Wise Spending

‘Ton of ways to save’ when building out stores, experts say



Mainstream Boutique

For each expense, consider “whether it is going to drive sales,” says a Mainstream exec.

When opening a store, costs can range from a few thousand to hundreds and hundreds. That’s why many brands are rolling out different packages based on location size and franchisee cash condition.

One of the biggest start-up costs for franchisees is store build-outs. Those construction projects can be perilous, with opportunities to carve out savings—or quickly blow past a budget.

“The build-out is extremely important, because it sets the tone for your business,” says Corey DeNicola, director of franchising for Mainstream Boutique in Apple Valley, Minnesota. “Franchise owners only get one chance to make a first impression with customers.” 

Effectively managing build-out costs also plays a pivotal role in getting that business off on the right foot financially, he adds.

“It is important to prioritize where to spend the money. The franchisee can always add additional frills to a space later when they have more money to spend on those extras,” says DeNicola. Mainstream Boutique has stepped up its expansion in the past 18 months, nearly doubling in size to 24 locations.

Walking the line

One challenge for both franchisors and franchisees is walking a fine line between cutting costs while not cutting corners that will negatively impact the brand. For example, Tampa-based Front Burner Brands is in the early stages of launching a new fast-casual franchise called Burger 21. Burger 21 has four corporate stores and one franchise store open with another 10 franchise units under development. 

“We used those corporate stores to develop the concept, as well as value-engineer the costs as low as possible without sacrificing the brand image,” says Scott Evans, director of construction and design for Front Burner Brands. The company is the franchisor for both Melting Pot and Burger 21.

Whether a franchisee opts to lease space or buy a building, the choice of real estate can have a big impact on build-out costs. Starting with a plain vanilla box often means less time and money spent on fixing or changing the existing space. Likewise, an operator who walks into a vacant restaurant space can often take advantage of existing infrastructure.

Currently, the total start-up cost for Burger 21, which typically occupies a 2,500- to 3,000-square-foot space, is between $597,995 and $831,995. That cost includes all expenses, as well as three months of cash. Certainly, a $130,000 gap between the minimum and maximum start-up cost may seem big. Burger 21 has discovered that carefully vetting the real estate can help to avoid cost run-ups after a lease is signed.

Burger 21 takes a team to assess a potential site that includes an engineer, a contractor and an architect. They conduct an initial investigation to look for any issues that might add to costs. The existing real estate can have a big impact on helping to save money or significantly adding to the cost of the build-out if costly repairs or changes need to be done, adds Evans. 

“Our goal is to use those investigations to give the franchisee an opportunity to back out of the deal,” says Evans. For example, some “as-is” lease deals might require the tenant foot the bill to add steel to a space to support the weight of their air conditioning unit and the hood. “That can impact your cost significantly,” says Evans.

Creating prototypes

Franchise groups often work to create prototypes that don’t put an undue financial burden on franchisees. Keeping costs down was at the forefront for Togo’s when the company started re-imaging the brand three years ago. Founded in 1971, the West Coast sandwich shop chain introduced changes that include a new logo, signage and a brand new restaurant prototype. 

“Although we felt strongly that the brand needed re-imaging, including remodeling restaurants, we also were cognizant that, at the time, we were still in the recession and cash flow would be very difficult for our franchisees,” says Renae Scott, vice president of branding and marketing at Togo’s in San Jose, California. Togo’s has more than 250 locations on the West Coast and hopes to reach 400 locations by 2015.

The current start-up cost for franchisees to open a new 1,200-square-foot Togo’s restaurant ranges between $250,000 and $300,000. Togo’s also created three different levels of remodel package for franchisees that include a $20,000, $50,000 and a $100,000 package depending on the size and condition of the existing location, as well as a franchisee’s current cash flow situation.

“We took a really hard look at the new store and looked at ways to cost-optimize them to create an affordable, $20,000 option,” says Scott. For example, the new design features a “brand wall” covered with a high quality vinyl that displays the company’s logo and a film strip of photos that tell the brand story. Depending on the size, the cost to decorate that one wall alone ranges between $5,000 and $10,000. 

Togo’s worked with its vendors to create a more affordable option that would fit into the $20,000 remodel package. Instead of applying a full wall of the imprinted vinyl, the franchisee can paint the wall and apply specific appliques, which reduces the cost to about $1,000. To date, about 50 restaurants have been remodeled with another 80 to be remodeled in 2013 and 100 scheduled to be remodeled in 2014.

Orchestrating a store build-out can be a daunting task, especially for new franchisees. Certainly, franchisors offer resources and support. For example, Mainstream Boutique has created a website for new franchise owners that goes through every part of the build-out process from signage and color palette to flooring. The website guides franchisees through the process and includes recommendations, design ideas and examples of current stores, as well as recommended vendors.  

“The biggest thing that I always tell new franchisees is that this is your business. It’s not a museum,” says DeNicola. Creating a décor for a boutique, it can be easy to get caught up in extra design items ranging from luxury wall coverings to artsy displays. “So for each expense, franchisees need to look at whether it is going to drive sales and benefit your ROI, or is this something that you want because it is visually appealing to you.”

As little as $2,000

For example, a franchisee could easily spend $5,000 to $10,000 on the cash wrap or front counter. However, especially for start-ups, that money could be better spent in other areas of the business. Instead, Mainstream Boutique recommends that franchisees buy a cash wrap from their recommended vendor at a price tag of about $350. Especially in the current economic climate, franchisees don’t want to put themselves behind from the beginning, because that will limit the funds they have available to spend money on more essential costs that are going to drive sales, such as inventory, staffing and advertising, adds DeNicola.

The build-out costs for Mainstream Boutique’s 1,500-square-foot stores vary widely depending on the current condition of the space. If a landlord is delivering a plain vanilla shell, the typical cost is about $10,000 to $15,000—but some franchisees have spent as little as $2,000.

Some franchisees are do-it-yourselfers and are willing to paint their own walls or put in flooring. “There are a ton of different ways to save without sacrificing the look and feel of the store,” adds DeNicola.