January 24, 2020 •First Franchise Capital
There’s a reason most major franchise chains have initiated redesign programs in recent years - consumers are more fickle than ever, and they’re drawn to the newer and shinier. If the restaurant down the street looks fresher and brighter, they’ll have a competitive advantage. And as new competition appears, the longtime leaders may be looking a little tired, especially in the eyes of the younger customers everyone covets.
So it’s no surprise that many chains are mandating that franchisees spruce up their locations. Some simply urge an upgrade, while others have set deadlines for when particular stores must be remodeled. As a franchise owner, you’re faced with a tough decision: do you go ahead and upgrade now, or do you delay as long as possible?
Increased sales and ROI
A benefit to remodeling is increased sales. There are no guarantees, but chains that have implemented remodeling programs are reporting increased sales numbers. For example, the most recent Burger King® remodel saw per-store sales climb 10-15%, and Cinnabon’s® new look boosted sales by 35% for some franchisees.
Those numbers are attractive, but what about the return on investment? Given the hefty price tags of some of these remodeling projects, it may take a while to recoup the costs. Take the recent Wendy’s® upgrade, which sources have priced at about $700,000 per location. The company claims remodeled stores are seeing 25% increases, which equates the per-store average annual sales of just over $1.4 million. This amounts to an extra $364,000 in receipts which means franchisees have to wait nearly two years to recoup their investments.
Get ahead of the competition
But if remodeling is mandatory, common sense would suggest that moving ahead earlier would be more prudent than waiting. First, getting through remodeling earlier rather than later will make increases in sales happen sooner. Second, construction and equipment prices nearly always increase over time, and if the economists who foresee increased inflation over the next several years are correct, prices may climb even higher in the coming months. Finally, the Federal Reserve Bank has been increasing the federal funds rate, and has announced plans for additional increases. That suggests that market interest rates will continue to climb, increasing the cost of financing.
Not sure if the time is right? Why not have a conversation with one of First Franchise Capital Corporation’s™ lending specialists? They can show you how our cash flow and asset-based financing may make the improvements that will grow your business more affordable.
