eyes and ears open to what your competition is undertaking, both franchised and non-franchised. When you find the right fit, give it a try. If it doesn’t work on the first go-around, figure out why. Once you identify the problem, find a solution and modify the process. And always remember these two key points: pick the right franchisees and maintain a close relationship with the host location. Success here can build a healthy non-traditional unit presence for your organization.

Stuart Mathis is the president of Mail Boxes Etc., Inc. (MBE), franchisor of The UPS Store. Mathis has more than 25 years of experience in franchising, operations and administration, and is a member of the IFA Board of Directors. He can be reached at 858-455-8810 or  smathis@mbe.com  .