Great Real Estate...the Gift That Keeps on Giving
Great Real Estate...the Gift That Keeps on Giving
By Dan Rowe
As real estate costs continue to skyrocket, it has never been more critical to pick the right locations in order to build a sustainable chain. If your franchise system wants happy franchisees, then make sure they are successful. Start by focusing on their real estate because great real estate maximizes the sales of franchisees’ businesses. Investing in your real estate process is the best strategy for ensuring a company’s success. The more successful the franchisees are, the more additional units they will build and the more new franchisees will be driven to your company. All of this drives the volume and profit of the royalty stream, and better yet, the liquidity or exit value of the franchise system. Great real estate drives enthusiasm, creates credibility and generates “buzz” for the concept. Great real estate is the gift that keeps on giving.
Franchisees’ real estate is really just as much of an asset to the organization as a company-owned location. By virtue of the franchise agreement and an executed lease, a franchisee is locked into a given location for the use of the franchise so there should be plenty of motivation to invest properly in the real estate process.
“Five years from now you are going to look over your portfolio of stores and there will be 25 percent that are minting money, 50 percent that are paying the bills and 25 percent that you wish you never did,” says Gary Graham, former head of real estate for such chains as In-N-Out Burgers, Red Robin and Taco Bell. “The key is to understand the demographics and site attributes that are responsible for the difference and avoid the last group.”
Perhaps the single most important hire to any expanding chain is an in-house real estate professional. Hire this key individual before hiring people for marketing or operations. Great sites don’t need as much marketing attention and enjoy volumes that attract and maintain higher quality employees, making operations easier.
Start with the end in mind
What should the chain look like over the next five to 10 years? What sort of locations are desired? What sort of market penetration is preferred? How will real estate help shape the brand? As soon as possible, hire the best possible in-house professional with a tremendous amount of experience with the type of real estate and the process and network for securing those types of sites. This individual understands the real estate process, can help shape the vision for the company and has the networks of key third parties to outsource to keep costs down.
Establish a national real estate network
Every major market in the United States has strong, local retail real estate professionals and the best tend to work with the best retailers such as Starbucks, Kinko’s, Blockbuster and Panera Bread. Take the time to make a list of these professionals. Work from the top down to get the brand associated with the best possible retailers and to get the benefit from the broker’s relationship with the best landlords. The top local brokers know the market better, have the right relationships and the franchise system will be more likely to have “first pick” of new opportunities.
Locating Local Brokers:
To find the right local brokers, start with the Internet:
Affiliated Realty & Management Company
http://www.affiliatedrealty.com
Council of International Restaurant Real Estate Brokers
www.cirb.com
International Council of Shopping Centers
www.icsc.org
Chain Links Retail Advisors
http://www.chainlinks.com
DJM Asset Management, LLC
http://www.djmasset.com
CB Richard Ellis
http://www.cbre.com
New America Network
www.naidirect.com
NorthStar Advisory Services, LLC
http://www.northstaradvisory.com
How brokers get paid
While some tenant representative brokers work on retainers, most work on straight commission (rule of thumb is that a landlord pays 6 percent of the gross rent during the term in commissions. If the rent averages $100,000 per year for 10 years for $1 million in total gross rent, the landlord is paying $60,000 in commissions—half to the listing representative and half to the tenant representative) and are only paid by the landlord upon the execution of the lease. This can be a double-edged sword because the process is essentially free for the franchisee, but because brokers are only paid for getting deals done they tend to constantly scrutinize their clients. Sometimes brokers are quick to “go cold” on clients they feel are not aggressive enough in signing leases and have even been known to drop one brand for a competing brand taking all the hard-earned momentum to the new client. One trick of the trade is to include a “miscellaneous real estate” fee of maybe $5,000 to $10,000 in the start-up section of the UFOC so that franchisees are prepared for this expense. Then, encourage franchisees to use that money as an incentive for their brokers. Remember, franchisees don’t have to sign a lease or pay the “bonus” unless they really like the space. But if they get a “home run” location that money will seem trivial.
Market analysis
Ever wonder why there isn’t a competitive Number Two player to Starbucks? It’s because Starbucks is notorious for going into a new market and getting all the attention of the best tenant representatives and landlords, not to mention the best locations.
Why? They aggressively sign leases which make brokers and landlords very happy. They pay bonuses to brokers for meeting their development plans. They pay the necessary rent to secure premium and special locations. Landlords feel Starbucks will be an asset to their property. It never hurts to have Starbucks’ credit on a lease.
