Franchising World April 2012
By: Tim Matey, CFE
What if you could reduce the costs associated with the building of your bricks-and-mortar spaces and at the same time reduce construction cycle time? Would your franchise business be able to sell more units? Generate royalties quicker? How would franchisee validation improve if they could hit the break even mark and begin to generate a profit sooner? These are all great questions and something that world-class brands should ask themselves every day.
It’s important to keep in mind that the costs of construction and outfitting a new retail space are often exponentially higher than any franchise fee, local marketing blast, opening inventory or even payroll in the first year. Actual dollars spent are certainly not the only factor that needs to be considered either as people have probably all heard numerous stories about schedule delays, permit issues, contractor change orders and dozens of other store opening nightmares that could have been avoided with a better thought out strategy.
In addition, telling prospective franchisees that the company has a detailed construction solution developed for them during the sales process when in fact it has a three-ring binder of miscellaneous notes is no longer an accepted practice. It is therefore a franchisor’s responsibility to have a comprehensive, well designed, streamlined program in place.
Construction management is not an easy task by any means when taken as a whole, but when analyzed as smaller segments, one might find considerable time and cost savings at each step. While there are many smaller categories within each of these blocks, let’s analyze the four largest categories: design, site selection, pre-construction and construction for potential speed enhancements and cost-saving opportunities.
• Develop clear brand standards so each location will have the same general appearance, but be flexible enough to accommodate minor changes based on site specifics.
• Once these brand standards are established, the use of such décor items as flooring, lighting, wall finishes, graphics, fixture materials, equipment and furniture must be strictly monitored and enforced. Isn’t that the idea behind a franchise anyway? Perhaps one may want to storyboard all interior items to use as a sales tool or show-and-tell during discovery days.
• Consolidate vendors to a select few who understand your franchise (or helped create it) and have adequate inventory levels and offer turnaround schedules to meet your growth objectives.
• Once your brand standards are locked in, seek to secure national level pricing from these key vendors.
• Boutique style interior design firms may offer fantastic, over-the-top décor options, but if your business looks closely, often the large national flooring, lighting, paint and equipment companies might just have lower cost acceptable alternatives.
• If your brand’s typical location is 3,000 sq. ft., would it be possible to make it work in a 1,500 sq. ft. space while maintaining brand standards and functionality?
• Once there is a clear understanding of the minimum site requirements for the franchise business, develop a standardized Letter of Intent. Be sure potential landlords know what specific condition that is desired for the space to be delivered. Everyone has a different interpretation of what vanilla shell, grey shell or warm dark shell means so it’s up to the client to be specific.
• Assign someone internally or hire a professional to educate local level brokers about your brand’s specific requirements so that your business doesn’t waste time investigating sites that physically won’t fit your brand. Also consider creating a detailed packet of information that can be easily sent out to brokers (and franchisees) to have on hand as they scout their region for potential sites.
• Due to the large number of vacant spaces significantly reducing their income and available cash-on-hand, most landlords are dramatically reducing or altogether eliminating how much tenant improvement dollars or TI they would be willing to negotiate into new leases. Therefore, it’s more important than ever to know what your franchise wants from a potential landlord and negotiate hard for as much as one can get.
• In lieu of TI, some landlords are offering longer rent commencement periods: ask for this based on an open-for-business date. As a negotiating position, consider that many cities have reduced head count, require employees to take furlough days or schedule only specific days of the week to review construction plans which might lead to delays outside of your (and your contractor’s) control.
• Hold your landlord accountable to supply clear up-to-date electronic as-built drawings of the intended space or request that they pay for a professional site survey. This detailed information is critical to the pre-construction phase of a given project.
• Do some diligence early on to understand what the local planning commission will require to approve your construction plans. Who will need to see the plans (and their typical timelines would be helpful information to have) before getting started? Assume that an exterior sign permit will need to be approved, so find out how to handle that process too.
• Understand who will be the key person responsible for submitting the plans and communicating city comments back to the architect for re-submittal. If a franchisee has never handled a retail construction project previously, look to hire a professional plan submittal agency/expeditor.
• As much as one tries to standardize, each location is unique. Businesses will often be required to make small design and layout changes between sites. Businesses might find many of these variations or new ideas good enough to carry forward within their program. It’s critically important to maintain this “tribal knowledge” accurately and because of this, the client might want to use one architect (or AutoCad designer) to manage all plan sets for each location regionally or nationally.
• Always seek bids from several (three or four minimum) qualified general contractors for any given project being sure that each contractor is bidding off of the same plan set. Each contractor should also have very clear guidelines as to the scope of work to be performed.
• Require any contractor interested in bidding to actually walk the space to see exactly what he is going to be estimating. This will help to eliminate mistakes in pricing and avoid potential change orders down the road.
• Spend adequate time reviewing all bids for completeness and accuracy. Check contractor references specific to schedule maintenance and cost overruns. Look at other projects contractors may have completed in the area. Ultimately, select the contactor who is best suited for the task (not necessarily the cheapest).
• Establish a well communicated and agreed upon turnover date. Monitor this date at least weekly to be sure everyone is on target.
• Follow up on a very regular basis with any vendors who are supplying materials to the construction site outside of your contractor¬-equipment, millwork, furniture, and so forth to be sure that these are delivered at the appropriate time.
• Be sure there is adequate time between a targeted grand opening date and the date the contractor expects to finish so that there is time to install millwork, graphics, menu boards, stock shelves, hot test equipment, train employees and so on.
• Are there walls, lights or other elements within the space that can be reused?
• As your business begins to narrow down your contractor list, ask candidates if they see any opportunity for value engineering, being sure not to change any brand standards.
• A franchisee building one location has little leverage in negotiating the best possible price or securing an extremely aggressive schedule. As a franchisor, be sure to make your presence known to these contractors and help them to understand the bigger picture. With top-notch performance, there might be potential for them to play a larger role in the system than simply a one off build.
Construction costs and timelines can fluctuate significantly based on the time of year, economic conditions and geographic location. It’s important to test your program often to be sure your company is matching up with your established FDD Item 7 guidelines under these variables. Assuming that your franchisee is looking to secure some type of external funding for the build out, your FDD must represent real world, current economic condition estimates or risk having funding shortfalls once the process begins.
While certainly not complete, these bullet points are designed to provide franchise businesses some tools to implement or at least think about when developing a streamlined and cost-effective construction management solution for your system.
Tim Matey, CFE, is a national account executive with F.C. Dadson, a national construction management and fixture manufacturing company. He can be reached at 800-728-0338, Ext. 137 or email@example.com.