21 minute read
Dream II: The Branch A Second Store for You? Deciding If, Where, How
You probably went into business to fulfill a dream of owning your own place and being your own boss. And if your operation is successful, you may have considered opening a second store, a sort of sequel to the dream. This article will help you with Dream II by answering questions about opening a second store, from why to how.
Nearly one in four retailers opens another store. Unfortunately, it’s as risky as when you first started in business. There are as many dangers, some of them different. Statistics tell us that half the expansions will fail in five years. But for those that don’t, the advantages of expanding into multi-units can be tremendous.
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Reasons for Branching
Here are several reasons for branching out. A big plus is that you will enjoy economy of scale and centralizing of functions. Perhaps, for the first time, you will be able to justify a full time bookkeeper with two stores doing enough volume to have someone on staff track the numbers. With two or more stores sharing the budget, you can spread many expenses: advertising, warehousing, delivery, etc. Some retailers estimate their savings at ten percent in operating a second store.
The biggest advantage of all is that you will be able to buy better because you will be buying bigger. This is why your suppliers will be eager to help you get that second store opened.
Also on the plus side is a savings in insurance. Business interruption protection will not be as vital per unit when you have two or more units. If fire strikes, you’re sill in business and can use the second outlet to keep going. There’s a big relief in not having all your eggs in one store basket.
Sharpen Up
Another advantage of more than one store is the opportunity to sharpen your management. You can compare expenses and operations between stores to sniff out problems and spot strengths in one store that can be carried over to the other. Two heads are better than one. So are two stores, each with its own staff and management.
Also, with a second store you will continue to build equity, something which you began when you opened the door to your first one. While a second store may never make as much as the first, it can more than double your equity and your business stature.
A second store also provides defense against competition. When a good site for a store opens up just outside your present trade area, you might want to snap it up rather than see a competitor set up shop on your border.
Grow or Die
So you might open a branch because you feel you must. In business, as in many other endeavors, it’s a case of grow or die.
Branching out will keep you on the cutting edge of change. Look at the growth of malls and other suburban retaining locations at the expense of downtown. If your headquarters were downtown and you had opened a branch on the outskirts some years ago, you would have an early jump on the outward trend in retailing. Your branch will be a place to experiment with new merchandise ideas or methods that you might not want to risk at your flagship store.
The Flip Side
But despite all those pluses in branching out, the fact is that almost nine out of ten of the billions of retail firms in the United States are single unit operations. That’s because there are also so many negatives.
The branch might siphon off customers from your headquarters store and hurt its profits. However, this problem could be avoided by strategic site selection.
Loss of Control
Branching out will make you delegate and with delegation comes some loss of control. You won’t be able to manage hands-on in both the headquarters and branch stores.
Then too, there is danger that your management skill may slip out of focus. Too often an owner or manager gets swept up in the expansion, and the on-going daily problems are neglected until they become crises. You must continue your practice of identifying and solving problems as they crop up while still finding time for overseeing the branch startup.
Different Skills
Running a multi-unit business requires different skills from those needed to start a business. The entrepreneurial spirit that helped you get started might be too risk-taking to chance with a branch. Originally it was go-for-it. Now it should be: Let’s think it over and go slow. Be more objective even at the expense of enthusiasm. There’s danger too in feeling that if it worked once, it will again, which could lead to cookie-cutting a branch from your original store. Finally, the branch will partly destroy the cocoon you now have with its warm feeling of control over your business. With stores, one could be the happiest number.
Time and Staff
Ask yourself two important questions. Is your present business in shape to handle the strain of expansion? Can you spare the time and can your headquarters store spare the staff?
Recognize that while you may be a great storekeeper, by expanding into a second unit you must become a great people manager to an extent you’ve never done before. You must be able to recruit, motivate and train, fast and well. So just knowing the product and your customers is no longer enough. Now you must know people management.
If It’s Go, Here’s How
After considering all these negatives, you are still in a branch out frame of mind. Remember all those positives earlier in this article. If your decision is “go”, here are the next steps.
First, decide what you want your branch to be. Above all, don’t simply clone your headquarters store. Instead, tailor your branch to its own market area. Just like snowflakes, no two markets are the same. You must study consumer peculiarities in your proposed branch location. After deciding what you want your branch to be, you face a decision of buying an existing store or starting from scratch; and whether to erect a building or buy one, or rent.
Why Buy One
It is far easier, if not more expensive, to buy a store than to start one from scratch. But like everything else in merchandising, there are two sides to that coin, While you can get up and running quickly by buying an existing store, you may have to pay a great deal if it is prospering, or have to overcome some bad heritage if it is floundering.
