How four franchises find their sweet spots
"If you're not moving forward, you're standing still," goes the old business axiom. In franchising, expansion is one way of moving forward. Whether you're a start-up organization or a player who's been around a while, growth through new sites is an objective--and when it comes to successful site selection tactics and techniques, consider the following approaches.
Tossed, the upscale salad bar franchise started in 1998, currently has two locations in New York, one in New Jersey, and one on the way in Florida. But the company is looking to open as many as 200 more units in the next five years.
"We're focused on downtown and suburban areas with a strong residential and commercial mix and middle to higher median incomes," says Eric Schmitt, Tossed's president and CEO. "Our design is what I consider fresh and cool on the inside and designed for freestanding, end cap, and in-line retail spaces between 1800 and 2400 square feet."
As part of its growth plan, Schmitt says the company is targeting markets in the South, places like Orlando, Jacksonville, Atlanta, and Houston. "Many of these cities are seeing new upscale shopping centers going up, and that's perfect for us."
So how does Schmitt identify great sites? By outsourcing: he works closely with a Detroit company, which uses research and a network of real estate companies to identify target markets and then assist in finding the ideal retail space for the concept. "The group handles every aspect of site selection using local representatives in each market," says Schmitt. "Having access to local representatives gives us information that a computer program does not." He says the local guys eat, breathe, and sleep their markets, so they know what's going on there. Together, the two companies can look at demographic profiles in advance with detailed maps showing the potential build-out in a potential market.
"This is especially important since our strategy to fuel growth is to focus on area developers and multi-unit developers in and around major cities across the country," says Schmitt. "This way potential investors can see the maximum numbers of locations they could open or help develop in a given market."
Schmitt also says real estate conventions and shows are great site selection tools for the company. In addition to specialized knowledge of individual markets, "brokers often know when a project is on the drawing board, and we can find out about it before they even break ground. This gives us a head start to secure a location," he says. "At the end of the day, we know that Tossed is not a destination location. If we can find the right tenant mix with a few other dining choices around that bring in traffic, we're going to succeed."
Cleaning up on site selection
Loveland, Ohio-based Martinizing Dry Cleaners also looks outside for franchise site selection assistance. The brand has about 600 U.S. stores and markets itself as a premium provider to an upscale customer base. Mike Gates, director of operations, says the franchisor uses demographic giant Claritas as a key part of its site selection process. Claritas, one of the nation's largest demographic research firms, helps identify prime demographics for store locations (see sibebar).
"We have developed criteria that identify for us if a site has the potential to be successful," he says. "We look at median household income over $60,000, we want 5,000 households within two miles, 60 percent white collar, and mostly female." The company has a Claritas terminal in its office that Gates can use to access demographic data, or he can log in through his laptop computer anywhere, any time.
Like Tossed, Martinizing targets not only upscale customers, but upscale locations. Gates says locating in an upscale shopping center is critical: since people tend to drop off clothes in the morning, the company has identified its best locations as centers with steady morning traffic volumes driven by popular retailers such as Starbucks and Panera Bread. "We also know that we want to be located on the going-to-work-side-of-the-street so it's easy for folks to drop off their clothes in the morning," he says.
Gates says he is hands-on when it comes to identifying potential sites. While he visits many proposed sites and locations himself, Gates relies on brokers to help scout out good sites. Brokers can provide a big help to many franchises in site selection. In Gates's case, he has access to a database and can email specs to brokers in almost any location and usually receive a response and leads in 24 to 48 hours.
Existing franchisees also are a good source, and Martinizing trains them on how to find good locations, typically a three-day training process. "Our franchisees figure this out after they have three or four of their own stores. They recognize pretty quickly what makes successful sites and can identify them when they spot them," he says.
Another part of the process for Gates involves shopping his competitors when evaluating a new market. "Who's in the area? What do they do well? What do they do poorly? These are all questions we ask," he says.
After identifying a strong potential site, the next critical step is negotiating the lease. Gates says Martinizing uses a two-part lease review process that thoroughly outlines the proposed deal: he and his office review it, and the franchisee is encouraged to have their attorney review it as well. If the cost compared to the proposed volume looks profitable, the deal will generally move ahead. However, Gates cautions, "You must be willing to walk away from the deal. If, for example, the landlord is demanding a lien on the equipment, you absolutely don't sign that deal."
