Which comes first, a franchisee or a site? It is in the franchisor's long-term best interests to take the "egg first" (or the "location first") approach to site selection and leasing.

Author:Willerton, Dale
Position:MANAGEMENT & OPERATIONS
 
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You've certainly heard of the analogy of "Which comes first, the chicken or egg?" The same correlation can be drawn with a franchisor's site-selection process.

Typically, franchise tenants are astounded to learn that they are often no match when negotiating against seasoned landlords or their agents.

Two very distinct camps or systems are evident. The familiar "chicken or egg" parallel can work well to put this into perspective.

With the "chicken first" approach, franchisors will advertise for prospective franchisees first. A prospective franchisee will respond, go through due diligence and attend the franchisor's "Discovery Day." At this time, and only when the franchisee is secured, the franchisor will begin the site selection process. Contacting leasing representatives, filtering through potential properties, viewing sites and securing the location are often the responsibility of the franchisor; all of this may be done with or without the franchisee's input.

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While this is a common and accepted process, why do franchisors use the "chicken first" approach? Quite simply, this lets them practically expand and uncover prospective franchisees in other cities without making any efforts on the real estate side. If no local entrepreneur steps forward in a specific city from advertising efforts, the franchisor will not have to fly and conduct site selection, a pricey endeavor. Instead, the franchisor will only be financially-out for the cost of a few newspaper or magazine advertisements; obviously, far less than airfare and hotel accommodations required.

With the "egg first" approach, some franchisors will do their real estate development homework upfront, secure a site and use that site as a tangible component from which to advertise and sell the franchise. This can be more work, comes at a greater expense and is done far less frequently than the easier "chicken first" approach. The benefits here are that potential franchisees can physically view the property, discuss the rental terms and sign the franchise agreement knowing in advance where the store or business will be located.

These two categories are done either on purpose or by default when a franchisor looks to add new locations.

It is clear that some franchisors have given these choices much thought while others have simply launched out with less thought and strategy.

In further comparing the two processes, the "egg approach" to site selection is far more...

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