One factor helping decide between starting or buying a branch may be availability of a site. Quite often the only way to get a location in an established area is to buy an existing store. One tip: If you buy an existing store, put in your own manager rather than retaining the one that comes with the store. How else will customers know that they will now enjoy new and better management?
Price
Before buying a store, analyze to see if the business is healthy, how much of the stock is live, and how much you should pay for it. Pricing the store can be complicated. Price may be based on replacement value, book value, or the capitalizing earnings value, but then that’s another article.
With an existing store, don’t figure that you are going to save much on fixtures and signage. Instead, you should be budgeting for jazzing up the premises, again to let customers know that new management is here.
By building a branch from the ground up, you can tailor it precisely to a business the local market needs. This is the ideal way to branch out, however, it is slow, complicated and more expensive.
Deciding Where
Once you’ve decided what you want in a branch, it‘s a questions of where. You can find a great deal of help in this regard. First, there are your suppliers, who often are first to know where an existing store might be available. Or they may have market studies that show where a successful new store might be opened. You should check with the telephone company or the city/county engineering department to see where urban or suburban growth is coming. One retailer we know even finds free help in site selection from the marketing department of a prestigious university in his city.
Will an area you are considering support a branch store? Market information can be found at your public library, college or university, Small Business Administration and government agencies, local and federal.
Census Bureau
The Bureau of Census reports on per-capita expenditures for many product types. If you can compute the number of customers in the trade area, multiply that number by the average expenditure. The total will be your branch store’s gross sales and from that you can decide whether to open in that area.
An excellent source of demographics for your area is the Bureau of Census. You can obtain information form the bureau on: • Population of the area and how this is changing. • Where they work. • Proportion of young or old and how many children. • Number of families owning or renting. • Number of single person households. • Incomes. • Occupations. • Whether the area is old, established or mainly newcomers. • Value of homes, monthly rent, age and quality of homes. • Number of families owning two or more autos.
Don’t let the presence of a competitor automatically turn you against an area. Look at gas stations or auto dealers who like to cluster. You and a nearby competitor might turn an area into one known for your specialties.
How Close
How close should you locate your branch to your headquarters store? Too close, and your two stores will be fighting for the same customers, at your expense. Too distant from each other and you lose all the economies of joint advertising, joint warehouse, joint deliveries, etc.
Distance between your stores will be partly determined by population density in your area. In Manhattan, just a few blocks away means another market, another trade area. But in suburban areas, the minimum distance to prevent overlap might be several miles. It may be best to locate in different towns, even 15-20 miles apart.
Customer Migration
How much will your branch store take away from your headquarters, in other words what will be the extent of customer migration? Figure on a maximum of 25 percent, depending on how close together. That 25 percent provides a good start for a new business because it represents established customers. In fact, some retailers study their trade area very closely, spotting customer concentrations so that up to 25 percent will turn to the branch as a matter of geographic convenience.
What about funds for branching out? Better figure on two or three years of red ink. It’s not just a matter of startup capital but continued funding. Now’s the time to get cozy with your banker. One thing in your favor is that you now have a proven track record and bankers like that.
Funds From Suppliers
But there are easier and cheaper sources of credit than a bank. Turn first to your suppliers. They should be willing to give you very good terms because you will be providing a second outlet for them. One retailer tells us that at the first word that he was considering a branch, suppliers were all over him.
Your suppliers should be eager to give you liberal terms on an opening order. In addition to special advertising allowances, they should extend the usual 30 days to say 90 days and perhaps provide special discounts. They might even be persuaded to relax the 30 day payable for your main store to 90 days, freeing up your cash for the branch operation. Get even cozier with suppliers than with your banker.
Funds From Present Business
Another source of funding is to take on a partner, selling part of the business. If you are substantial enough to incorporate, then selling an interest becomes easier. It’s a good idea to incorporate your two stores separately, which means trouble from one cannot infect the other.
Look to your existing business for funds by converting idle assets into cash for the branch. You might have a truck that’s not being used all that much. You might want to sell equipment and lease it back, finding cash in
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the same way that some airlines now do by selling their planes and leasing them back.
Or you might free up cash from your present store by selectively shrinking inventory or by getting tough with accounts receivable. Get lean and mean in your operation before you consider opening the branch. Most of your customers, if they have a fairly close relationship with you, will understand your need for cash to expand. We know of some retailers whose customers lent them money to open a branch closer to them.
Managing Both Stores
Early on, you should plan how you will staff the branch. Most of the retailers we talk with say that staff is the first consideration. You will need a topflight manager for the branch. If that’s you, then you will have to find a topflight manager for your headquarters store. Don’t try to split yourself between the two stores. It just won’t work.
The best source for a manager is from your present staff, if you’ve been developing your people as you should. The remainder of the branch staff would best come from your present store. You can replace them with new hires who can be better trained at the established store.