"Muscling" into the market
Already a force in the $16 billion nutritional supplements market, Max Muscle, a sports nutrition, weight loss, and general fitness franchise, has emerged as a destination business with an interesting site selection approach: locate strategically near health clubs or within eyesight of a gym. What better time and place to buy vitamins and supplements than right after a grueling workout?
"Our ideal location is a 1200-square-foot store within sight of a Bally's or Gold's Gym," explains Marc Kiekenapp, vice president of franchise development for Max Muscle. He says the company has regional directors throughout the country who develop relationships with Gold's, Bally's, and other fitness centers. "It's a perfect complementary relationship," he says. The company plans to soon have 40 regional directors throughout the U.S. constantly scoping out gym locations and looking for nearby potential sites for Max Muscle.
After launching its franchise opportunity in 2003, Max Muscle today has more than 100 franchise locations operating in the U.S., with 500 new sites projected in the next five years. Kiekenapp says the company is currently looking to expand in Florida, Arizona, Chicago, and the Northeast.
In areas of the country where the brand doesn't yet have a local regional director on the ground, Max Muscle works with real estate agents and brokers. "We have a super PowerPoint presentation that gives all the details and specs we're looking for to local agents," says Kiekenapp. In addition to a nearby gym, the company is looking for areas with a population of at least 100,000, good visibility, good parking, and a market of baby boomers interested in health and fitness. "We also know from our research that people will not drive more than 15 minutes to a gym, so that weighs heavily as well," he says.
Again, after a prime spot is identified, a lease must be negotiated. Kiekenapp says franchisees are ultimately responsible for working out the details of the lease and hiring their own attorneys to review it. "It's critical, because if you end up with a lousy lease, it can make resale very difficult," he says--adding that it's imperative to factor in options and flexibility that will allow for growth or moving, if necessary.
After the lease is signed, it's time for the actual build-out. "We use a professional build-out company that constructs the facility to specs for us. Then we can go in and finish out the inside of the store," Kiekenapp says. The company's president personally oversees every build-out. "All of these systems are in place so that we ensure consistency and our franchisees know the store will be done right."
Market size isn't everything
Montana Mike's is a full-service steakhouse concept specializing in big portions at great value. But you won't find them in any major U.S. cities, and that's just fine with them, according to vice president of franchise development, Madison Jobe.
"We look beyond the clutter of the one million-plus metropolitan areas that are already saturated with food concepts and franchises," says Jobe. "There's a perfect place for what we offer in the smaller B and C markets of America." In fact, of the company's 21 Montana Mike's restaurants, 8 are in B markets and 13 in C markets, mainly throughout the central part of the country in Oklahoma, Kansas, Missouri, and Indiana. Jobe doesn't rule out the possibility of expansion into A markets someday, but says right now the company is content with its growth in medium and smaller markets.
Jobe says that a bypassing state or U.S. highway is an essential ingredient to Montana Mike's successful location. "Wal-Marts are also great traffic generators," he says. Research indicates that a Wal-Mart in these markets can typically serve a four- or five-county area. That's a lot of hungry mouths in and around Wal-Mart on any given day. "You've really got to look at the complete trade area demographics," he ays. "Whereas some companies would be looking at just a 1- to 3-mile radius, in our markets we're looking at a 25- to 30-mile radius."
Jobe says Montana Mike's physically distinguishes itself from its competition. "It seemed like there were a lot of Western-themed steakhouses, so we came up with the mountain-lodge feel and look to Montana Mike's," he says. And since 1998, the brand's Hutchinson, Kan.-based parent, Stockman Companies (which also owns Sirloin Stockades and Coyote Canyon), has been converting some of its old, buffet-style Sirloin Stockades into the more profitable Montana Mike's.
Although most of the Montana Mike's have been conversions, two locations, one in Indiana and one in Missouri, have been new build-outs. Jobe says the company identified the markets and was able to take successful elements from the conversion stores and build that into the new locations. "We took the things that had worked well in the conversions and made the new stores look, feel, and operate that same way," he says. "For example, by analyzing our existing restaurants' kitchen areas, we were able to standardize and streamline the kitchens in the new restaurants." Two more new restaurant facilities are now in the works.
The hands-on approach is present here, too. "We personally visit every proposed site," says Jobe, who was preparing for a trip to a proposed site along a state highway in north Texas. With competition in the casual dining steakhouse segment heating up, Montana Mike's is poised to lead the pack in the small to medium-sized markets--a position the company is happy to maintain.
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