New franchise?

[geoffw]

As many of you realise, I run a franchise business.

I've just been offered the opportunity to open a new business close by.

I'm struggling to know the best thing to do.

The new business is in a mall, very close by. It's in a Westfield Mall. Obviously, very expensive. (My shop is perhaps 1km away from the mall)

There will be competition with my shop. But I don't know for sure.

I bought this business with a very big number. The opportunity to start a new business for a very much smaller number, to establish goodwill etc, is very very tempting.

The business has been a lot of hard work. And it's been very trying. I've had just 4 days off work since Jan 1. Though the workload has been a lot less recently(I've actually taken off two days in the last three months).

I've recently been told that, despite a few years out of IT, I could earn some respectable $$ in testing.

So I don't know what could be best.

If I open the new biz I could have some serious cashflow probs.

But if I don't, somebody else could open it, and cause some problems to my existing business. (Some people I know would cause a much bigger problem than others).

What to do?

 

[Ausprop]

Westfiled will bleed you dry regardless. personally I would muster my strengths for the fight to come. Apart from which the prize value of a busines is really the land it sits on... in this case it wont be yours so what is the point?

perhaps use your IT skills to subsidise your business to tide it over if things get heavy.

 

[geoffw]

Yes Ausprop- Westfield will get their kilo of flesh.

I don't own the land on my existing prop. Just as well- I don't think the yield is very good.

If the biz can keep going for a few more years, there is the possibility of a very good semi passive income.

But, in the short term, my income cannot support a negatively geared property.

Which is a huge pity, because I went into this business with just that aim.

 

[Ausprop]

I dont really know a lot about food retail, however those places in westfield seem to come and go and personally I wouldnt worry too much. I saw one juice place last a week... the fitout must have cost a packet and I really can't understand what went wrong. maybe more to the story who knows. If your lease is a good deal you will have a strong upper hand against the competition.

is there somewhere nearby you can build a new shop? move your business into it, ramp up the lease and fix it till you are at a nursing home age and sell the business to some eager beaver! no more makign sandwhiches... hello hawaii. In the process you can sublet your current property at a premium.

 

[Ricardo29]

whats the bus geoff??

 

[TheCamel]

Ricardo, check geoff's signature block

as I mentioned before, I honestly think that, in that location, it would go well.
I'm pretty certain other people have tossed the idea around before, but Westfield didn't wanna play ball with them at the time.

It's a highly trafficed food court, and from my own point of view, if i was at that mall, i wouldn't make the (albeit short) trip down to the other location, when there's so much actually in the mall already.


Wouldn't the franchise agreements though have some sort of "priority" window - where if you don't want it, noone else could put one there either, ebcause it's too close to your franchise ?

 

[Macca]

Hi Geoff,

If it is another one of what you have then I would jump at it, assuming the mall is a success.

I would then sell the one I have.

I know that shopping mall operators are blood suckers, but as a part of a major franchise they do take it a little easier on you, rather than totally independent people.

Fitout is a major cost, if you are a franchise then you comply with franchise requirements, not mall requirements.

They actually prefer franchise food stores rather than independents.

Thats my 2c worth

 

[wylie]

We live near Westfield Carindale and in the food court there are a dozen or more food outlets including a very busy Maccas, KFC and Subway. If I was in the shopping centre, I would choose from one of the various food outlets, and not drive 1km to a Subway, even if there was not one in the centre.

If I was around the suburb and wanted to buy lunch, NO WAY would I contemplate going to Westfield, battle for a park, walk to the food court and cue up with dozens of people just to get anything, even if I desparately wanted a Subway (or whatever).

My point (sorry if I waffled on) is that I would not have thought that a Westfield 1km away would make much of a difference to your business, even if another Subway opened there. I would have thought your business is locals and people who want to part right outside and not battle crowds, find a park, walk a long way etc. They just want a Subway without doing battle to get it.

We have a local Subway where we do just that, park right outside, no waiting, no delay, no crowd. Sometimes it is very busy, but I would no sooner think of going to a Westfield food court just to buy lunch than fly (unless I was in the centre anyway).

Perhaps I think differently to others, but wouldn't your customers be different to those in the shopping mall?

Wylie

 

[WillG]

I wouldn't touch it if I were in your shoes. It sounds like you already have no time. You would have even less time with another business.

When do you expect to get a healthy passive income from your Subway ?

 

[steveadl]

Camel, franchises usually work that they'll give you the first right to any new locations in your area, but if you say 'no' - they can then give the franchise location to someone else to have a go.

Geoff, I do have something that may help to an extent. My business is in a high street retail precinct (don't know if you're familiar with Adelaide?) - I am right in the heart of the retail precinct with lots of cafe's, and dress shops, 2 supermarkets, Hoyts cinema, and a lot of other specialty shops. The street goes for about 2km I'd say, but the majority of the retail precinct, whilst it does go the majority of the way, is concentrated within the central 500m stretch.

There is a Subway that is about 500m or so - bout 5 min walk - further down the strip. It's been there for years and they do pretty well I believe (also close to the footy oval which helps on weekends I'm told). The franchisee recently (about 4 months ago) took the opportunity to lease a very small area in the Hoyts complex (in the heart of the strip) - by the way, I've never seen a Subway store this small, ever!

