Choosing a franchise location: verify demand before expanding

A successful business may benefit from factors that are not immediately obvious: a nearby school, the founder’s personal reputation or a daily flow of employees from surrounding businesses. Before offering your concept to your first franchisee, you need to distinguish between what the brand contributes and what depends on the particular location. To grow your franchise network responsibly, establish a consistent process for approving, rejecting or further investigating new locations.

1. Find out why customers choose you

Start by analysing your existing outlet, rather than listing the towns and cities where you want a presence. Population size alone does not tell you whether a concept will be viable there. What matters is access to the right customers at the time they need your product or service.

Use till data, orders and brief customer conversations to establish:

• whether customers plan their visit or decide to come in as they pass;
• where they come from and how they travel;
• which days and times generate the strongest demand;
• whether they return for your offering, convenient access or a personal relationship;
• which activities nearby encourage them to visit.

Where possible, work with aggregated data that does not identify individuals. You generally do not need a list of customer addresses to assess a location.

The outcome should be a clear explanation of what drives demand. For example, a fast-food outlet may depend on office workers nearby making a quick lunchtime visit. A similarly sized town with mainly residential development may therefore not offer a comparable opportunity. For appointment-based services, parking and an easy journey may matter more than a shopfront on a busy street.

2. Build a profile of a suitable location

Turn your findings into an assessment form for both head office and prospective franchisees. Divide the requirements into essential, desirable and not yet verified. This will help prevent an attractive premises offer from overshadowing a fundamental lack of customers.

Depending on the concept, essential conditions might include easy pedestrian access, somewhere to stop briefly, a clearly visible entrance or the presence of a particular customer group. Proximity to complementary services might be desirable. An unverified assumption might be the expectation that a new housing development will soon generate sufficient demand.

For each criterion, specify how it will be checked. Replace a claim such as “good pedestrian access” with a description of the actual route from the public transport stop, including crossings, obstacles and the entrance to the premises. When assessing planned developments, distinguish completed buildings from commercial promises.

Do not try to set a universal scoring threshold before gaining experience. First, compare several locations using the same process. A serious obstacle cannot be offset by a collection of minor advantages. For a concept built around quick order collection, a lack of convenient access may be reason enough to reject a site, even if the premises are cheap and highly visible.

3. Verify demand on the ground, not just on a map

A single morning visit is not enough. Schedule observations for the times when the concept is expected to generate revenue, and record differences between a typical weekday and the weekend. Also note weather conditions, school holidays, road closures or local events that could skew the findings.

Do not simply count passers-by. Consider whether they match your target customers and whether they can enter the premises easily. A busy road may provide visibility but generate very few visits.

Map both direct competitors and the alternatives customers use to meet the same need. For a lunchtime food concept, these may include not only restaurants but also workplace canteens and delivery services. Record their offering, accessibility and opening hours, but do not infer another business’s turnover or profitability from a brief observation.

Where feasible, test interest through a temporary showcase of your offering, a local campaign or conversations with potential customers. Distinguish stated interest from actual purchasing behaviour. An advert click is not an order, and an order placed with an introductory discount does not yet prove long-term demand. Document each test, including its limitations.

4. Define the location approval process and its legal significance

Before recruiting franchise partners, decide who proposes a location, who supplies the supporting information and who makes the decision. Keep a brief record for each proposal covering verified facts, outstanding assumptions, risks and the conclusion. Give written reasons for any exception to the requirements, rather than relying solely on approval over the phone.

The Czech Republic has no specific franchise law or compulsory registration of franchise agreements. A franchise agreement is usually entered into as an innominate contract — a contract type not specifically defined by law — under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. General rules on fair dealing and pre-contractual information also apply. The absence of a prescribed disclosure form therefore does not mean that known, material risks associated with a location may be withheld.

The contractual arrangements should distinguish head office’s approval of a location from any promise of commercial performance. Franchisees operate on their own account and at their own risk, but this does not excuse head office from providing false information. A lawyer should review, in particular, the implications of approval and responsibility for the information supplied.

Practical takeaway: Before approving your first franchise location, require a standard assessment form, observations of actual demand and a written conclusion setting out the risks. A good location is not the one that looks best, but the one whose suitability you can explain with evidence.