Traditional bricks-and-mortar restaurant development is generally associated with standalone businesses operating inside of malls, strip plazas, power centres or storefronts. However, development opportunities do exist beyond the confines of these conventional venues, and they may present an exciting and unique way to appeal to a captive audience. The potential for the success of these locations is hard to ignore given the reality of a large prospective customer base isolated in one specific area with a limited number of choices for purchasing products and services.
Airports, movie theatres, amusement parks, zoos, campuses, hospitals, casinos, sports arenas, highway service centres – these are just a handful of examples of locations for non-traditional restaurant development, whether you operate them yourself or license a franchisee to do it. Subway made headlines a few years ago when it announced the opening of a restaurant atop a crane being used for construction at the Freedom Tower in New York City!
Of course, many of these non-traditional sites may not be available as opportunities for just any restaurateur or franchisee. In fact, many of them are operated by large foodservice companies which are awarded contracts to develop businesses (generally restaurants) within these larger facilities. Companies like Aramark, Sodexo, Compass Group and HMS Host operate most or all of the restaurants located within many such facilities across Canada.
But that doesn’t mean that non-traditional locations are inaccessible to less institutionalized businesses. Some non-traditional development can be offered to successful single- or multi-unit operators already working with the franchise system. And those opportunities existing within less commercial spaces (such as a local community centre) may be easily made available to entrepreneurial restaurant owners who can identify the potential for a location
Non-traditional development does not come without its challenges – as to be expected, there are likely to be unique leasing issues with a non-traditional landlord, and the concept itself will require some modifications in order to be adapted to the venue – customized (some might say ‘limited’) menus and unique (some might say ‘higher’) prices are to be expected. From a legal perspective, there will need to be some sort of franchise agreement put in place which reflects the terms of the particular deal being made available to an operator. Some common provisions in commercial agreements may be unavailable or inapplicable since you likely won’t be able to get either the facility or the multi-unit operator to agree to a non-competition covenant and, if the location fails, it is unlikely that you’ll be given the right to step in and take over operations.
You should also consider whether to carve out special rights so that you can sell any private-label products within the same facility where the restaurant is being operated, and be prepared to negotiate rights and options for future development by the same operator at other non-traditional venues when those opportunities arise.
If you are already a successful restaurant owner, consider exploring future possibilities in non-traditional locations. You may be exactly the type of concept a facility is looking for to serve a specific niche audience.
By Chad Finkelstein, franchise lawyer at Dale & Lessmann LLP
February 21, 2013