Housing Complex

Frantastic: Chains want to be in D.C., but won’t go where needed unless someone asks.

Burger dreams. (Darrow Montgomery)

There were two important takeaways from the International Franchising Expo last weekend, which filled the Walter E. Washington Convention Center’s exhibit floor with the smell of sizzling burgers. One: You can get pretty much any cuisine in the world in the form of a chain restaurant. Two: Almost all of them want to be in the District.

The Beef Jerky Outlet was there, and so was Gyu-Kaku Japanese BBQ. The Flying Biscuit Café had a booth. So did Kana Cuban Coffee Roasters, Tahina’s Mediterranean Grill, Villa Fresh Italian Kitchen, The Original Brooklyn Water Bagel Co., and Golden Krust Caribbean Bakery. Many were there to find the person who could hang their shingle in Washington, and like a massive high-stakes speed-dating session, would-be franchisees shopped around for the best fit.

“We are very interested in the D.C. market,” says Diego Cortes, CEO of a red-and-green patterned franchise called Chilorio’s Very Mexican. “People here seem to like Mexican food.”

“D.C.’s a great sports town,” says Bill Uradnik, repping the sports bar Beef ‘O’ Brady’s. “There’s no more passionate sports fans in the world than the fans of the Washington Redskins.”

“D.C.’s a great market for a product like ours,” says John Kane, who’s responsible for expanding the frozen yogurt chain Yogen Früz in the region. Washingtonians have disposable income, he explains, and they’re more likely to drop five bucks on a cup of yogurt than your average middle American.

Same goes for Jamba Juice, which wants to open at least three stores in D.C. soon; health-conscious, well-to-do urban dwellers are their sweet spot. Jimmy John’s, the sandwich chain that’s a staple on college campuses, thinks two downtown locations will take off thanks to out-of-town visitors. No matter what your target demographic is, D.C. seems to have it.

In part, the interest has to do with the gradual realization that traditionally suburban concepts can work in urban places—franchises simply needed to learn to replace cars with pedestrians in the scientific formulas that determine whether a location will work or not. The money spot is Union Station: Highly trafficked by hungry commuters who are just looking for something familiar.

The problem is, their conception of “D.C.” is fairly confined. A question about location on the expo floor often got a simple answer, “anywhere in Northwest would be fine.” One sandwich shop representative, who asked to remain anonymous, says the challenge is getting prime locations downtown when “yogurt and cupcake places are just paying whatever” in rent—because in their eyes, it’s worth it.

“If we opened on M Street, that could be one of the highest grossing in the country,” says a rep for the New York-based self-serve yogurt place 16 Handles, which wants to open between seven and 10 locations. (The success of self-serve yogurt place FroZenYo makes it a pretty safe bet.)

With that understanding of D.C.’s geography, it’s hard to even grasp the fact that the city is still drastically “under-retailed,” as they say in government circles. We have 14 retail square feet per person, compared to the nationwide average of 23 square feet. But you wouldn’t know that if you just stayed downtown, or near existing retail corridors like Wisconsin Avenue, Connecticut Avenue, U Street, or 14th Street—all in Northwest.

Of course, in many neighborhoods, a street full of chains isn’t the ideal endpoint for a revitalized commercial strip. Healthy places attract and foster independent businesses that offer something different than malls across the country. Some areas, like H Street NE, have taken active steps to keep out fast food places that they fear would generate trash and tarnish the corridor’s local character. And it’s hard not to feel let down by the fact that Subway and Dunkin Donuts are opening in the marquee spot at 14th and U streets NW, blocks away from other locations.

But Subway and Dunkin Donuts aren’t the only options out there, and most areas don’t have U Street’s red-hot retail market. Smaller chains could have the resilience to anchor developing commercial strips until the independents can get enough clientele to survive—if someone would only ask them to come.

