Buying a franchise: check whether the concept suits your local area

A franchise concept that succeeds in one location may not work as well in another. Before choosing a brand, you need to find out which customers would actually use its products or services in the area where you want to set up. Franchising brings independent business owners together, but joining a network does not remove the local business risk. Here is a practical approach to testing a concept’s local relevance before signing an agreement.

1. Define the customer need before assessing the brand

Start with the problem the business will solve, rather than the chain’s name. Who needs the product or service, when do they need it, and why would they choose this particular offering? Write down a specific description that you can test.

For a lunchtime food business, the question might be whether there are people nearby who regularly buy lunch during the concept’s opening hours. For a business-to-business service, it might be whether there are enough local companies with the right needs and purchasing practices.

Create a simple list with three columns:

• Assumption: what must be true for the concept to be relevant.
• Evidence: what you already know and where the information comes from.
• Check: how you will investigate anything that remains uncertain.

Distinguish between the population and potential customers. A large number of residents does not automatically mean strong demand. Workplaces, commuting patterns, seasonal variations and customers’ daily routines may matter more than the size of the town. Use up-to-date local authority information and official statistics where appropriate, but always supplement these with your own observations.

2. Investigate how customers currently meet that need

Map out the alternatives from the customer’s perspective. Competition is not limited to businesses with similar signage. Customers may shop online, travel to a neighbouring town, do the work themselves or simply go without.

Visit relevant areas at different times and note what you actually see. Are people there when they would need the offering? Which businesses seem to attract your target customers? Is the location easy to reach using the transport those customers normally use? Do not draw broad conclusions from a single visit.

Speak to potential customers too, without opening with a sales pitch. For example, ask:

• When did you last use this type of product or service?
• Which option did you choose, and why?
• What did not work so well?
• What would need to change for you to switch providers?

Questions about actual behaviour provide a better basis for decisions than asking, “Would you shop here?” Positive comments are not the same as a willingness to buy. Record answers that argue against setting up the business as well, and avoid asking only friends or people who already like the brand.

3. Check whether the concept can meet local needs

Compare your observations with the concept you will actually be allowed to operate. A local need is of little use if the franchise agreement prevents you from making the adjustments required to meet it.

Ask the franchisor to explain which elements are fixed and which can be adapted. These might include the product range, the scope of services, opening hours, delivery methods or how customers book. In particular, ask how previous openings in similar locations have dealt with local differences. An example is more useful if its customer base and purchasing behaviour resemble those in your chosen area.

Sweden has an Act on the Duty of Franchisors to Provide Information (2006:484). It requires the franchisor, well before the agreement is signed, to provide clear and comprehensible written information about what the agreement entails and other relevant circumstances. Among other things, this information must describe the business and identify other franchisees within the same franchise system, along with the extent of their operations.

This disclosure duty is not a guarantee that a particular location suits the concept. Nor does Sweden have a special registration requirement solely because a business operates as a franchise. The contractual relationship is also governed by general rules, including the Swedish Contracts Act.

If setting up your business requires a local adaptation, any agreement on that adaptation should be clearly set out in the contract or an appendix to it. Ask a solicitor or other legal adviser with franchise expertise to check the wording. Do not assume that a positive verbal response gives you the flexibility you need.

4. Decide what you need before proceeding

Summarise your findings on one page before committing yourself. State which customer need you have evidence for, which alternatives customers use and what adaptations are required. Highlight anything that still rests on assumptions.

Then decide which questions must be answered before you sign. For example, demand may appear to exist only during a short season, or the opening hours you need may not fit the concept. Discuss these points with the franchisor and ask for specific answers, rather than general references to the chain’s success.

Practical takeaway: Do not choose a franchise simply because it has a strong brand. Proceed when you can explain why local customers need the offering and have confirmed that the agreement allows you to meet that need.