When I spoke to the employee in there about a month after opening, I asked how things were going there, and he said it's nowhere near as busy as their original location (which is still open), and so far the owner was a bit disappointed. The employee seemed to think, if they were to close one location, it would be the new one, not the original. BUT please take these comments with a grain of salt, as this may be just an employee trying to talk big and feel important. Is'nt there some way you could contact and talk to this frachisee, or others that have made a similar move to find out their views and experiences?

My personal feeling for my area is that it's not really big enough to handle 2 seperate Subways. Whilst the area is growing, it still has a fairly captive base, ie. workers during the day like myself getting lunch. The original location also has the benefit of easier access after hours as it has a car park right by the door, so would still do better after 6pm unlike the new one, or in your case, like a location in a Westfield.

As for my personal thoughts - I think, if you don't do it, it will be HIGHLY likely that someone else will, as Subway is a great name, and like it or not, Westfield has the foot traffic. So the big question would be, how much would a new location there effect your existing business? Whilst I agree it may not be the most lucrative proposition for you, you also need to look if it will canabalise your existing location and cripple your existing financials (granted that's a worse case scenario).

 

[maadha]

Go for it

A close mate of mine started out with his original subway in a westfields. He now owns 5 additional ones in our area. He is laughing and he still has the one in westfields too.

 

[steveadl]

We live near Westfield Carindale and in the food court there are a dozen or more food outlets including a very busy Maccas, KFC and Subway. If I was in the shopping centre, I would choose from one of the various food outlets, and not drive 1km to a Subway, even if there was not one in the centre.

If I was around the suburb and wanted to buy lunch, NO WAY would I contemplate going to Westfield, battle for a park, walk to the food court and cue up with dozens of people just to get anything, even if I desparately wanted a Subway (or whatever).

My point (sorry if I waffled on) is that I would not have thought that a Westfield 1km away would make much of a difference to your business, even if another Subway opened there. I would have thought your business is locals and people who want to part right outside and not battle crowds, find a park, walk a long way etc. They just want a Subway without doing battle to get it.

We have a local Subway where we do just that, park right outside, no waiting, no delay, no crowd. Sometimes it is very busy, but I would no sooner think of going to a Westfield food court just to buy lunch than fly (unless I was in the centre anyway).

Perhaps I think differently to others, but wouldn't your customers be different to those in the shopping mall?

Wylie

Very good point! Geoff may find there is very little overlap in the customer base from inside a Westfield to the outside shop. In this case, you'd then be faced with the decision of do you want to increase turnover and profit at the sacrifice of more of your time/life, or stay the way things are, with possibly very little change in the existing business.

PS I read the book about the McDonalds system a while back, and how they find they can support multiple stores in very close proximity to each other. Surely the Subway franchisor may be able to give you some sort of stats. in this regard too?

 

[JIT]

I wouldn't touch it if I were in your shoes. It sounds like you already have no time. You would have even less time with another business.

When do you expect to get a healthy passive income from your Subway ?

I'm with WillG on this one.

4 days off since Jan 1??? That is real hard work.

And it's even worse than a 'JOB', at least here you usually get 2 days off a week?

What's your timeframe with this business Geoff?

GSJ

 

[Aimjoy]

But, in the short term, my income cannot support a negatively geared property.
Which is a huge pity, because I went into this business with just that aim.

Geoff,

I don't know anything about the food retail business either - I'm in IT sales which is also pretty lucrative. However, maybe this is time to reassess your investing & lifestyle goals?

Seems like you did not achieve the 1st goal you had in buying Subway #1 which was to support a negatively geared property. So now you want to double up? Including doing a fit-out, getting screwed by Westfield and having even less personal time (at least in the short term)?

Will this be to support a negatively geared property too?

Just some thoughts and not meaning to be negative about it - it might be an excellent opportunity.

Cheers,
Aimy

 

[The Y-man]

The business has been a lot of hard work. And it's been very trying. I've had just 4 days off work since Jan 1. Though the workload has been a lot less recently(I've actually taken off two days in the last three months).

I've recently been told that, despite a few years out of IT, I could earn some respectable $$ in testing.

.....

If the biz can keep going for a few more years, there is the possibility of a very good semi passive income

Move to the Westfield Mall and buy some WDC shares to recoup some rent?

It must be a difficult position you find yourself in Geoff. I take it there is not much time left in a day when you can even have the luxury of sitting down and doing some soul searching.

The questions that came to my mind (and I am sure you have already thought about these in one form or another) when reading your post was as follows:

1. You given it a red hot go for X years: has it taken you to where you wanted it to take you?

2. Is the business truly on the cusp of a "breakthrough"? Will the semi-passive income be the most opitml use of your time over the next few years? Is the Westfield deal the breakthrough opportunity?

3. Is the business generating the income and/or growth you want/need to justify the time and effort, compared to being an IT contractor/employee

My own thoughts (not knowing any of the details!):

We seem to tend to hold those in business in higher esteem than those working for a wage. However, I do not see anything wrong with a good job as a tool for achieving your long term goals - especially right now when industry is facing critical shortages of skilled workers, and more so if you happened to pump in the same time and effort you are pumping into your business currently.

