Tag Archive for 'Franchise'

Predictive Analytics to the Rescue

Published on May 20, 2010 in Brian Hill. 0 Comments Tags: , , , , , , .

Brian Hill, Pitney Bowes Business Insight

I recently read an International Franchise Association article that outlined what franchisors should be doing to help their franchisees obtain funding for new capital projects in today’s risk adverse environment.

The suggestions were good and spoke to the fact that educating lenders about the brand and providing lenders with supporting documentation beyond the FDD is required today to help push things through a system that is still dealing with lots of uncertainty.

Another sound recommendation hinted at, but not expanded on, would be for the franchisor to provide the lender with some indication of the new store’s likelihood for success. An earning’s claim? No, we know these words are heresy, but predictive analytics can go a long way towards this objective without having to provide an actual projected revenue or earnings .

What are the dynamics of the trade area – are they favorable? How many of this brand’s best customers reside proximate to the new location. Where are the competitors and how do they help or hurt this location? What are the unique site characteristics of the physical store itself as well as the retail environment that will help this unit perform well? How does this unit compare to other units in the chain in similar markets sizes and conditions?

A well-thought out predictive analytics plan can help a franchisor more than just evaluating real estate for their own corporate stores, that very knowledge may be the difference between helping a franchisee get funding or not.  Lenders have also gotten wise to this and are now starting to do their own advance real estate research too. It’s a wonder this isn’t a lending industry standard already!

Lender Research: Show Me the Money

Published on February 24, 2010 in Eric Steckling. 1 Comment Tags: , , , , , , .

by Eric J. Steckling, Pitney Bowes Business Insight

Pitney Bowes Business Insight has seen a recent increase in interest by lenders to perform analytical research on real estate for which they are considering lending money. This analysis typically involves a determination of the concept’s fit with the surrounding customers, site characteristics, competition, and market strength. The increased emphasis on research reflects a riskier market for retailers/restaurants and associated need for prudence on behalf of lenders, many of whom have seen substantially elevated levels of defaults in the past several years.

Historically, the lending community has focused on past success of the borrower in determining whether to lend. Current market conditions dictate the need for greater diligence to understand not just the concept’s attractiveness or the borrower’s creditworthiness, but the viability of the specific proposed site to successfully support the concept. That is, the ability of a retailer or restaurant owner to repay a commercial loan is directly tied to the quality of the real estate, considering how location impacts sales performance. The most critical assumption a lender will make is the gross sales for the proposed location.

Varying degrees of sophistication exist in forecasting sales for proposed sites, often they are dependent on the availability of comparative data. The more robust the data, the higher the confidence can be. Generally, the research and associated data should address key questions, such as:

1. Is the site located near its core customers?
2. How competitive is the market?
3. What is the strength of the concept-is it well understood by market consumers?
4. How favorable are the characteristics of the specific site?
5. How far will consumers drive to reach the site/concept?
6. What is the market size?
7. What factors drive sales for the concept?
8. Are there negative external factors that will limit sales?
9. Are there nearby retailer/restaurants that will create synergy?
10. How will traffic patterns affect patronage?

Ideally, a proposed retail or restaurant operator will have current sales evidence from proximate sister stores which provide a basis for new sales forecasts. Macroscopic analysis can be used to compare the site to a “chain average” metric, which can give a general feeling if the site is above or below the benchmarks set by existing units. When existing unit performance is not available, in-depth market and site specific research is required to develop an understanding of the site’s potential – and potential pitfalls.

While lenders have always examined the character of the borrower and the soundness of the business model, they are now adding scrutiny to the location of the business. After all, it is the revenue generated by the business, not the integrity of the borrower that will repay the loan.

In the Press: Maneuvering a volatile economy

Published on October 23, 2009 in Leslie Nogue. 0 Comments Tags: , , , .

In the October Issue of Franchise Times freelance journalist Beth Mattson-Teig spoke with Brian Hill, Restaurant Practice Leader in Predictive Analytics for Pitney Bowes Business Insight, for her feature on new industry technologies available to assist franchisors with their real estate efforts.  The resulting article titled “Maneuvering a volatile economy,” discusses how franchisors can use macroeconomic data to more accurately analyze the performance of new and existing units in the current economic climate.  In effect, Brian explains how economic indicators can help franchisors prioritize markets and determine which markets would best suit a particular franchise concept. [Read entire article...]

Franchise Times is a monthly magazine geared toward franchise owners, operators and senior executives of multi-unit franchise companies (circulation: 22,878).