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The path to your ideal store network is paved by planning. If you don’t know where you are going – any road will lead you there.

By Peter Buckingham, MD, Spectrum Analysis Australia

Many franchisors build their systems based on opportunism, luck, and very little strategic thinking on where the road is taking them.

This regularly comes about by where a franchisee wants to operate “your” business, rather than where the need for new sites are required. McDonalds have been legendary (and demand for their stores has a big influence on this), in approving a franchisee, and then telling them where their store will be. If this doesn’t suit – and it probably is interstate, then head to the back of the queue! Unfortunately few franchisors have the luxury of such a demand for their system.

Strategic network planning is the process of using logic in planning where and how you want to build your network in the long term.

New businesses

Inevitably, the first one or two sites in a network begin probably by chance, as the owner has bought an existing business, or started up a business probably near their home. As the system starts to expand, the next few sites normally come about by opportunities that are presented, rather than where the owner is planning to develop.

At an early stage in the network development, we normally challenge the owners to address two questions:

• If all goes well, how many stores would you envisage in your home city in five years and 10 years time? (We like to think 10 years is a term that translates to having your system in a “mature” stage at least in your home city).
• Based on the above, if your system goes nationally, how many stores would you envisage in 10 years?

If we use some basic arithmetic, and use the 2006 Census data to measure population, the proportion you would expect in a national network would read some thing like:

The five main cities in Australia cover around 12.4 million people.

Inevitably, people then want to expand into the country, and due to the tyranny of distance, many areas simply do not have a large enough population base to warrant a store. Experience normally tells us that a network can justify 20% – 25% more stores, outside the main five capital cities.

If you can think long term about your home city, then you can extrapolate out to what a national network should look like.

A simple example: Business A is just beginning, and going quite well. The business has begun in Melbourne, and with five stores opened in the first two years, the CEO has a vision that he should have 28 stores across Melbourne – Geelong at a time when the brand reaches maturity.

 
Based on this, he should be planning for 100 stores across the five main capital cities, and around 25 stores across the country, giving a mature network of around 125 stores.

Whether used for the long term business plan, or for territory planning, this logic can be applied for many future planning issues for the company.

Be proactive – not reactive
Once you have decided on the rough numbers of where you want to be long term, using mapping and data, you can place some logic on where you wish to develop your stores or territories.
If you can come up with number of areas or territories you want to expand into, you can ensure some logic in nominating the areas.
An area may be defined as:
• A list of postcodes or suburbs to define each area
• A list of specific shopping centres you want to approach
• A list of shopping strips to be considered.

Our experience normally is to have three ratings:
Tier 1 – Areas you should be asking your staff to visit to proactively look for locations.
Tier 2 – Areas that can be considered if a good opportunity arises
Tier 3 – Areas you do not want to waste time looking at.

This then defines the instructions that are given to your network development staff, and any outside consultants or real estate agents you may work with.

Well developed or mature networks

Having an oil industry background (20 years at Caltex), I have lived through both expansion and rationalisation of a large network. Wherever you are in the life cycle, there are three points to be addressed:
1. Existing network - Where are we now, and how does our network currently look?
2. Ideal network - Where would we head if we started again, with no stores and could build our dream network?
3. Future network - What can we do to move from an existing network towards an ideal network the next three to five years?

Addressing a future network involves planning for leases ending and whether to renew or not, site divestment, whether stores are worth upgrading, and where to put new stores to head toward the ideal network.

 
We have conducted this logic with quite a few clients, and have had to present our views to franchisees and store owners alike. While it is not good news for all, it does present a plan that everyone can be working to. While an operator who hears his store has no future may not be happy, if the franchisee wants to have a future, then they can be managed towards a better store, or a graceful exit from the system. With no plan in place, then there is less confidence in the long term future.

If you are developing a network, think long term, and come up with areas you want to expand into, and not areas you fall into by default. This approach will add confidence to your network – franchisees will see there is a plan and not just opportunism.

If you already have a large network, plan for the future – do not be the victim of circumstance.

Spectrum Analysis Australia specialises in geodemographics, strategic network planning and retail sales modelling. Further information: phone (03) 9882 6488, email peterb@spectrumanalysis.com.au or visit www.spectrumanalysis.com.au.