Staff With Experience
There are many obvious advantages to staffing the branch with experienced people. They know your products, your suppliers and your procedures. They are accustomed to working together. A branch is no place to have first time customers encounter first time help.
If you do have to turn outside for a manager, an excellent source of leads will be your suppliers. They can tell you about the good salesman itching to be a manager and currently employed at a competitor’s store. They also can tell you about the owner who wants to close his store. Your suppliers can put out the word in the trade that you need a manager.
Spend on Promotion
Months before your brand opens,
When you join NEICRA, you are family!
As part of our family, here are some of the benefits you will enjoy • Network with your peers • Great Newsletter • Consult with your suppliers • Improve profits • Enhance shop operations • Learn about new products • Improve employer-employee relations For information contact: Margaret Anderson New England Ice Cream Restaurant Association P. O. Box 1039, Westwood, MA 02090 E-mail: mca319@gmail.com Web Site: www.neicra.com
you should be finalizing a promotional plan. How much should you budget for advertising and promoting the new branch? A lot! Much more than probably you would expect. While some promotion techniques are inexpensive, such as bag stuffers and putting signs in your present store announcing the branch, they fall far short of the major impact you must create.
Some store planners recommend budgeting four percent of your total startup expense for advertising. Others say plan on spending in one month what you would spend in a year for the main store. The advertising/promotion program should consider all four main media: print, broadcast, direct mail and social media. This is the time for saturation bombing.
Ever notice how most grand openings occur weeks or ever a month or two after the store actually has opened? There’s a good reason for that technique which is called a “soft” opening proceeding the grand opening. The interval is a shake down cruise for staff who should have the store humming and ready for the grand opening boom in a few weeks.
When to open
As to when in the year you should schedule the opening of your store, the jury is still out on that one. Some say open when business will be brisk to get the store off to a fast start. Others counsel scheduling the opening for the slack season, again for the shake down cruise mentioned above.
Be sure to plan ahead every step of the way in opening a branch. You should draw up a precise timetable, setting out time frames in months or weeks for each step. Make a list of the stages, beginning with market research and site selection, the lease negotiation, payment of local fees and obtaining permits, selection of floor plan, contracting for construction, arranging for inventory, fixtures and equipment, financing, promotion and finally opening. Do your hiring and training as you are completing the final stages of the branch or perhaps before.
Finally, you will have Dream II, the branch store. And its success should be more assured than when you first opened with Dream I. v
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ASSOCIATIONS Great Lakes Ice Cream & Fast Food Assn. ..................810/618-0605 New England Ice Cream Restaurant Assn. .........mca319@gmail.com
BATCH FREEZERS Carpigiani…………icecream.carpigiani.com………..…800-648-4389
BOOKS
Tips for Costing Ice Cream & Frozen Yogurt Cakes & Pies, plus: Tips for Costing Ice Cream Cones, Sundaes, Shakes & Other Goodies………….............…..JLM Unlimited...847-301-8400
BULK ICE CREAM CONTAINERS GlacierPoint Enterprises, Panza Division www.icecreamproducts.com……………......……800-Ice-Cream
Negus Packaging Solutions 3220 Kingsley Way, Madison, WI 53713
CAKE DECORATING www.cakedeco.com…Candles & Everything!...........718/545-4600
COCOA POWDER Forbes Chocolate…………………..............www.forbeschocolate.com
CONES GlacierPoint Enterprises, Panza Division www.icecreamproducts.com………......…………800-Ice-Cream
JoyConeCo. Cake,Sugar,WaffleCones&Bowls,Wafers,Cookie Inclusions PDI Cone-Dutch Treat…Sugar Cones & Toppings….....716/821-0698
DIPPING CABINETS
Carpigiani…………icecream.carpigiani.com………...…800-648-4389 ..
