CREJ

Page 12

— Retail Properties Quarterly — February 2017

Retail Trends

303.209.7039 | Find out more at

myswingle.com

Caring for

Colorado

outdoors

for 70 years

1947 - 2017

John Swingle

wning a business is a dream

for countless individuals.

The franchising system

offers entrepreneurs the

ability to be in business for

themselves – but not by themselves

– with a proven structure to launch,

operate and grow a business. With

the changes in demographics and

retail space availability, commer-

cial real estate professionals and

the franchise community now,

more than ever, have opportunities

to align and create success for all

involved.

As a franchise broker and com-

mercial loan broker, I observe the

impact the availability and cost

of retail real estate and regulatory

demands affecting franchising.

Franchisors seek ways to increase

profit margins, and franchise buy-

ers seek money-saving strategies.

Statistics prove that franchising

provides a significant number of

jobs in our country with retail com-

mercial space as a significant part

of the equation.

Franchise businesses have grown

at rates that exceeded the econo-

mywide growth of industries over

the last six years. The International

Franchise Association states that

there are 732,842 franchise estab-

lishments providing more than 7.6

million jobs, generating $674 billion

in economic output and 2.5 percent

of the gross domestic product for

the U.S. economy.

Franchise businesses provided

more jobs in 2016 than wholesale

trade, transportation and warehous-

ing, nondurable goods manufac-

turing and information. Indirectly,

franchise business-

es support more

than 13.2 million

jobs, $1.6 trillion in

economic output

for the U.S. econo-

my and 5.8 percent

of the GDP.

Quick-service

restaurants are

the largest cat-

egory, representing

25 percent of all

franchise estab-

lishments, 45.5

percent of all fran-

chise jobs and 30.5

percent of GDP.

Franchisees own and operate 88

percent of all business format fran-

chise establishments and franchi-

sors own and operate 12 percent.

The biggest challenges that I’ve

seen for franchises are the recent

increase in labor costs, availabil-

ity and cost of retail space, and

regulatory threats such as the Joint

Employer Act and the Affordable

Care Act.

Colorado’s Amendment 70 raised

the minimum wage in Colorado to

$9.30 per hour (increasing to $12

per hour in 2020). Several business

groups, including the Colorado Res-

taurant Association, fought against

the amendment. Employers in the

restaurant and retail industries,

with historically low profit mar-

gins, fear that they may be forced

to eliminate jobs, reduce employee

hours and/or reduce benefits to

compensate for the increasing min-

imum wage.

Franchise Times reports that

automation could positively impact

restaurant labor costs soon. Restau-

rateurs are adopting smart automa-

tion, and with a wave of new equip-

ment, burgers, chicken and light

switches don’t need to be flipped.

New automatic grills can form

burger patties. Chipotle and Pizzeria

Locale hired a team of engineers

to create a two-minute pizza oven.

Chick-fil-A spent $50 million to

create a grill that adjusts pressure

during the cooking process to churn

out 10 pieces of chicken in minutes.

Though the specific grill and pizza

oven are proprietary, they signal a

trend toward automated cooking

that will shed labor costs by requir-

ing fewer and less-skilled kitchen

workers. Automation suites can

monitor equipment efficiency for

major power savings and watch

temperatures, plus everything from

inventory to hours worked can be

tracked via inexpensive tablets. In

fact, I observed a tablet-monitoring

employee hand washing at the

Crushed Red restaurant in Green-

wood Village. Until recently, this

type of equipment has been either

unavailable or cost prohibitive, and

the explosion of restaurant technol-

ogy investments means high-tech

devices now are more available and

affordable for all operators.

Real estate cost and availability

are of significant concern for fran-

chises. According to the Buxton

Real Estate Report 2017, the vacancy

rates have continued to decline in

2016 and are forecasted to decline

even further in 2017. According

to the Urban Land Institute, 2017

availability rates are expected to

decline to 10.6 percent. Thus, rental

rates have ticked up again with a

Franchises adapt to labor, land cost challenges

Cheryl Chiasson

President,

Commercial

Funding Source

and Franchise

Connexion,

Greenwood Village

Franchise Connexion

Please see ‘Chiasson’ Page 22