Lending Expertise

by Katie Lee

— By Alicia Chandler —

Franchise remodeling for maximum benefits.

If you’ve been notified that your franchisor is requiring you to remodel your restaurant, you may be thinking of the headaches you’re likely to encounter. While it’s true that remodeling a franchise restaurant comes with challenges, it can have big payoffs in terms of increased sales. Planning for challenges can help you manage any difficulties that do arise and maximize the benefits to come.

Why Remodel?

Outside of the obvious reason — the franchisor requires it — remodeling can lead to increases in traffic and sales, and it can help you stay ahead of your competition. At heart, humans like the new and shiny. Not only does a fresh look attract people because of its novelty, it carries the positive associations of cleanliness and efficiency. Previous customers who might have drifted away may be drawn back by the lure of a new look. Customers with a choice between your recently spiffed-up restaurant and your competitor’s outdated one are more likely to choose yours.

Chipotle opened its 500th restaurant with a Chipotlane®, the brand’s digital order drive thru pick-up lane. Image: ©Tim Furlong Jr.

With drive-thru orders representing 75% of quick-serve sales, updating or completely reconfiguring drive-thrus and curbside pickup zones is a major trend in franchise restaurant remodeling. Jack in the Box® has launched a prototype Crave store that is designed primarily for drive-thru traffic, with a smaller dining room and dedicated lanes for express pickup of digital orders. In 2019, Chipotle® began adding digital-only Chipotlanes. Stores with Chipotlanes generate roughly 15% higher sales than a traditional Chipotle restaurant. Modular drive-thrus, which can be built out in 6 to 8 weeks, as opposed to 6 to 8 months, offer the potential for restaurant operators to double or triple their revenue without building a new restaurant.

What are the Challenges?

Any remodeling project can come with problems, from supply chain issues holding up delivery of materials to contractors struggling to meet deadlines. Sales may dip temporarily during the remodeling process. Working with the contractor can take time away from the store operator’s other demands. Planning ahead for those challenges can help reduce their impact. Bringing in a temporary assistant to free up more of your time to work on the remodeling project may be money well spent. Increasing advertising or offering special promotions can help keep traffic up during the construction. 

Should I Remodel Now or Later?

While there’s no perfect time to take on a remodeling project, if it’s mandated by your franchisor, you’ll have to do it at some point. Doing it sooner, rather than later, has the advantage that you’ll see increased sales more quickly. Also, prices always tend to go up, so the cost of doing the update is likely going to be higher in the future. If you’re not sure about timing, it’s a good idea to talk to your lender to hear about what they’re seeing in the market.

Where Can You Get Help?

Your lender can be a real help during a remodel project. Start communicating with them early and often so you can develop plans to finance the remodeling, as well as deal with potential decreases in revenue during the construction phase. Work with your accountant to make sure your books are up to date and to help project your cash flow during construction and after completion. Consult with franchisee groups and your franchisor to learn how the mandated updates have affected the cash flow at other locations, what problems have been encountered, and how those problems have been addressed.

Making the Most of the Updates

To keep customers coming in during construction, post signs that clearly indicate you’re still open, and that show customers how to access the restaurant and drive-thru, if available. Consider offering benefits to customers who stick with you during construction, such as coupons and free items. Plan a grand reopening to welcome customers back, and make sure to advertise any new menu items or food concepts that are associated with the remodel. If you’ve reworked your drive-thru, let customers know how much faster your new service model is.

Going through a restaurant remodel may not be easy, but it can be well worth the cost and effort. If you see such a project in your future, talking with your lender today could be the first step toward higher sales tomorrow.

— Alicia Chandler is president of Indianapolis-based First Franchise Capital, a First Financial Bank company, with customized loan products and services for quick-serve restaurants nationwide.

You may also like