Franchising World, June 2006

By Brandon Gough

Asking franchisors about their growth strategies is almost the same as asking whether a tomato is a fruit or a vegetable. You’re bound to hear plenty of theories and supporting arguments, all with their own merits.

One issue that’s almost always certain to elicit varying opinions pits franchised locations versus company-owned locations. What’s the best mix in a market? Should you operate any company-owned units? What are the merits? Isn’t it best to focus all your efforts on franchised growth? The debate could go on endlessly.

For many franchisors it might be possible to reach a happy medium, one that benefits both segments. The judicious opening of corporate-owned stores can be used to energize market penetration in existing markets or expedite entry into new ones.

It’s a strategy we are embracing at Juice It Up!, a smoothie and juice bar chain that specializes in blended-to-order fresh fruit smoothies and fresh-squeezed juices. Until this year, the franchise operated only one company-owned location and that was near its corporate headquarters in Irvine, Calif.

But by the end of 2006, six additional company-owned stores are expected to be open, representing about 10 percent of the 55 stores planned for opening this year.

Factors to Consider

Obviously, market penetration is a critical factor to the success of any developing franchise concept and using corporate-owned locations to either launch or enhance that objective is a worthy consideration.

It’s no secret that consumers equate brand recognition with the number of locations a concept enjoys in a given market. The risk of opening only one store in a market is that a concept might be perceived as a “mom-and-pop” operation versus the stronger brand appeal of a multi-unit chain.

Opening corporate-owned stores in targeted markets allows a concept to establish a presence on a fast-track basis. It also allows prospective franchisees the opportunity to “touch, feel and see” an actual store instead of talking conceptually about a concept that might have piqued their interest.

By mixing corporate and franchised stores in a market, a franchisor conveys an “all for one, one for all mentality” that embodies a single vision. The core objective is to strengthen the brand, but also to create cooperative opportunities such as joint-marketing campaigns that can reduce costs while increasing efficacy.

Having a corporate presence also allows a franchisor to share a front-line perspective with franchisees when seeking to establish a presence in a given market. It allows them to understand the challenges specific to a market and learn whether their branding message needs to modified or tailored to the local community.

Those experiences are especially critical for brands which place an emphasis on having “community based” stores that are meant to embrace customers. Our newer prototype stores even feature a community board in each location where customers can write fun messages or just doodle. It’s just another opportunity to connect with customers. If a franchisor encourages its franchisees to become part of the fabric of the community, operating a corporate store with the same goal allows the franchisor to observe firsthand how that objective is accomplished.

While the opening of corporate stores does involve additional expenditures, it is crucially important that these locations operate at the highest level because they can come to represent the perception of your brand for an entire geographic region. Locations must be staffed appropriately to not only achieve single-store objectives, but regional goals.

Multi-Unit Development

Obviously there are other avenues to achieving market penetration, one of the most popular being multi-unit development. While it has been proven an effective tool for the growth of many concepts, we believe it is important to maintain control over the brand through the opening of corporate stores in targeted markets rather than leaving the interpretation of branding elements to others.

And don’t be led into believing that energizing your market penetration can only be accomplished by traditional means, because that’s not the case.  While our traditional operating units range between 800 and 1,200 square feet and are located in strong retail, food, entertainment or theme centers, franchisors should always be open to non-traditional locations.

The franchise has a fully-developed kiosk prototype suitable for college campuses, airports, gyms and sports arenas. But no matter what their concept or product, it can be beneficial for many franchisors to consider outfitting their services for non-traditional locations. Some of the advantages include:

• Non-traditional locations increase brand recognition outside traditional avenues.
• Franchisors have the ability to target specific audiences.
• Many of the build-out costs of traditional locations are reduced or eliminated.

One of the benefits of a franchisor introducing a non-traditional store package and operating it as a corporate-owned entity is that it allows the franchisor to test-market the concept before introducing it to franchisees. The franchisor can manage the process through its entirety to ensure the success of the prototype.

Building an Infrastructure

Finally, one of the most important components involved in energizing a franchisor’s market penetration is having the proper infrastructure in place to support such objectives. A sound infrastructure is what makes the dramatic scaling of a franchise concept possible.

But the challenge is in building an infrastructure that provides equal support to both your franchised and corporate stores, since each requires a different set of operational elements. The nuances between each can be subtle or stark, but most times need to be addressed independently.

While putting such an infrastructure in place requires an upfront investment in personnel, the long-term gains are hugely beneficial for franchisors that seek to be equally successful on both the corporate and franchised fronts.

The benefits of maximizing growth through franchised and corporate locations are many and worthy of consideration by any franchisor. It serves to perpetuate the integrity of one’s brand. And, as a business strategy, it combines franchise and corporate development in a unified vision to mainstream growth. With a supportive infrastructure both corporate stores and franchise owners benefit by receiving identical services and benefits from their relationship with the franchisor. 

Brandon Gough is the president of Juice It Up! Franchise Corporation.  He can be reached at bgough@juiceitup.com .