Real Estate and Franchising

It is often discussed in Business Management Program or MBA School history books that Ray Kroc’s McDonalds was successful due to the fact that they controlled the real estate underneath every store, and the appreciation was their true asset. There is some truth to this, but that is not the only thing that made Ray Kroc successful.

Nevertheless, a business-person who can control their costs through owning the real estate and their business location, has a huge advantage and franchisors know the value of being able to control the real estate. Most franchisors, which sell franchised outlets that include locations, at minimum want to have a master lease, which allows them to terminate a franchisee, kick them out and control the location, until they put in a new franchisee.

Franchisors often have site selection teams, and now there are tools used by Commercial Real Estate people, along with ESRI software, can give location intelligence in a heartbeat. Smaller Franchisors just starting out use all sorts of strategies, some use very simple solutions, as all you need is someone who knows how to run it, in a room with a computer, online, even a stay at home mom, former Real Estate person. Then quick overview of the area or territory from locals. Large franchisors of course, have large real-estate departments.

Not all Franchised businesses need locations, those that do, well their franchisees can use help in securing funding, but owning the real estate does not “Always” make sense. When it does, it pays to have a real-estate person to be a go-between with franchisees, franchisors and locals who understand the market. Real Estate is a big part of modern day franchising for many franchised companies.