A thoughtful approach to new market development is critical to the expansion plans for any franchisor.</strong></span></p>

By Jeff Sturgis</em></span></p>

For franchisors, growth is good. That growth typically comes in two primary ways: unit/franchisee count or same store/unit sales increases. When looking to grow in number of units, it’s easy and tempting for a franchisor to look at a map of the U.S. and say, “Wow, look at all these areas we can grow.” </span></p>

Whether it’s looking at the hot growth markets in California, Arizona, Texas, Florida and the Carolinas, or the density of population in the more established midwestern and eastern cities and states, every franchisor has visions of hundreds of units opening and operating in these markets. For many franchisors, this pull can be even more tempting when inquiries are coming in from qualified candidates seeking to be the first to open in these markets.</span></p>

These are all good problems to have. But the key to long-term, sustainable, successful growth is thinking strategically about entering new markets, and what it takes to attract and support new franchisees in these markets.</span></p>

Think Carefully Before Embarking</b></span></p>

For a retail-based concept (food or non-food), there are a number of considerations that need to be addressed and thought through before embarking on a plan to enter a new market. These considerations include but are not limited to:</span></p>

  • Competitive environment,</span></li>
  • Adaptability and relevance of product or service in a new geography,</span></li>
  • Real estate costs and availability,</span></li>
  • Construction costs,</span></li>
  • Distribution and logistics associated with</span></li>
  • proprietary items,</span></li>
  • Brand awareness,</span></li>
  • The franchisors’ ability to increase geographic scope of support,</span></li>
  • Communications and compliance, and</span></li>
  • Readiness and ability of your suppliers and vendors to support your franchisees in these markets at the same or competitive costs as they are providing now.</span></li>
    </ul>

    Be Mindful when Engaging New Prospects</b></span></p>

    When it comes to engaging new prospects in these new markets, there are also a number of considerations to keep in mind. Again, your internal discussions shouldn’t be limited to these questions, but it will get the ball rolling to prepare you for the growth you seek.</span></p>

    • What is the profile of your ideal franchisee and will it differ in a new market?</span></li>
    • What types of development deals will you consider?  Single or multi-unit?</span></li>
    • Do you have the marketing budget to support potentially increased lead generation goals?</span></li>
    • Do you have answers to all of the questions a “pioneer” franchisee is likely to ask of you?</span></li>
    • Will you be using the same marketing tactics or different sources for lead generation in these</span></li>
    • new markets?</span></li>
      </ul>

      Where Do You Want to Go and Why?</b></span></p>

      When making the decision to enter new markets, one of the first questions good franchisors should ask themselves is: where do we want to go and why? Contiguous development from one state or market to a neighboring market or state is often the best approach. This usually removes brand awareness issues if there is trade and traffic between the markets, will often help ease any distribution challenges, and make it easier for the franchisor to support. </span></p>

      However, there can be compelling reasons to “jump over” some markets or states and expand further away. These reasons could include competitive presence, demographic demand, or brand awareness — in the case of brands where people from the home state or region have migrated in mass from one part of the country to another. Think of all the northeasterners in Florida or all the transplanted midwesterners in Arizona. There also just may be opportunistic reasons to jump into new markets. For example, maybe an ideal franchisee candidate has approached you and fully understands the risk (and rewards) of being the first to market in a new area.</span></p>

      Timing is Critical</b></span></p>

      Timing is also another consideration a franchisor has to contemplate. While there are likely many “new” markets one can enter, targeting more than a couple at a time can put undue stress on a franchisor, deplete resources, and not allow the proper focus of your new franchisees in new markets. The best approach here is to target one or two key growth markets, take the steps mentioned above, and execute against the plans you have made. Good franchisors will learn what they did right and wrong and apply those learnings to the next round of new markets.</span></p>

      A thoughtful approach to new market development is critical to the expansion plans for any franchisor. The successes can be significant and satisfying, but the risks and failures can weaken even the strongest systems. Being part of any growing franchisor is exciting, but being part of a successfully growing franchisor is even better.</span></p>

      Jeff Sturgis is vice president of Franchise Development for McAlister’s Deli. Find him at fransocial.franchise.org.</em></span></p>

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