FLAVORS GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream Green Mountain Flavors, Inc. ………………………..800-639-8653
FROZEN CUSTARD GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream
Classic Mix Partners...www.classicmixpartners.com.....800-722-8903 Award Winning Frozen Custard Mixes
FROZEN YOGURT MIX GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream
HARDENING CABINETS Carpigiani…………icecream.carpigiani.com……..……800-648-4389
ICE CREAM CARTS & FREEZERS AllStarCarts-IceCreamCarts-Tricycles-TrucksTrailers...800/831-3166 Carpigiani…………icecream.carpigiani.com………..…800-648-4389
ICE CREAM CONTAINERS GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream ICE CREAM CONTAINERS
Visstun Cups…………..www.visstuncups.com…….….702/251-8809
ICE CREAM MIX GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream
ICE CREAM MIX - VEGAN GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream Meadowvale, Inc…..www.meadowvale-inc.com……800-953-0201
LUBRICANTS Haynes Lubricants……www.haynesmfg.com…………800-992-2166
PHOTOGRAPHY Stella Lorens Gallery…www.stellalorens.com...............630/730-8297
SODA FOUNTAINS AMERICAN SODA FOUNATIN, INC............................312/733-5000 455 N. Oakley Bl...Chgo, IL 60612...www.americansodafountain.com Parts-Sales-Service-Mixers-Pumps-DraftArms-SodaFount.Bev.Equip
SOFT SERVE MACHINES Carpigiani…………icecream.carpigiani.com……...……800-648-4389
TOPPINGS GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream
TR Toppers ……. www.trtoppers.com……………......…800-748-4635
VANILLA Prova Gourmet….www.provagourmet.com…................978/739-9055
VEGAN ICE CREAM MIX GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream Meadowvale, Inc…..www.meadowvale-inc.com……800-953-0201
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NEW JERSEY GlacierPoint Enterprises, Panza Division www.icecreamproducts.com…………………….800-Ice-Cream Dingman’s Dairy....www.dingmansdairy.biz..800-958-6838
NEW YORK Electro Freeze Tri State, soft serve, batch, shake,slush.NY, NJ,CT
OHIO Peck Food Service….www.peckfoodservice.com….800-732-7325
SEPTEMBER
National Honey Month National Papaya Month 2 – National Blueberry Popsicle Day 4 – National Macadamia Nut Day 5 – Labor Day 6 – National Coffee Ice Cream Day 10 – National Hot Dog Day 11 – Patriot Day 11 – Grandparent’s Day 11 – National Hot Cross Bun Day 12 – National Chocolate Milkshake Day 13 – National Peanut Day 21 – National Pecan Cookie Day 22 – Autumn begins 22 – National Ice Cream Cone Day 23 – National White Chocolate Day 23 – National Key Lime Pie Day 25 – Rosh Hashanah Begins 27 – National Chocolate Milk Day 28 – Strawberry Cream Pie Day 29 – National Coffee Day 29 – National Mocha Day
NEGUS PACKAGING SOLUTIONS OCTOBER
National Apple Month National Pretzel Month National Caramel Month National Cookie Month National Dessert Month 3 – National Caramel Custard Day 4 – Yom Kippur 7 – National Frappe Day 10 – Columbus Day (Observed) 13 – National M&M® Day 14 – National Dessert Day 15 – Sweetest Day 16 – National Boss Day 18 – National Chocolate Cupcake Day 22 – National Nut Day 24 – United Nations Day 28 – National Chocolate Day 30 – National Candy Corn Day 31 – Halloween 31 – National Caramel Apple Day
5– Make It Fresh! Seminar. Emery Thompson Machine, Brooksville, FL. Contact: Paula Thompson, Emery Thompson Machine, 15350 Flight Path Dr., Brooksville, FL 34604. 718/588–7300. Fax: 352/796-0720. E–mail: paula@emerythompson.com
NOVEMBER
National Georgia Pecan Month Peanut Butter Lover’s Month 4 – National Candy Day 5 – National Donut Day 6 – Daylight Savings Time Ends 8 – Election Day 8 – National Cappuccino Day 10 – National Vanilla Cupcake Day 11 – Veterans Day 11 – National Sundae Day 20 – National Peanut Butter Fudge Day 21 – National Cranberry Day 22 – National Cashew Day 25 – National Parfait Day 24 – Thanksgiving Day 28 – Small Business Saturday
DECEMBER
National Egg Nog Month National Pear Month 3 – National Apple Pie Day 4 – National Cookie Day 7 – National Cotton Candy Day 7 – Pearl Harbor Remembrance Day 8 – National Brownie Day 10 – Human Rights Day 12 – National Cocoa Day 16 – National Chocolate Covered Anything Day 17 – Maple Syrup Day 18 – Hanukhah Begins at Sundown 18 – National I Love Honey Day 21 – Winter Begins 24 – National Egg Nog Day 25 – Christmas Day 26 – National Candy Cane Day 26 – Boxing Day 26 – Kwanzaa Begins 31 – New Year’s Eve
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Advertisers’ Index
All Star Carts & Vehicles, Inc...........14 Carpigiani..........................................9 Cold Car...........................................17 Costing Manuals.................................7 Dingman’s Dairy...............................13 Dipwell Techware............................25 Frosty Produccts..............................23 Great Lakes Ice Cream & Fast Food Association........................15, 24 Stella Lorens Photography..............21 Negus Packaging Solutions..............28 New England Ice Cream Restaurant Association.................................26 A.Panza & Sons, Ltd.........................2 Prova Gourmet..................................5 Rite Temp.........................................18 Visstun.............................................22
This Advertisers’ Index is published as a service to you, the reader. The publisher does not assume liability for errors or omissions.
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