Deciding on the franchise market you want to invest in can be a big step in your franchising journey. At this stage, there are several factors you should consider to make an informed decision—including determining if the market you want to operate in is already too crowded.
A crowded franchise market is exactly how it sounds—many franchise businesses operate in a specific industry in a single location. While it might sound discouraging, being crowded doesn’t mean there’s absolutely no room. New franchisees can still grow and succeed in a crowded market. However, it can depend on the franchise business and the elements that make it stand out from its competition.
A term often associated with an overcrowded market is market saturation. This can occur when a particular market already meets consumers’ needs, and the market no longer experiences significant growth because of a lack of demand. It is possible for a crowded market to become saturated, especially as the competition increases.
Here are some of the ways you can find out if a franchise market is too crowded and reaching the point of saturation as well as some positive indicators that the business may be suitable to invest in, despite its competition.
ASSESS THE COMPETITION
While searching for a franchise business to invest in, you will likely want to perform market research, which can look like assessing the competition. Are there many businesses offering similar products and/or services in the area you wish to operate? Are they all successful? What is their reputation in the industry? Determining what’s out there and where consumers currently go to receive the products and/or services your franchise location would offer can give you a better idea of what you would be up against.
If you discover a franchise business is in a popular market, one of the major aspects you want to uncover is what makes the franchise business you’re interested in stand out. When a brand has unique elements and features that its competition doesn’t, it can be a major asset, particularly in a crowded market.
EVALUATE THE LOCATION
If you are considering a specific city or town to invest in, look for other franchise locations in that area and see if you would be investing directly in the middle of your competition. A market can be considered crowded if many similar franchises are operating within close proximity.
Determining if several existing locations from the same franchise network are close to each other can also be an important factor. Would you be competing against each other? If there are “too many cooks in the kitchen,” you could face customers choosing another location. Some franchisors offer franchisees exclusive rights to operate within a certain territory, protecting you from other franchisees within the network opening close to your location.
EXAMINE CUSTOMER DEMAND
When customer demand plummets, a market can start to hit the saturation point. If customers’ needs are already met because there are many businesses they can access for their products and/or services, it can be difficult for new businesses to grow.
Examining future trends is one way to assess whether the franchise business you want to invest in is heading toward low customer demand. If the results show the market has a promising future with high year-over-year growth and increasing profitability, it’s a good sign that you are investing in a potentially lucrative business with sustained demand. When demand is apparent, especially long-term, it can provide some reassurance that the market is not leaning toward saturation.
When searching for a franchise business to pursue, determine how it addresses and meets its customers’ needs. Does the business acknowledge the demand for its product and/or service? Does the business model offer solutions that allow franchisees to enter the market prepared to hit the ground running? This can help you decide if the franchise you’re interested in will set you up for success.
CHECK CUSTOMER LOYALTY
Prior to investing in a franchise, there isn’t a concrete way to check how loyal a customer base is. However, you can start by looking at social media and online reviews about the franchise business to see how customers talk about the products/services. From there, you can get a general sense of how the public views the business, the positive and negative sentiments, etc.
If you are not noticing a sense of loyalty or customer feedback does not seem to favor the franchise business over its competitors, it may indicate that the market is too crowded, and customers feel like they can easily find the same products or services from a competitor. Therefore, finding franchise businesses with unique features that distinguish them from their competitors can be helpful.
IS INVESTING IN A CROWDED FRANCHISE MARKET ALWAYS INADVISABLE?
A crowded market shouldn’t automatically deter you from investing in a particular franchise business. It can often be a sign of high demand because of the number of businesses entering the space. Additionally, you can have some confidence knowing that a pre-existing customer base is keeping the market growing. This is why researching the franchise business’s differentiators is key in determining that it can meet customer needs while standing out among competitors.
INVESTING IN A DOGTOPIA FRANCHISE
The pet industry is booming, and with pet ownership increasing and creating ongoing demand, future projections of this industry are bright—especially in the dog daycare market with its high compound annual growth rate. To find out if Dogtopia is the right investment opportunity for you, find out what sets us apart from other dog daycare franchises.