Specialization

The principles described in this book apply to managing the business of light-commercial construction in general, but if I wanted to start another construction business, I'd focus on the chain store niche again this time around. You get to be known as a regular in the field, which the fast-moving chains want to work with. Chain store construction managers are in production mode and they won't spend their time retraining a guy who has been building offices and warehouses when there are specialists around who do their kind of work every day.

The advantages of chain-store construction are described in Chapter 15 of my book, Construction Business Management. Following are excerpts from that chapter.

Survey favors specialized contractors
Focus on chain stores
Restaurants
Other chain stores
Malls and shopping centers
Contractor financial requirements
Improved profit potential
Continuing relationships
Chain operators favor niche contractors
Fewer parties in the mix
Direct relationship with the project owner
Reliable cost database
Reduced risk
So why are so many contractors missing out on the chain store niche?
List of chain stores and restaurants

Survey favors specialized contractors

According to a survey of 334 contractors across the U.S. by FMI Corporation, a management consultant to the construction industry headquartered in Raleigh, NC, contractors who differentiated themselves, that is, specialized in a particular segment of the construction market, had a seventeen percentage point better success rate in winning bids than contractors who were not differentiated: The differentiated firms had a success rate of 37 per cent compared to 20 per cent for the non-differentiated.

Focus on chain stores

Focusing on chain store construction is an example of differentiation and there are various paths within the chain store niche, including retail mall stores like Gap, convenience stores like 7-Eleven, the huge restaurant group that includes Starbucks and Cracker Barrel, or the “big boxes” such as Circuit City and Staples. Even branch banks often fit the chain store mold since competition and economics have driven them into a pattern of traditionally large "financial centers" surrounded by smaller-footprint branch banking offices clustered in neighborhoods and strip shopping areas. Banks often locate limited facilities within supermarkets, also.

Restaurants

As for chain restaurants, these companies typically upgrade their facilities every few years in order to remain current and competitive with newer competition nearby. And the National Restaurant Association projects the number of food service locations in the U.S. will increase by an average of 18,000 units per year through 2010. This number does not include units that are continually being remodeled or rebuilt—projects that run hundreds of thousands of dollars into the millions more and are often awarded in multiples to contractors who have proven dependable. My experience is that the renovation market holds at least as much profit potential for the contractor as the new-store segment offers. Maybe less glamorous, but glamor is not what puts profits on the books.

Other chain stores

Convenience food stores/gasoline centers are ideal candidates for the chain-store contractor. They are usually owned by the financially stable major oil companies and closely follow residential and commercial growth patterns. (Installation of the mostly underground petroleum facilities portion of these projects is often contracted separate from the building by the oil company to contractors who do this highly specialized work.)

Drug stores are typical of chain stores. There's a Walgreen's, CVS, or Rite-Aid drug store in practically every neighborhood. The aging population is a huge factor in this trend and can only become more so.

While sheer size and some other aspects of chain store construction vary somewhat from one sub-segment to another, all but those requiring the largest buildings share common basic characteristics that compare favorably to the broader general construction market.

Malls and shopping centers

The list below names some of the retail chain stores and restaurants operating in the United States as well as in many other countries. Major retail shopping malls often have 100 to 150 tenants who hire chain store contractors to build out their space after the mall is built by heavier-construction contractors, who typically don't do tenant work. Continuing opportunities are created by tenant turnover and the construction of more and more shopping centers as cities and communities expand and shift to accommodate changing demographics.

Contractor financial requirements

The entry threshold for building chain stores in terms of contractor net worth, working capital, credit lines, and bonding capacity is manageable for most startup contractors who have done their homework, as described in my book, Construction Business Management, which is described on this website.

Construction contract amounts in the chain-store market range from hundreds of thousands to several million dollars. Minor renovation projects to accommodate new products and operating equipment, usually awarded in multiples of stores, often have a higher profit margin.

In the chain store niche you can remain small as a general contractor or become larger. Some contractors I know are profitable and satisfied with a handful of half-million- to two-million-dollar projects a year while others find their comfort level in the $20 million to $40 million annual sales range. At the high end of the scale, an Atlanta, GA-based general contractor who specializes in restaurants and other chain stores across the U.S. does more than $200 million a year in sales. But with effective management you can make handsome profits and accumulate wealth over time even with the lower volumes of work mentioned above.

Contractors in each of these groups start from scratch. They survive long-term only if they learn and practice sound business management such as are presented in Construction Business Management.

Improved profit potential

As a general contractor specializing in the construction of one of the chain store sub-segments, you have the opportunity to create a reliable stream of profitable, lower-risk projects, which aren't available to the same degree if you are a generalist depending on random bids you learn about through project information services such as the "Dodge Reports" and on architects you’ve worked with.

