Buying a franchise: how to assess local demand

A well-known brand does not guarantee enough customers in every town. Before joining a franchise network, you need to check whether its offering matches demand in your area. This analysis is separate from choosing premises: it helps you decide whether the brand is worth investigating further, even before you start looking for a property or negotiating the contract.

1. Define the customers the business really needs

Start by turning the brand’s sales pitch into a specific hypothesis: who will buy, what need the business will meet, how much customers can spend and how often they will return. ‘Families’, ‘businesses’ or ‘people interested in looking after themselves’ are descriptions too broad to support an investment decision.

Ask the franchisor to explain the customer profiles seen across its outlets and to distinguish between business formats. An outlet in a tourist area may depend on occasional customers; one in a residential neighbourhood may rely on repeat visits. Although they share a brand, they do not demonstrate the same pattern of demand.

Prepare a checklist with four questions:

• Reason for buying: is it a routine need, an urgent requirement, a matter of convenience or discretionary spending?
• Frequency: will customers buy daily, monthly, seasonally or only occasionally?
• Spending power: does the typical price suit the intended audience?
• Alternatives: what does the customer currently use to meet the same need?

If the franchisor cannot give specific answers, do not let your enthusiasm fill the gaps. Record them as assumptions that still need testing.

2. Map out the market using data and observation

Your potential market will not necessarily follow municipal boundaries or match the territory granted under your contract. What matters is how far customers will be willing to travel and what obstacles they will face: journey times, transport, parking, physical barriers or shopping habits.

Consult Spain’s National Statistics Institute (Instituto Nacional de Estadística, or INE) and the local council for information on population, households, age groups and economic activity. Use indicators relevant to your customers, rather than simply the total number of residents. For a business-to-business service, for example, you need to understand the local businesses you could realistically sell to.

Supplement the data with observation at different times and on different days. Distinguish between residents, workers, students and visitors. High footfall may offer little value if it does not match your target audience or occurs outside your planned opening hours.

Also draw up an inventory of direct competitors and alternatives: independent businesses, other chains, digital platforms and solutions that remove the need for the service altogether. Record advertised prices, opening hours, what they offer and how accessible they are. Reviews can reveal unmet needs, but they do not prove sales levels or, on their own, represent the entire customer base.

3. Test forecasts against comparable outlets

Ask the brand to explain why it considers your area suitable. ‘We are successful in similar towns’ is not enough: request its comparison criteria, such as the population served, spending habits, competition, how long the outlet has been trading and its business format.

Distinguish between three concepts that are often confused:

• Potential audience: people or businesses that might need the offering.
• Customers you could realistically attract: the share of that audience likely to choose you over the alternatives.
• Sales transactions: purchases those customers would make over a given period.

Do not automatically turn residents into customers, or customers into monthly purchases. If a forecast requires frequent repeat purchases, check what evidence supports that frequency. If it depends on attracting consumers from other towns, verify their usual travel patterns.

In Spain, Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 govern pre-contractual franchise disclosure. This information must be provided in writing at least twenty working days before signing the contract or preliminary agreement, or making any payment to the franchisor.

In addition, where the franchisor provides forecasts of sales or operating results, the royal decree requires them to be based on sufficiently substantiated experience or studies. This does not amount to a sales guarantee, nor does it necessarily mean you will receive a study specifically covering your municipality: ask for the supporting evidence and check its local relevance.

4. Decide what evidence you need before proceeding

Organise your findings in a simple table: assumption, available evidence, outstanding question and further checks needed. For example, if the business depends on weekday purchases, seeing it busy on a Saturday does not resolve that question.

You could conduct short interviews with potential customers or commission an independent study. Ask about actual behaviour — where they buy now, how far they travel and when they last used the service — rather than simply asking whether they like the idea. A positive response does not amount to a firm intention to buy.

Decide in advance which findings would lead you to rule out the brand or investigate another area. This will help you avoid shaping every conclusion to fit a decision you have already made.

Practical takeaway: before committing money, insist on an explanation you can test of who will buy and why. Brand recognition is a starting point, not proof of local demand.