When new franchise owners plan to enter an area, there’s always a sinking feeling that they could end up failing. Technically, every single business could eventually fail. Entering a new area comes with an increased risk of failure, however, because new managers might not totally understand the dynamics of the place that they’re getting into.
The good news is that there are several things that franchise operators can do to test the waters and see if their businesses will succeed in a specific area. See if there are any companies that provide the same services there, which would constitute immediate competition. Assuming there aren’t any, it can be tempting to think that there’s no market for whatever goods or services a particular business provides. That being said, it’s just as likely that nobody has entered the area as of yet.
Check Existing Sales Figures
Individuals who want to buy a franchise company should take a look at the sales figures for other businesses in the area. If the market looks steady overall, then it might be a good place to expand into, even if nobody ever tried marketing those kinds of products there before. On the other hand, even a lower-income community could provide a real opportunity for those willing to build a business entirely from the ground up.
Say you were going to buy a restaurant or retail franchise and move it into an area that has few other businesses. You might be bringing new jobs to the area, which in turn can improve economic prospects for the community as a whole. The fact that there aren’t any other similar stores means you won’t have much in the way of competition, either. A few prominent national franchises actually grew by focusing almost exclusively on small towns that didn’t have any other places to shop. Moving a franchise into an established area, such as a major city, could be difficult because the market is already saturated.
No matter what kind of location you’re looking at, you’ll want to consider the two major types of competition a new franchise is likely to face.
Direct and Indirect Competition
The most direct type of competition comes in the form of businesses in the exact same space as yours. If you were buying a grocery franchise, then all of the other grocery stores in the area would be direct competitors. Drug stores and gas stations that also sell food would essentially be indirect competitors, since they’re not really in the same industry as your new location, but they still offer services that potential customers could choose over yours. When considering how successful a business would be in an area, it can be helpful to think about every single other place in that town that might offer something at least close to what your store will. Restaurants and recreational businesses are particularly at risk of losing out to indirect competitors because profit margins tend to be lowest in their industries.
Taking a little time to map out all of the possible competitors will go a long way toward ensuring your franchise’s future success.