How useful is the franchising model? Just ask Gina Schaefer, who owns seven Ace Hardware stores in and around D.C., including the very indie-feeling Logan Hardware on P Street NW. She opened that location in 2003 by convincing the national chain that a hardware store would thrive in what wasn’t yet the Logan Circle of gelato shops and high-end eyewear. “Ace was afraid of an urban location,” Schaefer remembers. “We did everything we could to make them crazy.”

But the bet paid off: The deals she was able to get on goods wholesale because of her ACE affiliation helped the store survive, even when Home Depot opened in the District. And even anti-chain neighborhoods have rallied around their new “local” hardware stores, which bear few signs of corporate ownership.

Besides being an anchor for a local commercial strip, an independently-owned franchise can be a starter business for an entrepreneur who may not have the know-how or creativity to come up with their own concept. All franchises have a clear set of steps—from the expression of interest, to the viewing of the financial disclosure documents, to the purchase of the business.

This approach isn’t for everyone: Even small variations from the standard playbook are pretty much forbidden. But it is a simple way to “buy yourself a job,” as it’s sometimes derisively called—as long as you’ve got a source of startup capital (typically in the hundreds of thousands of dollars) and some basic business sense.

There’s also no need for the franchise to be new to D.C., since local businesses occasionally become successful enough that they want to propagate the brand. Adams Morgan’s own Amsterdam Falafelshop is looking for potential franchisees, as is The Brown Bag, which office building managers have been courting for street-level retail spaces.

According to Franchise Dynamics president Robert Stidham, three basic product areas would be tremendously successful in D.C.: Diverse and interesting new restaurant concepts, since D.C.’s population is so international; anything related to home improvement that could serve gentrifiers looking for a name brand; and business services like signmakers and print shops, which are desperately needed for other startups (entrepreneurs east of the Anacostia River have to go to Barracks Row for the nearest FedEx Office).

The District says that if there’s not more retail in underserved areas, it’s not for lack of trying—the big companies just go with what’s easy. “I would not underestimate the amount of nudging and pushing it takes to make these chains feel comfortable,” says David Zipper, the city’s director of business development and strategy.

The thing is, franchisors count things like residential density, and median income—not a community’s more intangible qualities, like the desire for more places to spend time and money. The people who start franchises in unproven markets are usually, like Gina Schaefer, the ones who know their neighbors and want to bring in something they need.

Finally, there’s Bojangles, the chicken joint that just opened to great fanfare in Union Station. Recruited by someone at Union Station’s management group who was from the chain’s birthplace in North Carolina, they’re excited to expand in D.C. proper.

Why hadn’t they opened here before? According to franchise salesman Chris Daniels: Nobody asked.

Visit the Housing Complex blog every day at washingtoncitypaper.com/blogs/housingcomplex. Got a real-estate tip? Send suggestions to ldepillis@washingtoncitypaper.com. Or call 202-650-6928.

  • http://dcbac.blogspot.com Randall M.

    That said, should local residents in "chain undeserved" areas be too concerned that chains aren't interested? This should give opportunities to homegrown talent so that they can expand to other commercial corridors like H Street, Barracks, or lord-have-mercy, spots in Wards 5, 7, and 8...

  • Rick Mangus

    They should of had a seminar at this event telling franchisee about the DC shakedown money that they would have to pay-out and the meddling DC Council!

  • DC

    "Won't go where needed" ?

    Why should a private business purposely pick a location that won't maximize their business?

    It's no big secret folks, but here it is. A business locates where the dollars are. Plain and simple. It's the reason a Neiman Marcus won't open in Anacostia, it isn't its demographic.

  • Eric

    @DC: That is a grossly oversimplification of how businesses expand. The reason why some places are simply overlooked is because these companies don't have the computing power and manpower to investigate every single possible location. Many times it is the neighbors that band together to convince a store that they're worth a look. That happened about 10 years ago when Macy's moved into Wheaton Plaza, and it's happened in many other neighborhoods, as well. Sometimes these stores just don't know any better and there is no way for them to tell if a business will be successful or not until it opens. Bringing up a Neiman Marcus in Anacostia was not only unhelpful to this conversation, but it was disingenuous, as well. We're talking Targets and Chipotles here.

