Thinking Big? Don’t Overlook Small Communities for Expansion
Franchising World June 2008
Franchisors who aren’t already considering smaller markets for expansion should explore the possibility.
By Greg Tanner
When designing expansion plans for their systems, most franchisors automatically “think big,” equating big cities to big-budget spending and big advertising campaigns. However, given current market conditions and other economic factors, they may want to change their strategies to think in smaller terms.
In addition to an increasingly volatile economy, the amount of discretionary income the average person spends is dwindling. Those combined factors present obvious challenges to today’s franchisors seeking to expand their systems.
When developing expansion plans, franchisors first must decide where to focus their efforts. Their instinct is often to think of the immense possibilities that exist in large cities. After all, with large cities come millions of people, and, more often than not, include potential investors who meet the financial requirements of their opportunity.
As a result, many franchisors are left with having to spend a significant chunk of their franchise development budget on advertising in high circulation, expensive publications and other costly endeavors associated with large markets. Their logic is that, by putting their dollars behind pursuing leads in larger cities, they will see big results. They often mistakenly believe that by exposing more people to the message, quality prospects will follow.
Perhaps those who lead franchise systems might consider changing their line of thinking and doing additional required homework to close consistent deals. Instead of focusing on larger cities for leads being fought over by multiple franchises, many franchisors have found great success by researching and identifying smaller communities across the nation in which their franchise concepts would thrive.
It’s important to clarify that big cities have obvious benefits, and many franchises can and do succeed in those markets. However, it’s important that franchisors not overlook the potential goldmines of opportunity in smaller markets, which make up the greatest mass of the country.
While expanding in small markets may call for additional time and effort from within the franchise organization in terms of evaluating smaller communities for a possible fit, it also provides the prospect more opportunity to review the franchise and get a realistic perspective on the potential return on investment. If expanding into B, C, and D markets is going to take additional effort, is it really worth it? What will it take? Finally, what are the advantages of expanding into smaller communities?
Evaluate the markets and do the homework
After deciding to expand into smaller markets across the country, the real work begins. The following tips offer guidance on what a franchise organization might do when trying to gather information and collect due diligence in scouting new a market:
• List the potentials. Start by making a list of potential markets where the franchise concept could succeed. Initial research can be performed on the Internet. Gathering information and conducting research is one of the major reasons many franchisors decide not to expand into smaller markets; they cannot see the value of putting time and effort into a town that may only yield one new franchise location. However, if done correctly, the research and effort is well worth it.
• Scope out the franchising scene. Identify other companies and franchises in the area. How would the franchise organization fit in if it opened in that town? How well are other companies doing and is there enough business to make a potential franchise location profitable?
• Walk the streets. In addition to using the Internet, visit the market. Investing the time in research will yield a better understanding before making a commitment. Talk to people in the community. Eat breakfast with potential customers. All of this information will yield valuable insights to help guide the best decision.
• Tap your peers. Talk to other franchise companies that have already opened in the community. Talking to them can provide ideas of what worked and what did not when they were trying to open. Use their experiences as a guide to make sure not to duplicate the same mistakes. The International Franchise Association is also a great place for help.
By following the above suggestions, franchisors not only create a better situation for closing deals, they also set the stage for future success of their potential franchisees. Not all small towns will be conducive to a certain concept. In fact, sometimes the toughest part of going through the exercise of in-depth research is finding out that a particular franchise concept doesn’t fit. But it is better to find out sooner than later, before a commitment is made.
At first, the thought of opening a franchise location in a small town with less than 30,000 people may be daunting, due to the fact that consumers have to travel longer distances for products and services. In a major city, with millions of potential customers with strip malls and downtown areas easily accessible, residents don’t need to travel far to get what they need.
However, it’s important to remember that in small towns, residents expect and understand that they may have to travel a distance to get their goods and services. So when targeting a small town, an added benefit that a franchise organization can expect is pulling customers from multiple neighboring towns as well.
Better Mileage Out of Advertising and Marketing Dollars
After doing their homework to identify small markets where franchise concepts can prosper, the next obvious step is to seek out the right franchisees.
In larger markets, advertising costs can be extremely ineffective. Large cities mean high-circulation publications, which translates into expensive advertising rates. The inverse is true when looking at smaller towns. There may be fewer people reading the local paper, but the audience is captive–and the quality of leads is superior.
In smaller communities, public relations can be an effective tool to help “soften the market.” Rather than placing an advertisement that directly touts the franchise, readers and potential leads might be more receptive to an in-depth, third-party personalized article that focuses on reasons why a franchise company is targeting the area. Advertisements can supplement the editorial coverage down the line as a second impression in the market.
Finding the right franchisee
Franchisors know that ultimately, a franchise location is only as good as its franchisee. All the homework and strategic marketing efforts in the world mean nothing without the right partner.
In a small market, making the right match is of the utmost importance. Small-town culture places more importance on people and services than on products. The best candidates will be those who are ingrained in the local community, most likely a resident who is a fixture in the local scene and knows many people.
The right franchisee will also be eager to take advantage of the immense possibilities in getting to know the people in the community. The person should be a regular face at local sporting events, fund-raisers and other community happenings.
After finding the right franchise partner to open a new small-town location, franchisors will discover additional benefits, such as lower real-estate and leasing costs. When a new business is being built in a small town, people notice. Therefore, new franchisees should be overly-prepared as soon as their doors open to meet and exceed expectations to increase the chances of repeat business. In small communities, loyalty is crucial. Once residents find something or someone they like and trust, they’re customers for life.
Small town America equals big time results
Aaron’s Sales & Leasing consistently identifies franchisees on the local level and has found that in many cases, stores in the smaller markets are outperforming those in large markets. The success is attributable to the people in those small towns being loyal and the local franchisee being a fixture in that community. Combined with the increased value of advertising and marketing dollars in small communities, it’s a winning proposition.
Franchisors who aren’t already considering smaller markets for expansion should explore the possibility. For all of the factors previously discussed, including lower real-estate and lease costs, better value for advertising and market dollars, increased store performance and customer loyalty–in today’s tough economy, franchise organizations can’t afford not to consider the immense potential these markets pose for growth.
Greg Tanner is national director, franchising of Aaron’s Sales & Leasing. He can be reached at Greg.Tanner@aaronrents.com or 678-402-3445.