We recently opened our 12th location and are deep in the process of working toward No. 13, which in this case is a good number. In doing so, we’ve developed a pretty good system for selecting new locations and getting them up and running within a reasonable amount of time. It’s something MSOs talk about and that I often get asked questions about: How do you decide where to open? Do you prefer greenfield, brownfield or acquisition? What type of facility, layout and equipment do you prefer? How do you ensure there are both staff and cars on Day 1?
It’s a big topic, so one I’m going to take several columns to discuss. Some of what I’ll share are our company’s personal preferences, the things we look for and require in a location and our unique processes. The ideal size of a facility you may be interested in may be different from ours, depending on your particular business model. But the general concepts I’m going to lay out should apply whether you’re looking to add your second shop – or your 102nd.
With acquisitions being announced in the industry weekly, let me start by answering the question: Do you prefer to build a new shop from the ground up (a greenfield), to convert an existing building to a body shop (a brownfield) or to buy an existing collision repair business with one or more locations (an acquisition)? The answer for us: None of the above.
We’ve added shops through all of these means, although we haven’t acquired an existing collision repair business since 1997. We’ve done mostly brownfields since then, but we actually prefer to grow through a fourth means: the take over. We take over an existing shop that has been struggling or that has failed.
The biggest upside to this is that it often requires far less of an upfront investment. We don’t have to build a facility or convert a building – and we don’t have the expense of compensating someone for his or her client base and business. In a take over, you may just be moving into a space where the landlord has kicked out another shop. You may be compensating a former operator for some of their equipment – or in some cases, that compensation may involve taking over some of the previous owner’s accounts payable. But often not a lot is required other than rebranding (and often some equipping) of the location, so it’s nowhere close to the same initial investment the other methods of growth require.
Finding a take-over opportunity is perhaps one of the biggest challenges to this method of growth. For us, it’s generally been word-of-mouth. A broker or a realtor we’ve worked with in the past might call me. A vendor representative might pass along word. In today’s business environment, there’s a lot of movement out there right now.
One key to a successful take over is to recognize why the business failed at that location. It may just be the owner lost interest, or failed to keep up with changes in the industry. It could be because the demographics of the area changed. But no matter how inexpensively you could open a shop there, it’s important to do the same sort of homework on the location as you would with a brownfield, greenfield or acquisition.
What does that location homework entail? We first look at the visibility and traffic count that location offers. For us, we want a minimum average of 25,000 to 50,000 cars passing that location every day.
Next, check out the demographic information for the area: population density, average income levels, etc. Look for trends over three, five and 10 years – and get a projection of what the next 3-5 years may bring.
Where can you get all this information? Your paint company most likely has it. We’ve worked with two different paint companies over our decades of growth, and both offered us assistance in evaluating potential new locations.
There are several more key pieces of homework you need to do before moving ahead with a new location, whether greenfield, brownfield, acquisition or take over. I’ll discuss those in my next column.
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