When Starbucks expands into new markets they have the entire market broken down to identify every potential target location—urban downtown, suburban downtown, malls, mass gatherings, strip centers and freestanding locations and then they analyze the potential trade areas and rank them according to their ideal site criteria. Starbucks is as good as it gets in the retail real estate game, which is why they acquire higher profile sites while their competitors are located in much less interesting spaces. They know how to secure a highly-successful site because they have a real estate plan, they can identify their ideal site criteria and they know their customer’s habits.
Zpizza, a rapidly-expanding gourmet pizza chain from Newport Beach, Calif., uses a combination of research and data from Brandstand and Restaurant Trends for its nationwide expansion. Zpizza worked with Brandstand to develop an “ideal customer model” for understanding who their customers are, why and when they use Zpizza, and the types of locations their customers would respond best to. Every potential location that a Zpizza franchisee submits for approval goes through a screening process and is measured against the ideal customer model Brandstand created. Restaurant Trends provides Zpizza with competitive sales numbers for every pizza concept in a given market illustrating where competing pizza chains have their strongest units. As a result of Zpizza’s real estate investment, their restaurants average higher sales outside their legacy markets.
Third-party Vendors:
There are several third-party vendors that can provide market analysis:
Brandstand
www.brandstandgroup.com
Buxton
www.buxtonco.com
Claritas
http://www.claritas.com
ESRI
www.esri.com
geoVue, Inc.
www.geovue.com
IntelleVue
www.intellevue.com
Javelin Solutions
www.javelinsolutions.net
MapInfo
www.mapinfo.com
Market Research
http://www.marketresearch.com
Prediction Analytics
www.predictioncompany.com
ProxixSolutions, Inc.
www.proxix.com
Restaurant Trends
http://www.restauranttrends.com
Site Analytics
http://www.siteanalytics.com or www.sitemining.com
Urban Science International
www.urbanscience.com
Ideal location model
Build a model of an ideal location for greater predictability and to remove the subjectivity of any real estate decision. Establish standards for the concept’s “ideal” location and educate everyone in the organization, as well as local brokers on what these standards are. The model should describe the type of look and feel wanted in a location and should help sell the brand. The model should also include ideal demographics, sociographics, access, visibility, ingress-egress, co-tenancy and other modeling criteria for the identification of high-quality real estate. Turn all this into a site survey or a test that literally self-qualifies prospective locations.
Numbers don’t lie—don’t settle for anything less than great sites and never succumb to pressure to make a quick real estate decision because of a sense of urgency to close a deal before it is lost to another developer. Outback Steakhouse had a disciplined approach when it first expanded. The company looked for only “B” sites in “A” trade areas so they could still compete for their target customers, but with a lower-cost structure. Since at the time it was a dinner-only concept, Outback was happy finding sites in neighborhoods or suburban retail areas with much more reasonable cost structures. Outback Steakhouse knew their customer model and communicated that model clearly in new markets and enjoyed an extremely successful expansion. Graham says, “The most successful chains invest in the real estate process and are, consequentially, able to predict costs and sales of new units within a few percentage points even in new markets.”
Site approval process
Set up a real estate committee to ensure the real estate process is followed and that the decisions are communicated to all parties. The approval committee should be a well-balanced group of people that must be compelled to approve a site they have never seen and have no bias toward. Make total project costs part of the approval process—liquor licenses, impact fees, any and all fees, union labor requirements, venting through a building, how long will the site take to open. Time is money.
Tips From a Pro:
Gary Graham, former head of real estate for such chains as In-N-Out Burgers, Red Robin, and Taco Bell says:
“A good deal on a bad site is a bad deal.”
“When it comes to entering a market with a new restaurant concept, failing to plan is planning to fail. ”
“You never have a second chance to open your first location in a new market.”
“Profit is a function of sales, not rent.”
Landlord presentation
Put your very best foot forward and never skimp with the landlord package. Make it easy on franchisees and brokers in new markets to get landlords excited about the concept–pictures, press and anything else that illustrates why the concept will be a successful edition to their site.
Rental rates still too high? Do more volume in less space
Companies like WD Partners help chains engineer their unit model to do more volume from smaller footprints. This is especially critical in the face of increasing real estate and construction costs.
The most profitable franchisees are high-producing, multi-unit franchisees. When a franchisee is successful, he is happy and is looking to build more units. The faster the units open the faster the franchise system gets the royalties. Over time, this royalty stream becomes sustainable and builds on itself, compounding as a result of your investment—thus the initial idea of real estate as a gift that keeps on giving.
Great Real Estatethe Gift That Keeps on Giving - To learn more about this author, visit Katie Magers's Website.
