Many landlords tend to view a franchise as either a chain store tenant or an independent operator – a perception that can cause problems in franchise lease negotiations. To understand the key issues, start by examining the concept of franchising.
Why are Franchises Successful as a Business Model?
What is it about this business strategy that has made it so successful?
- Marketing clout to penetrate and dominate markets
- Brand-driven consumer purchases
- Consumer loyalty to the brand
- Consistently applied operating system that addresses consumer needs
- Ongoing support that improves the effectiveness, efficiency and profitability of each unit and the overall system
- Franchisee motivation.
In short, the reasons franchises are successful are much the same as the reasons chain stores are successful; franchises look and perform like chain stores. But a key difference lies in reason number six above; the franchisee motivation.
Owner Manager Motivation
The franchisee has a much greater motivation to succeed than does even the best store manager. A franchisee has made a significant financial investment in the assets of his or her business. He or she has made a conscious choice to be self-employed and sees being part of a franchise system as a way to achieve life goals. That franchisee will do everything possible to ensure the business succeeds, and the franchisee-franchisor relationship differs dramatically from the chain store’s employee-employer relationship.
Franchising is a mutually beneficial business and leasing relationship based on a legal structure. Franchisors must comply with federal and state regulations, which in most cases make it impractical to negotiate the terms of their franchise agreements. The better a landlord understands a franchise tenant, the easier it will be to negotiate a lease.