What are the consequences (for you) of just wrapping everything up and walking back to an IT job? Can you reconcile in your own mind that it was an interesting and good learning experience, that this is about the reasonable limit you can take the business to (for now)? I assume if this were to happen, some people will lose their jobs too.

Something from last weekend's Jornada seminar: there is no right or wrong choice - merely different consequences.

Cheers,

The Y-man

 

[Glucose]

We live near Westfield Carindale and in the food court there are a dozen or more food outlets including a very busy Maccas, KFC and Subway. If I was in the shopping centre, I would choose from one of the various food outlets, and not drive 1km to a Subway, even if there was not one in the centre.

If I was around the suburb and wanted to buy lunch, NO WAY would I contemplate going to Westfield, battle for a park, walk to the food court and cue up with dozens of people just to get anything, even if I desparately wanted a Subway (or whatever).

My point (sorry if I waffled on) is that I would not have thought that a Westfield 1km away would make much of a difference to your business, even if another Subway opened there. I would have thought your business is locals and people who want to part right outside and not battle crowds, find a park, walk a long way etc. They just want a Subway without doing battle to get it.

We have a local Subway where we do just that, park right outside, no waiting, no delay, no crowd. Sometimes it is very busy, but I would no sooner think of going to a Westfield food court just to buy lunch than fly (unless I was in the centre anyway).

Perhaps I think differently to others, but wouldn't your customers be different to those in the shopping mall?

Wylie

I agree, Wylie.
I've been to the Subway out on the main street, but have never bothered with the one inside the shopping centre (where I have my own shop).
Shopping Centres ONLY care about getting their rent, and I think very few people do well out of businesses in shopping centres. Shopping centres exist to make money for their owners, not to enhance the businesses of their tenants. There are degrees of "ease of getting on with" shopping centre management, from bad, to very bad to absolutely impossible (there is NO good), and, talk to any retailer, and they'll tell you Westfield is Worst! Guess there's got to be good reason why the Lowy family is SO rich!

 

[Tulip]

Geoff,

If you were reading this post with the same information, but if it were from a stranger, what would you advise them to do?

 

[TheCamel]

Geoff - Can you move your franchise to the other location ?

 

[geoffw]

Thanks all for the comments. Every opinion is helpful.

Competition would not be by ordinary people. There would be a crossover from office workers- who, given the choice, would tend to go to my store when it's fine, and somewhere in the mall when it's not. That crossover would not be a big deal. Each location would be very strong with appeals to different groups. My shop is good for people looking for food. The Mall is good for people shopping.

And my shop is up amongst the top 10, or thereabouts, in Australia. It's a great location, and it has done far better than what was originally expected. It's not a location which people expected to do well. But it's in the middle of an area with a university, a senior high school, "high density" housing (well, high for Canberra) and offices.

So it's not worth moving from one location to another.

The problem might be if a franchisee who is very aggressive in marketing has letter box drops in the local area promoting his/her own deals in competition with anything I am offering. I have already had such competition with another store, and it has had an affect on my business.

Macca- fitout is to both Westfield and franchise requirements- except that Westfield demand a much higher standard fitout than Subway.

It has been a lot of work. But I have been starting to get on top of it. Though for the last two weeks I have suffered, because there has been at least one person unavailable every day for the last two weeks. And now that I have new people itching for shifts, I can't give them any.

The profits have been slim. But a big part of that has been the business loan. I had been used to IO loans, or P&I with 25 year terms. So I based my cashflow on what I knew.

Bu business loans, as well as being higher rates, have a P&I period equivalent to the term of the lease. I was fortunate to have 10 years. But, even at that, repaymets are higher than the interest payments.

The new franchise would cost half the cost of my existing store.

But that leaves the very real possibility of a very high capital gain in a short period, if I wish to sell. Or, it makes the ROI much more attractive than the ROI on a new store.

After 2.5 years, I finally have a team I am extremely happy weith.

I am leaning towards taking the new store, while giving the existing team some good encouragement to take up more management responsibilities.

 

[steveadl]

Based on your last post Geoff, if it was me, I'd go for it:

- You have good staff now which you can switch between stores as the need arises (eg. sickies etc). Should'nt be as much problem with the new store getting it's feet since you can put your most capable and trusted employees in the new one as the need arises instead of having to handle it all yourself from scratch again.
- The cost of the new franchise won't be as much, so hopefully not as much of a drain.
- Generally different client base, so you should'nt canabalise too much.
- Avoid someone else moving in on your area.
- Always have the option of selling out in a year or two if you decide the work load is too much to handle, although I'd guess that there would'nt be so much extra work as such, you'll just be spending the time between two stores instead of only one.
- Don't know your financial position, but maybe this time round - for the start up costs - could you draw down some equity from IP's into a new LOC that you can use for the business. Thus saving yourself commercial interest rates and terms?

But don't listen to me, I'm young and stupid either way it has to be a decision you're happy with.