As more franchise brands push outward from their local or regional base seeking growth on the national stage, choosing the right city or designated market area (DMA) is always a critical factor in success.
Working with local real estate developers in new markets is one way for franchisors to improve their odds for success, at least in terms of site location. But the best people for them to work with are area developers who already operate successfully in these new venues, understand their market from the inside, and have an organization and infrastructure in place.
This trend toward national expansion represents opportunity for area developers looking to add new brands to their portfolio, as in the case of David Peterman and Mitch Roberts, who have 23 Panera Bread restaurants throughout New England. Realizing they're approaching maximization within their territory, the partners recently signed an agreement with El Pollo Loco to build 25 restaurants in the New England states.
The accompanying chart focuses on population and number of franchises within a DMA, ranking the top 30 areas by percentage of units within a DMA.
(Note: FRANdata, which supplied the data for this listing, notes that these numbers do not include total units for McDonald's, Burger King, and 7-Eleven. While this changes the totals, of course, it has a lesser effect on the percentages. The percentages are derived from a representative sample of franchising, incorporating data from more than 900 systems. The units in the table are from the 30 largest DMAs, and represent about 52 percent of total franchise units nationwide and a population base totaling almost 170 million.)
There are many factors in choosing a city or region for expansion. But when it comes to population, it might be as simple as the legendary response of Willie Sutton when asked why he robbed banks: Because that's where the money is. Of course, franchising, even at its historical worst, wasn't bank robbery. The point is this: All other factors being equal, why not go where there are more customers to buy your goods or services?
The figures in the accompanying chart hold few surprises, and even can be considered obvious (the highest concentrations of franchises are found in the nation's largest DMAs). Nevertheless, there are some big-picture, 50,000-foot types of observations that could prove useful to area developers and franchisors looking to expand their geographic footprint.
If you plot the 30 DMAs on a map of the U.S., some patterns, or clusters, are evident. Looking from north to south, roughly 18 of the 30 largest DMAs (60 percent) are in the northern half of the U.S. From east to west, about the same number are east of the Mississippi. Eleven are on the East Coast, and six are on the West Coast. Eight are in the Rust Belt/Midwest, and seven are in the Southeast. The New York and Los Angeles DMAs alone, sitting on opposite corners of the country, account for 9.3 percent of all franchised units nationwide, nearly 1 in 10.
Looking at clusters, or DMAs located relatively close together, the following groupings appear:
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