According to the Local Data Company, overall vacancy rates in Great Britain were at 14.1% in the first quarter of 20221. The pandemic has exacerbated the structural issues which have been impacting the retail real estate sector over the past few years. Rental leases were changed between landlords and their tenants and the government’s ban on forfeiture leases meant that the range of property available remained limited. More recently, landlords have been more receptive to negotiation, however the current cost-of-living crisis means there are plenty of challenges facing those searching for premises to open new franchise locations.
It’s all about being able to recognise when a property is valued fairly advises Julian Reilly, Property & Franchise Development Director at international dessert parlour franchise Creams Cafe. His tips on sourcing and negotiating premises for your franchise expansion will provide more options to you.
Prime vs affordable
Prime location… that’s always been a buzz word in property. Of course, we want the best location for our new franchise businesses, but how do we justify the balance of price with the benefits the location offers? One of the best ways to maximise your profit potential through your location is to be methodical about evaluating these benefits. Moving down the road and out of your prime radius could significantly reduce your occupancy costs, whilst enabling you to still have similar trade access, as well as a comparable community and customer demographic. Analyse local market data alongside key performance indicators of other successful locations to find that perfect balance. Remember, balance is key as whilst a property may be less expensive, a poor location is virtually impossible to turn around, even with the best team!
One aspect you should not compromise on is the condition of the premises. Landlords can sometimes try to push the cost of any repairs and work that needs to be done onto the new tenant. With a cheaper location might come more features that need fixing, so keep an eye on those and don’t inherit the previous tenant’s failure to repair. Ask for a schedule of conditions – a full breakdown of the state of the premises – from the landlord. It is also worth finding out if the unit is proposed for a Full Repairing and Insuring (FRI) lease. These types of leases are common in the commercial property lettings market and will mean that you, as the tenant, are responsible for all costs of repair and insurance. If an FRI lease is proposed, ask for a schedule of conditions which will limit your liability for any damages.
Don’t let pride get in the way
If you are planning on launching multiple locations, avoid expanding too fast, both in terms of number of properties and geographical area. Whilst it is tempting to have as many locations within your portfolio as possible, each location must thrive and stand alone as a profitable entity. Ensure you are mindful about each property you invest in and that it will benefit you, the reputation of the brand and the surrounding community.
Investing in a franchise that requires a bricks-and-mortar presence tends to bring with it more considerations than that of a franchise opportunity run virtually. Whether it is a restaurant or a hair salon, it is essential to invest in a franchise that allows you to adapt to your demographic and sweat your asset. Look at proven franchise models and brands. The brands to align with will evolve with the market changes and remain relevant to their target demographics. Does the franchisor give you options – perhaps a smaller kiosk model for busy shopping centres or a pop-up model for large-scale events. Do they also offer a variety of products or services to ensure your entire customer demographic is catered for?
So, once you’ve found your perfect balance between location and price and you’ve chosen a franchise brand with options to suit a range of locations as your portfolio grows, what else should you consider?
Pivotal to creating a return on investment is whether your location can maximise opportunities for trade during busy periods. It is important to consider how popular the area is during different times of the day and with whom, so your business is open and staffed appropriately. Not all franchisees will know every location they expand to personally, so choose a franchisor who has access to market data. You’ll be able to use this to predict times of the day or week you expect to welcome in different groups of the community. You’ll be able to operate efficiently and therefore gain a great reputation locally because your business is ready for fluctuations in customer numbers. For instance, at Creams, our EPOS system makes it easy to amend and monitor stock orders accordingly.
The changing face of the high street
Othman Shoukat, Managing Director of Creams Cafe since 2020 has valuable insight into the changing dynamic of property locations. Coming from an investment banking background, he completed his master’s degree in real estate at the University of Cambridge with a specialism in retail real estate.
“Retail property usage has been leaning towards leisure, recreational and socially led sectors due to evolving consumer behaviours and structural shifts. In particular, consumers seek a holistic customer experience placing greater importance on intangible touchpoints. Certain sectors have also been disrupted by e-commerce channels, compounding the usage shift. This is evident in how the UK retail high street landscape has changed over the last decade. This has had broader implications for the franchise investor community and certainly impacts our planning for Creams locations,” says Othman.
Consumers expect engaging and enhanced experiences, greater choice and personalised participation in their retail journey. It is now crucial to ensure that the property you invest in can function in a versatile manner. This means the precursor to location strategy has to be placing the right brand, with the appropriate value proposition, underpinned by a strong financial model into the right location. Without these prerequisites any location will ultimately be defunct.
Questions to ask when viewing a property
- Who is the landlord? This is a major influence on how you progress negotiations for the premises. Getting a gauge on the landlord’s outlook will help you decipher whether a negotiation is likely.
- How long has the property been on the market and what other interest is there in the unit? Again, this points to room for negotiation.
- What known restrictions currently exist? This will help you decide whether the property is suitable to host your business.
- How much are the energy bills? Do your research and ensure you check the meter readings at the property to compare to other units.
- What is the turnaround time for acquiring the property? This will give you a rough timeline on how soon it will be until you can launch your franchise.
There is a plethora of locations that have attributes suitable for a range of brick-and-mortar franchises all over the UK, it is just a matter of finding the right property for you. Use the partnership with your franchisor and pool your knowledge to secure the foundations of your business.
1 Local Data Company, 2022, In and out of a pandemic: The GB Leisure Industry
Julian Reilly is the Property & Franchise Development Director at Creams Cafe, the UK’s largest dessert brand with c100 stores nationwide. With nearly 30 years of property industry experience and having run his own property consultancy business for 12 years prior to joining Creams, Julian has extensive knowledge in advising food & beverage (F&B) companies such as KFC, McDonalds and more on their property strategy and acquisitions.