Running a successful multi-unit franchise business doesn’t give you a lot of free time, but you’re disciplined enough to include a couple solid vacations every year. While you and your family enjoy the welcome break from day-to-day business, you can’t resist looking around the places you visit and spotting ideas you can bring back to your franchise restaurant locations.

This summer, you spent two weeks in an area the entire family enjoyed so much everyone agreed it would make a great seasonal home. You were aware that your franchisor has no locations within several hundred miles of the area, and now you’re wondering why. The demographics appear to be perfect for the franchise’s concept, and you didn’t see anything that resembled direct competition.

On the flight home, you couldn’t stop thinking about whether it would be worthwhile to pursue franchise rights in that market. Your business is generating plenty of revenue, and you have a management team that’s capable of running operations without your constant involvement (which is why you’re able to take stress-free vacations).  How hard could it be to duplicate your success?

Well, that depends on several factors. The first is whether the franchisor would be willing to approve locations in the market. Your franchisor may have reasons as to why it’s never expanded there – reasons that you may not be aware of or haven’t considered.

If the franchisor did bless the expansion, the biggest factor isn’t your ability to run the business. It’s how well you’d fit into the market. Assuming you could simply duplicate your success in another market can be dangerous, and the franchise restaurant industry is full of concepts that soared in their original markets but flopped when they tried to expand in other areas. In some cases, this may have been due to issues related to expansion, such as finding suppliers that were willing to meet the franchisor’s standards.

You’ve visited this market once, but you haven’t analyzed it closely. That’s a good starting point. You’ll want to take a deep dive into the population and its dining habits. Is this a place where people eat out during your prime hours, or are they more apt to prepare meals at home? When they dine out, do they visit chains, or is there strong loyalty to local operators? If they visit chains, what are the popular ones? For example, if your concept is built around fast casual dining and nobody else in the market is doing that, you may encounter some resistance.

What about labor conditions and attitudes? Is there an abundant labor market, or is unemployment so low that you’d have to pay premium wages? You’ve had the time to build up management teams at your current locations — how long would it take you to develop teams you trust in the new market?

Do you have the resources to fund a large-scale marketing effort in the new market? People in your current market already know and recognize your brand, but it’s unlikely that most people in the new market will be familiar with it, so you’ll have to invest more in advertising, direct marketing, and promotions to build awareness. You won’t have other franchisees to help you reduce the cost.

Finally, are you willing to take on the challenges of establishing what would essentially be a second business in a remote location? Traveling between the locations occasionally is one thing, but the ongoing back-and-forth could be exhausting.

You may be right, and this market could present the opportunity of a lifetime. Before you commit a substantial investment, though, take time to perform extensive due diligence about the market you’re considering and talk to your franchisor. In addition, take an honest look at yourself and your own resources to ensure you’re willing and able to tackle this kind of expansion. The more you study and analyze, the better your chances for success.

About Oak Street Funding

The materials in this paper are for informational purposes only.

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