Making Real Estate a Core Value of Your Franchise System
Hopefully, you are adopting a standardized real estate process that encompasses a clearly defined all-in-one strategy for site selection, lease negotiation, and legal review. I realize that, as a franchise executive, you may not have the time, resources, or capabilities to put this process in place. This four-part series highlights 11 key points for standardizing your real estate process.
Introduction: A Reality Check for Real Estate Services
If CEOs visited and audited each location in their system, they would discover that there is up to a 30% error factor in visibility, convenience, tenant mix, economics, and lease terms. This is the single largest contributor to a franchisor's annual turnover rate.
Real estate plays a central role in the overall success of a franchise system. How visible is the location? How convenient is it to access? Does it offer the right tenant mix? How advantageous are the lease terms? All these factors drive a store's volume and profitability. Your franchisees may follow your operating system to the letter, but without the right location and lease, revenue and profitability will not be maximized to their fullest potential.
The old real estate adage is true, particularly for franchise operations: location really is everything. As a franchise executive, your philosophy and approach to the real estate services you provide have a significant impact on your franchisees' performance and survival.
As a franchise executive, your ongoing success relies on the success of your franchisees. To support and maximize that success, you provide your franchisees with the tools and access to expertise they need to launch and grow a profitable business. That includes finding the most strategic location for your franchisee to maximize their revenue and profitability.
In many cases, franchisors have taken a passive and limited role in the real estate process, relying instead on quick-and-easy methods of identifying and securing locations. Understandably, new and emerging franchisors often fall into a more self-preservationist approach, often perpetuated by inadequate consulting, operational, or legal strategies.
This approach pushes the burden of key real estate decisions -- site selection, lease negotiation, and legal review -- onto the shoulders of inexperienced franchisees. These franchisees, in turn, may rely on outsourced, untrained, and inexperienced real estate agents and brokers identified state by state through regional, national, and network organizations -- hardly qualifying them as experts in your franchise business model. This potential recipe for disaster is also a reflection of a franchisor's missing core value: to provide high-quality and standardized real estate services that protect a franchisee's success.
In this series, we take a closer look at why these common practices are far from best practices, and why it's important for franchise executives to take a more proactive role in franchisees' real estate decisions as part of their core values.
I. Redefining the Franchisor's Role: The Key to Securing the Highest-Performing Locations for Franchisees Is Standardization
Using a multitude of different outsourced real estate agents, brokers, and firms denies your franchisees a consistent level of quality and expertise that is required to identify and negotiate high-performing locations.
So what should a franchise executive be offering franchisees in the way of real estate services? Best practices tell us that franchisors should be providing each franchisee with a standardized all-in-one site selection, lease negotiation, and legal review service on par with the services provided for a corporate store. In other words, treat your franchisees to the same level of expertise and scrutiny you would a corporate store you're preparing to open.
Currently, that's not the way things are done. A huge gap exists between the way real estate services are provided for franchisees vs. corporate stores. The reason for this gap goes back to the aforementioned self-preservationist approach adopted by most franchisors -- an approach that is only reinforced by the FDD and franchise agreements.
Among these documents you'll find site selection and final location waivers designed to legally release franchisors of any responsibility in the event poor site selection and unfavorable lease terms contribute to the franchisee's failure. But how can a franchise executive, in good faith, ask a franchisee to assume all the responsibility for poor real estate choices - while at the same time offering substandard real estate services provided by untrained and outsourced leasing agents state by state with little vested in the success of the franchise operation? It doesn't seem quite fair. Nor does it sound like good business practices.
To maximize the revenue potential of each franchisee location, the franchise executive must develop a standardized approach to the real estate process, from site selection to lease negotiation and legal review. This standardization ensures that each franchisee has been offered an equal opportunity to succeed.
Next month: II. Looking Closely at Legal Strategy; III. More Involvement Doesn't Have To Come with More Risk; and IV. Higher-Quality Locations with a Controlled Sales Process.
Scott J. Simcik is President and CEO of FGP Commercial Leasing in Westlake Village, Calif. FGP provides an all-in-one real estate service that includes site selection, lease negotiation, and legal review in all 50 states. The company offers a complimentary, 5-week program to assist in standardizing your real estate process. Contact him at 800-471-1682, email@example.com, or visit www.fgpcl.com.
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