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.
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.
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 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.