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Great Real Estate...the Gift That Keeps on Giving
By Dan Rowe
As real estate costs continue to skyrocket, it has never been more critical to pick the right locations in order to build a sustainable chain. If your franchise system wants happy franchisees, then make sure they are successful. Start by focusing on their real estate because great real estate maximizes the sales of franchisees’ businesses. Investing in your real estate process is the best strategy for ensuring a company’s success. The more successful the franchisees are, the more additional units they will build and the more new franchisees will be driven to your company. All of this drives the volume and profit of the royalty stream, and better yet, the liquidity or exit value of the franchise system. Great real estate drives enthusiasm, creates credibility and generates “buzz” for the concept. Great real estate is the gift that keeps on giving.
Franchisees’ real estate is really just as much of an asset to the organization as a company-owned location. By virtue of the franchise agreement and an executed lease, a franchisee is locked into a given location for the use of the franchise so there should be plenty of motivation to invest properly in the real estate process.
“Five years from now you are going to look over your portfolio of stores and there will be 25 percent that are minting money, 50 percent that are paying the bills and 25 percent that you wish you never did,” says Gary Graham, former head of real estate for such chains as In-N-Out Burgers, Red Robin and Taco Bell. “The key is to understand the demographics and site attributes that are responsible for the difference and avoid the last group.”
Perhaps the single most important hire to any expanding chain is an in-house real estate professional. Hire this key individual before hiring people for marketing or operations. Great sites don’t need as much marketing attention and enjoy volumes that attract and maintain higher quality employees, making operations easier.
Start with the end in mind
What should the chain look like over the next five to 10 years? What sort of locations are desired? What sort of market penetration is preferred? How will real estate help shape the brand? As soon as possible, hire the best possible in-house professional with a tremendous amount of experience with the type of real estate and the process and network for securing those types of sites. This individual understands the real estate process, can help shape the vision for the company and has the networks of key third parties to outsource to keep costs down.
Establish a national real estate network
Every major market in the United States has strong, local retail real estate professionals and the best tend to work with the best retailers such as Starbucks, Kinko’s, Blockbuster and Panera Bread. Take the time to make a list of these professionals. Work from the top down to get the brand associated with the best possible retailers and to get the benefit from the broker’s relationship with the best landlords. The top local brokers know the market better, have the right relationships and the franchise system will be more likely to have “first pick” of new opportunities.
Locating Local Brokers:
To find the right local brokers, start with the Internet:
Affiliated Realty & Management Company
http://www.affiliatedrealty.com
Council of International Restaurant Real Estate Brokers
www.cirb.com
International Council of Shopping Centers
www.icsc.org
Chain Links Retail Advisors
http://www.chainlinks.com
DJM Asset Management, LLC
http://www.djmasset.com
CB Richard Ellis
http://www.cbre.com
New America Network
www.naidirect.com
NorthStar Advisory Services, LLC
http://www.northstaradvisory.com
How brokers get paid
While some tenant representative brokers work on retainers, most work on straight commission (rule of thumb is that a landlord pays 6 percent of the gross rent during the term in commissions. If the rent averages $100,000 per year for 10 years for $1 million in total gross rent, the landlord is paying $60,000 in commissions—half to the listing representative and half to the tenant representative) and are only paid by the landlord upon the execution of the lease. This can be a double-edged sword because the process is essentially free for the franchisee, but because brokers are only paid for getting deals done they tend to constantly scrutinize their clients. Sometimes brokers are quick to “go cold” on clients they feel are not aggressive enough in signing leases and have even been known to drop one brand for a competing brand taking all the hard-earned momentum to the new client. One trick of the trade is to include a “miscellaneous real estate” fee of maybe $5,000 to $10,000 in the start-up section of the UFOC so that franchisees are prepared for this expense. Then, encourage franchisees to use that money as an incentive for their brokers. Remember, franchisees don’t have to sign a lease or pay the “bonus” unless they really like the space. But if they get a “home run” location that money will seem trivial.
Market analysis
Ever wonder why there isn’t a competitive Number Two player to Starbucks? It’s because Starbucks is notorious for going into a new market and getting all the attention of the best tenant representatives and landlords, not to mention the best locations.
Why? They aggressively sign leases which make brokers and landlords very happy. They pay bonuses to brokers for meeting their development plans. They pay the necessary rent to secure premium and special locations. Landlords feel Starbucks will be an asset to their property. It never hurts to have Starbucks’ credit on a lease.