  • Eric

    *gross oversimplification

  • http://urbanplacesandspaces.blogspot.com Richard Layman

    I think this is an overstatement. For one, wrt Bojangles, as the City Paper reported, Union Station management basically fired all the independents, and then specifically sought chains willing to pay more rent.

    2. Franchise companies have access to various databases and know all about the markets they want to be in. It's nothing about "being asked."

    3. But it does indicate that there are problems with how companies interpret the opportunities within the data.

    Anyway, these are some entries I wrote almost 6 years ago about the issue:

    - http://urbanplacesandspaces.blogspot.com/2007/02/store-siting-decisions-reprinted-from.html (this one specifically discusses the point you make about companies only looking at the NW quadrant)

    - http://urbanplacesandspaces.blogspot.com/2005/07/why-future-of-urban-retail-isnt-chains.html

  • DC

    Eric,

    It would help if you understand how chains actually expand.

    Target doesn't have one guy in Minneapolis, insulated and isolated from the entire company throwing darts at a board in deciding where to expand.

    The process is time and money intensive. Commercial real estate analytic servicers like Costar are hired. Demographic data is cruched, analysed, modeled on half a dozen future growth or non-growth models. Incomes are determined in quarter and half mile increment radius's around the proposed site. Tax implications are determined, construction costs identified. Any specific jurisdictional fees are determined.

    The due diligence takes awhile and costs a fortune. Why? Because picking a bad location, one where the demographics don't support their business model costs even more and Eric, you are naive if you think any chain, regional or national "just doesn't know any better and there is no way for them to tell if a business will be successful or not until it opens".

    How do they even identify locations to do due diligence on? The legions of commercial brokers and the thousands of investors and property owners of the DC metro area they represent are constantly trying to sell their properties to them.

    Chains are almost always public companys, and even the ones that aren't still have to keep their boards and investors happy. That doesn't happen by spending millions of dollars building something in a location that won't support it.

    How many "Restoration Hardware" stores are there in Trinidad DC? - None

    How many Popeyes chicken places in Georgetown? - None

    "Development" requires more than an available lot of land. It requires the incomes and demographic to support it once its built.

  • http://urbanplacesandspaces.blogspot.com Richard Layman

    Randall M -- your point is the basis of the point I make all the time, that since chains aren't interested in most of our neighborhood commercial districts, and because we want distinctiveness anyway, we need to focus on developing a system to rebuild local retail and local entrepreneurship. There are some models out there (e.g., Historic Downtown LA Retail Project). I have it laid out conceptually, but the consultant I was working with flamed out, and we never got the opportunity to try to implement it anywhere on a pilot/testbed basis.

    YOur point is also relevant to how for the most part DC puts its retail attraction resources into ICSC meetings, including in Las Vegas, when this is a good venue for only a portion of the retail attraction and development that we need to do.

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  • http://www.bbwoofinc.com 200WalnutSt

    When you are a start-up franchise you depend on knowing certain areas to grow into for your first franchises. I know we for one are NOT afraid of underserved areas and would prefer to go into some underserved markets.

    We were at the Stone Cold Picnic two years ago and were overwhelmed by the people coming by to ask us to come to their neighborhood in SouthEast Washington.

    We have a proven business model with the Big Bad Woof, and are opening the franchise prototype for our stores in the Arts District Hyattsville this summer, but the issue is always Capital to open a store.

    The banks have to listen and the people have to want the businesses in their community to make it happen...........and oh yes, there has to be that special person who wants to own their own company yet reduce their risk by having a solid franchise company behind them.

    Just my 2 cents -

    Pennye Jones-Napier
    Co-Founder
    The Big Bad Woof

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