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6 Tips for Entering a New Market

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6 Tips for Entering a New Market

Expanding into a new market can be a great growth opportunity, but it also can complicate operations and come with unanticipated challenges. To make sure you are successful when bringing your business to a new city, follow these tips.

 

Plan on committing extra time.

You probably can accurately predict how long it takes to open a new location in your core market or markets. You also understand important factors such as the traffic patterns of consumers and the nuances of trade areas in these core markets.  Further, you likely have real estate connections to source the best locations coming on the market. However, when you enter a new market, you must build this knowledge from scratch. Consequently, gaining an understanding of the market and opening new locations will take longer.

Allow extra time to learn the new market and introduce your brand the right way. If you simply do things the exact same as in an existing market, you may be putting a square block in a round hole. Add weeks to your planned timeline for unexpected delays, and learn from each one for future locations in the same and other new markets.

Ensure you or your architect intimately understands the building codes and other licensing requirements. Many localities are having tax and revenue shortfalls, and license, inspection, and permitting fees have grown greatly in the past few years. With these fees often comes approval requirements of various departments within the government, and those approval processes can add significant time in the planning, construction, and opening phases.

 

Develop a strategy for the market, not just finding viable sites. 

Selecting great sites in high demand trade areas helps, but you should enter a new market with a focus on where you eventually want to be, not just on what is currently available. Identify a reputable tenant representative who is not only experienced in the market but also experienced in your type of business. Working with someone who understands the entire market, has strong local real estate relationships with landlords and property managers to source great sites and who understands the competitive landscape will help expedite this process.

 

Focus on brand awareness.

Brand awareness is a big part of success, especially for franchisees. If you are introducing a brand to a new market, the franchisee must play a critical role in marketing the brand and creating and gaining that awareness. We communicate with all of our franchisees, but in particular, with new franchisees to ensure they understand that our responsibility is to provide the marketing tools and consistent brand messaging, and their responsibility, through both time and finances, is to market their business to the community and prospective customers. Stated differently, we provide the tools, but they provide the muscle and capital.

Marketing and the right real estate are two keys. However, tailoring the marketing message to the new market is also vital. Different parts of the country have regional preferences that may require you to adjust your promotions or the phrasing of your advertisements. Additionally, your first location will become your billboard; well-placed locations can help make marketing efforts more impactful.

To be more impactful in a market, the sooner you achieve a 50 percent market penetration, the better. Thus, if the particular market could hold 10 locations based on the various trade areas and overall demographics, you need a strategy and enough capital to build five locations in a relatively short period of time. It’s best if one person or franchise group can achieve that on their own—and quickly. If that’s not feasible, attempt to ensure you can open at least two to three new stores in close proximity in the first 18 months. When entering a bigger market, you may need more franchisees to gain market penetration quicker. You will all benefit from the brand awareness with more locations. Adding four locations in Knoxville, Tennessee, and creating brand awareness is easier than creating brand awareness by adding four locations in Denver, Colorado, for example.

Again, if that isn’t practical, it’s important to cluster two or more locations as close to each other as possible, while obviously not risking cannibalization. This creates marketing synergies and allows you to also take advantage of operational efficiencies for your management team.

 

Make sure you have the financial wherewithal.

When you penetrate a market with many locations, you create efficiencies. You have existing resources to maximize value. If you enter a new market, you need to have the financial ability to sustain your business until you create those efficiencies, especially depending on the overall size of the market. It more than likely will take time to grow sales to the numbers you are used to in existing markets while you are building brand awareness in your new market, as well.

 

Ensure logistics isn’t an impediment to your growth.

Some key distributors or suppliers may not be prepared to enter a new market along with you. As a result, be aware of additional fees you may incur in a new market. Some suppliers may have surcharges or additional fees if you are outside their usual distribution footprint. Research your supplier and distribution network ahead of time to make sure you won’t be paying more than others. if there are additional fees, understand at which point the supplier would stop the upcharges. This affects profitability, so you need to be cognizant of it beforehand.

 

Don’t forget about operational oversight.

You must establish and maintain strong operations in your new market, especially if you won’t be there full time. This means hiring stellar management, preferably with knowledge and experience in the new market, and then training them on how to operate the system you’re buying both efficiently and in accordance with the brand’s standards. It sounds simple, but once you open, today’s finicky guests often give you only one or two chances to make a great impression.

Oversight is critical from both a franchisee and a franchisor perspective. Franchisees are buying into a system, and you want to make sure you are maximizing those systems by complying with stringent brand standards. Franchisors need to be able to lend support to franchisees in a new market from both a consultative perspective and from an enforcement perspective to make sure the strengths of the brand is being executed and the system is being followed. This helps the franchisee succeed and allows the franchisor to ensure the brand is being represented well.

Entering a new market can be a great way to grow your business, especially if you have run out of room to grow in existing markets. Be judicious and do your due diligence ahead of time, so you are ready to devote the proper amount of capital and time to grow the brand presence in a new market. If you go into the process aware of the challenges you may face, you will have the best chance for success.

Craig Dunaway has been president of Penn Station since 1999. Before joining Penn Station Inc., Dunaway was a partner at the regional accounting firm of McCauley, Nicolas & Company, LLC in Jeffersonville, Indiana, where he had worked since 1982 in various staff and managerial positions. Dunaway has a bachelor’s degree in accounting from Indiana University and is still a licensed CPA. Dunaway formerly had ownership interests in a Papa John’s® franchisee that owned 11 stores, and he served as the secretary/treasurer for that Papa John’s® franchisee. In addition, he had ownership interests in Coastal Cheesesteaks, LLC (headquartered in Raleigh, North Carolina) until June 2011 and in Louisville Cheesesteaks, LLC (headquartered in Louisville, Kentucky) until January 2014, both of which are Penn Station franchisees. While a shareholder in those Penn Station franchisees, Dunaway served as secretary/treasurer. Penn Station was named one of the Best Franchises to Buy by Forbes in 2016 and 2018 and one of the Best Franchise Deals by QSR Magazine in 2016 and 2017.

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