Somewhat surprisingly, the chain store construction niche is not overcrowded. During my years focusing on narrow chain-store segments, new construction firms appeared from time to time and others dropped out, but when I sold my company the level of competition was not much different than it had been twenty-five years earlier. Much of my firm's work was negotiated with repeat customers, but when bidding was required there were rarely more than three bidders, and often only two of us. I was usually familiar with the other bidders, even in a market that included a dozen or so states. Having some insight into your competitors' bidding practices is clearly an important advantage when you're finalizing a bid.

Continuing relationships

Specialization offers you unusual potential to develop continuing relationships with companies that generate numerous projects year after year.

Chain store owners and their construction representatives are no different than the rest of us in terms of human nature: Other factors being equal, they favor contractors who make their (the owner reps') jobs run smoothly and whose project managers and superintendents they find likeable on a personal level. A great personality alone may not land you the business, but being unpleasant to deal with can spoil your plans all by itself. However this in no way precludes you from being as tough as necessary to run your business effectively.

If you hire the right people, train them, provide them with the tools and support they need to do their jobs, and instill the values that serve both your company and your customers well, as discussed in my book, the advantages of contracting with your firm will be apparent to your customers and prospective customers.

In contrast, lowest-bid one-of-a-kind projects in the private and public sectors alike often are a source of adversarial relationships. Projects awarded on price alone yield low profit margins, on average, compared to the opportunities available in the restaurant and other chain store construction business.

Chain operators favor niche contractors

The expanding multi-unit chain operator prefers the general contractor who specializes in his field. This is because he knows that this contractor:

• Is accustomed to the tight scheduling typically required
• Produces quality work in optimum time
• Knows and uses subcontractors who are familiar with this kind of work
• Builds his business around repeat customers and goes the extra mile to earn it
• Speaks the industry lingo
• Requires less handholding
• Can build multiple projects at once
• May work beyond the chain's local area in adjacent or more distant states, a convenience to a fast-moving chain

These factors combine to reduce the chain owner's or franchisee's risk and his or his construction representative's time and expense. And the contractor benefits as well: Quite often the chain owner doles out and negotiates his projects in a given region among two or three general contractors he's learned he can depend on. This presents the contractor who is willing to tune in to and accommodate his customers' special wants and needs—i.e., his pet likes and dislikes for his projects that are not shown in the drawings and specifications (they all have them)—the opportunity to cultivate a loyal customer who will not as likely be tempted by other contractors playing the price card to get their foot in the door.

Fewer parties in the mix

Chains usually have in-house architectural and engineering departments that design their own buildings and generate their own reproducible construction drawings. So their use of outside architects and engineers is usually limited to conforming these "stock" plans to local codes and specific site conditions.

The contractor may become involved in the project only after the local architects and engineers have completed their work, and therefore may have no direct contact with them unless questions or problems related to their work arise during bidding or construction. So you deal directly with the owner or his construction representative on practically all matters related to the project.

Direct relationship with the project owner

There are important differences between owner-architect-contractor jobs and owner-contractor jobs. In the first case, the architect is a middleman the contractor works with instead of directly with the owner or owner representative, and this arrangement is less than ideal for the contractor. The architect often must get time-consuming approval from the owner before answering your questions. According to the provisions of some widely-used owner-contractor agreement forms, you may be required to rely on the architect's instructions but the owner may not be bound by them. You can imagine problems this may cause, for example, getting paid for a change required by the architect that the owner disputes for some reason. The architect is expected to be neutral, but his role may put him in an awkward position at times because he is paid by the project owner.

I much prefer working directly with the owner, a process that is more streamlined, and holds less potential for miscommunication. However, this is in no way an indictment of architects. The construction industry would not exist without them. With few exceptions, those I've known and worked with have been competent, fair, and interested in keeping their projects moving.

Reliable cost database

Although the multiple building designs within any given chain vary somewhat, in most cases a consistent theme is present throughout a chain's various stores. Whether you're building the same building over and over or some of its variations within a chain, you have the opportunity to develop a cost database for that chain of stores and refine it through repetition. This database becomes invaluable in bidding future projects. For instance, it allows you to trim your bid to the barest minimum with confidence when necessary, making it tough for a newcomer contractor to compete with you.

Reduced risk

The consequences of construction problems run the gamut from merely difficult to unfinished projects and even bankruptcy of one or more of the parties. Risk to the contractor is generally not as great in chain store construction because: Shorter job duration means less opportunity for things to go wrong; chain parent companies are often financially-transparent public corporations the contractor can check out; and, franchisees usually must prove a degree of financial ability to be approved by the parent, although the parent may not guarantee payment by the franchisee. Of course, the terms of the owner-contractor agreement determines contractor risk to a large degree; contract provisions the contractor must demand are detailed in Chapter 10 of Construction Business Management.

So why are so many contractors missing out on the chain store niche?

It may be that chain store construction doesn’t seem "big-time" enough for many contractors; after all, even the most exciting chain store project is not likely to make the cover of Engineering News Record. I have seen contractors jump into restaurants and quickly pop back out—probably wondering how we in the business meet the demands. Unfortunately for those contractors, they were unable or unwilling to conform themselves to this kind of construction.

List of chain stores and restaurants