Same-Store Sales Growth for Franchise Investments

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In the latest episode of the Data Alchemy podcast, we chatted with Chris Crouse, Associate at Orangewood Partners, to get his perspective on the importance of same-store sales (SSS) as a key measure of success for multi-location portfolios and to learn about the systems and processes that his team uses to buoy SSS growth.

Among the many financial indicators available to business operators and private equity portfolio managers, SSS stands out as one of the most critical — offering invaluable insights into the true health, stability, and long-term potential of the multi-location concept.

Beyond Revenue: Why Same-Store Sales Matter

So what exactly is same-store sales and why is it important? While measuring overall portfolio revenue growth is important, it can be misleading. This is due to new store openings or acquisitions, which mask the underlying performance of established units. 

Same-store sales, on the other hand, provides a clearer picture by focusing solely on the performance of stores open for at least a year, allowing you to assess the true organic growth and identify trends impacting the core business. As Chris explains in the episode, “Same-store sales reflects a more consistent comparison of revenue growth by showing the percentage in growth of sales from stores that were open both now and a year ago.”

Same-store sales can be leveraged throughout the investment lifecycle:

  • Due Diligence and Investment Evaluation: Strong and consistent same-store sales growth demonstrates a concept’s ability to attract and retain customers, adapt to market changes, and generate sustainable revenue, making it a highly attractive investment prospect.
  • Portfolio Monitoring and Value Creation: Tracking same-store sales growth over time allows us to gauge the effectiveness of our investment strategies and identify areas where additional support or strategic adjustments may be necessary to optimize performance and maximize returns.

Navigating Challenges: A Proactive Approach

Maintaining consistent SSS growth year-over-year presents significant challenges, especially for established brands. Factors such as macroeconomic headwinds, intense competition, evolving consumer preferences, brand fatigue, and operational hurdles can all impact performance. However, a strategic, data-driven approach can help navigate these complexities and achieve sustainable growth.

Based on Chris’ experience, a proactive strategy should involve:

  • Technology and Automation: Implementing solutions at the site-level that improve operational efficiency, reduce unnecessary costs, and enhance the customer experience. Such technologies include: automated KPI reporting, streamlined labor scheduling systems, and easy-to-use task tracking systems.
  • Customer Analytics: Continuously monitoring guest feedback and performing customer analytics to adapt product/service offerings, pricing, marketing strategies, and brand positioning to align with evolving preferences.
  • Field Team Support: Providing field teams with the resources, training, and timely support they need to navigate operational challenges, optimize their businesses, and contribute to overall system growth.

Data as the Foundation: Unlocking Growth Opportunities

Data and analytics are the foundation of all the strategies mentioned above, and establishing the right data infrastructure is crucial. This involves not only utilizing basic point-of-sale information but also analyzing a comprehensive range of data, including: customer activity from membership or loyalty programs, weather data, competitor and market research, metrics from all operational systems, and customer feedback insights from 3rd party review platforms.

This holistic view enables operators and investors to:

  • Identify Growth Drivers: Is growth driven by increased customer traffic, higher average transaction values, or a combination of factors? Understanding these nuances allows us to tailor strategies for further optimization.
  • Target Specific Customer Segments: Data analysis can reveal high-performing demographics or regions, enabling us to focus marketing efforts and tailor offerings to specific customer preferences.
  • Optimize Operations and Enhance Efficiency: By analyzing operational data, we can pinpoint areas for improvement, such as streamlining processes, reducing costs, and enhancing training programs to empower franchisees and drive profitability.

Emerging Trends Shaping the Future of Franchises

The franchise investment landscape is constantly evolving. Staying ahead of these trends is crucial for maintaining a competitive edge. According to Chris, these key trends shaping the future include:

  • Consumers increasingly expecting personalized experiences and tailored offerings. Leveraging data to understand individual preferences and deliver customized solutions at scale will be key.
  • Consumers and investors alike prioritizing brands that demonstrate a commitment to environmental and social responsibility. This involves collecting and analyzing data beyond traditional financial and operational metrics.

A Strategic Imperative for Operators & Investors

In summary, same-store sales is a fundamental measure of success for any multi-location portfolio. It is imperative for investors and operators to not only consistently track this metric, but also understand the leading indicators and drivers of SSS, so that they can ultimately impact it positively. By embracing a data-driven approach, proactively addressing challenges, and staying ahead of emerging trends, operators can unlock the full potential of any multi-location concept.

FDS provides robust analytics that have helped multi-location businesses achieve remarkable results: on average, 5 new openings per year, a 6% increase in profitability, and 15+ hours saved weekly.