When Starbucks expands into new markets they have the entire market broken down to identify every potential target location—urban downtown, suburban downtown, malls, mass gatherings, strip centers and freestanding locations and then they analyze the potential trade areas and rank them according to their ideal site criteria. Starbucks is as good as it gets in the retail real estate game, which is why they acquire higher profile sites while their competitors are located in much less interesting spaces. They know how to secure a highly-successful site because they have a real estate plan, they can identify their ideal site criteria and they know their customer’s habits.
Zpizza, a rapidly-expanding gourmet pizza chain from Newport Beach, Calif., uses a combination of research and data from Brandstand and Restaurant Trends for its nationwide expansion. Zpizza worked with Brandstand to develop an “ideal customer model” for understanding who their customers are, why and when they use Zpizza, and the types of locations their customers would respond best to. Every potential location that a Zpizza franchisee submits for approval goes through a screening process and is measured against the ideal customer model Brandstand created. Restaurant Trends provides Zpizza with competitive sales numbers for every pizza concept in a given market illustrating where competing pizza chains have their strongest units. As a result of Zpizza’s real estate investment, their restaurants average higher sales outside their legacy markets.
Third-party Vendors:
There are several third-party vendors that can provide market analysis:
Brandstand
www.brandstandgroup.com
Buxton
www.buxtonco.com
Claritas
http://www.claritas.com
ESRI
www.esri.com
geoVue, Inc.
www.geovue.com
IntelleVue
www.intellevue.com
Javelin Solutions
www.javelinsolutions.net
MapInfo
www.mapinfo.com
Market Research
http://www.marketresearch.com
Prediction Analytics
www.predictioncompany.com
ProxixSolutions, Inc.
www.proxix.com
Restaurant Trends
http://www.restauranttrends.com
Site Analytics
http://www.siteanalytics.com or www.sitemining.com
Urban Science International
www.urbanscience.com
Ideal location model
Build a model of an ideal location for greater predictability and to remove the subjectivity of any real estate decision. Establish standards for the concept’s “ideal” location and educate everyone in the organization, as well as local brokers on what these standards are. The model should describe the type of look and feel wanted in a location and should help sell the brand. The model should also include ideal demographics, sociographics, access, visibility, ingress-egress, co-tenancy and other modeling criteria for the identification of high-quality real estate. Turn all this into a site survey or a test that literally self-qualifies prospective locations.
Numbers don’t lie—don’t settle for anything less than great sites and never succumb to pressure to make a quick real estate decision because of a sense of urgency to close a deal before it is lost to another developer. Outback Steakhouse had a disciplined approach when it first expanded. The company looked for only “B” sites in “A” trade areas so they could still compete for their target customers, but with a lower-cost structure. Since at the time it was a dinner-only concept, Outback was happy finding sites in neighborhoods or suburban retail areas with much more reasonable cost structures. Outback Steakhouse knew their customer model and communicated that model clearly in new markets and enjoyed an extremely successful expansion. Graham says, “The most successful chains invest in the real estate process and are, consequentially, able to predict costs and sales of new units within a few percentage points even in new markets.”
Site approval process
Set up a real estate committee to ensure the real estate process is followed and that the decisions are communicated to all parties. The approval committee should be a well-balanced group of people that must be compelled to approve a site they have never seen and have no bias toward. Make total project costs part of the approval process—liquor licenses, impact fees, any and all fees, union labor requirements, venting through a building, how long will the site take to open. Time is money.
Tips From a Pro:
Gary Graham, former head of real estate for such chains as In-N-Out Burgers, Red Robin, and Taco Bell says:
“A good deal on a bad site is a bad deal.”
“When it comes to entering a market with a new restaurant concept, failing to plan is planning to fail. ”
“You never have a second chance to open your first location in a new market.”
“Profit is a function of sales, not rent.”
Landlord presentation
Put your very best foot forward and never skimp with the landlord package. Make it easy on franchisees and brokers in new markets to get landlords excited about the concept–pictures, press and anything else that illustrates why the concept will be a successful edition to their site.
Rental rates still too high? Do more volume in less space
Companies like WD Partners help chains engineer their unit model to do more volume from smaller footprints. This is especially critical in the face of increasing real estate and construction costs.
The most profitable franchisees are high-producing, multi-unit franchisees. When a franchisee is successful, he is happy and is looking to build more units. The faster the units open the faster the franchise system gets the royalties. Over time, this royalty stream becomes sustainable and builds on itself, compounding as a result of your investment—thus the initial idea of real estate as a gift that keeps on giving.
Great Real Estatethe Gift That Keeps on Giving - To learn more about this author, visit Katie Magers's Website.
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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