Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Pop-Up Partnerships to Test New Markets
Transcript
- Lucas: So Luna, we talk a lot on this show about franchisees scaling by buying existing units or building new ones from scratch. But there's a third path that's been getting more attention recently, especially for franchisees who want to test a new market without committing to a ten-year lease. Luna: You're talking about pop-ups. Temporary locations, short commitments, lower risk. Lucas: Exactly. And not just the traditional holiday pop-up in a mall. I'm seeing franchisees use pop-up partnerships with existing businesses — think a bakery franchisee setting up inside a fitness center for a few months. It's a way to validate demand, gather data, and even build a customer base before signing a full lease. Luna: Okay, that's interesting. I want to hear a real example. Who's doing this well? Lucas: Let me tell you about a franchisee I spoke with — let's call her Sarah. She owns three units of a mid-sized bakery brand, mostly in suburban strip malls. She wanted to expand into a dense urban area in Austin, Texas, but a full build-out would have cost her around $350,000. She wasn't sure the traffic was there. Luna: So she found a partnership instead. Lucas: Right. She approached a chain of boutique fitness studios — the kind that do high-intensity classes, smoothie bars, that vibe. She proposed a six-month pop-up: a small bakery counter in their lobby, open during studio hours. The fitness chain got a new amenity for members, and Sarah got a turnkey space for minimal cost. Luna: What kind of numbers are we talking? Upfront cost, revenue split? Lucas: Her upfront was about $15,000 — mostly for a mobile display case, signage, and a part-time barista. No lease deposit, no build-out. The profit-sharing agreement was simple: she paid the fitness studio 10 percent of gross revenue, and they covered utilities and a small storage closet. Over six months, she did about $120,000 in revenue. That's roughly $20,000 a month from a counter no bigger than a desk. Luna: So she grossed $120,000, paid $12,000 in rent. Her net after cost of goods and labor — probably still pretty solid. But more importantly, she got data. Lucas: That's the real asset. She learned which pastries sold best at 6 AM versus 10 AM. She saw that the smoothie crowd wanted gluten-free options. She even tested a loyalty program that cross-promoted the bakery to fitness members. By month four, she had a mailing list of 2,000 local customers. Luna: And that data made her comfortable signing a full lease nearby. I'm guessing she used the pop-up revenue projections to negotiate better terms with the landlord. Lucas: Exactly. She went to a landlord with a six-month track record — not just a pro forma. She showed actual revenue, actual foot traffic patterns, and a list of customers who said they'd follow her. She got a five-year lease with a one-year break clause, which is rare for a first-generation tenant. Luna: Before we go deeper, I want to flag something. If you're finding value in these conversations — maybe you're a franchisee thinking about a pop-up, or you're just learning how to de-risk expansion — consider supporting the show. It keeps us ad-free and independent. You can do that at buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. And it lets us keep drilling into these specific, practical strategies. Anyway, back to the pop-up model — one thing I love about Sarah's approach is how she treated the pop-up as a research project, not just a sales channel. Luna: What do you mean? Lucas: She didn't just sell pastries. She ran A-B tests on pricing. She experimented with limited-time offers tied to fitness challenges — 'Post-Workout Protein Muffin' — and tracked the lift. She even surveyed customers via QR codes on the napkin holders. By the end of the pop-up, she knew the optimal price point for her top-selling item in that neighborhood. Luna: That's smart. Because a lot of franchisees open a new location and then learn the hard way that their standard menu doesn't resonate. A pop-up lets you iterate without the pressure of covering rent. Lucas: Right. And the partnership model works especially well when the host business has a complementary customer base. Fitness studios, co-working spaces, even some retail stores — they want to offer food or beverages but don't want the operational headache. The franchisee brings the brand, the systems, and the supply chain. Luna: What about the legal side? Franchise agreements often restrict where you can operate. Did Sarah have to get approval from her franchisor? Lucas: Great question. She did. Her franchise agreement had a non-compete clause but allowed pop-ups with prior written consent. She presented the plan to the franchisor's development team — shared the host business's profile, the lease terms, and a sample menu. The franchisor approved it because it was low-risk and could generate royalty revenue. Some franchisors even have pop-up toolkits now. Luna: So the franchisor sees it as a pipeline for new locations. If the pop-up works, they get a new permanent franchisee. If it doesn't, they're out almost nothing. Lucas: Exactly. I've heard of at least three major fast-casual brands that started formal pop-up programs in 2025 and 2026. They'll help franchisees identify host partners, negotiate terms, and even supply mobile equipment. It's a win-win. Luna: Let's talk about the metrics. What should a franchisee track during a pop-up to know whether it's worth going permanent? Lucas: I'd say four key numbers. First, average revenue per day — that gives you a baseline for projecting full-year revenue. Second, customer acquisition cost — how much you spent on samples, signage, or promotions to get a new email or loyalty sign-up. Third, the percentage of customers who say they'd visit a standalone location. Sarah asked that in her survey and got 74 percent saying 'definitely yes'. Fourth, and this is subtle, the cost per square foot. Luna: Cost per square foot in a pop-up versus a full lease. Because the pop-up might have lower rent, but you're also getting less space. You need to normalize it. Lucas: Right. Sarah's pop-up was about 80 square feet. Her effective rent was $150 per square foot annually — that's high for a full lease, but she wasn't paying for build-out or long-term commitment. When she compared that to her permanent location's projected $40 per square foot, she knew she could afford more space because the revenue per square foot from the pop-up was nearly $1,800. Luna: That's impressive. But not every pop-up is that successful. What are the common pitfalls? Lucas: The biggest mistake is treating the pop-up as a standalone profit center rather than a research project. Some franchisees try to maximize short-term profit by cutting corners on the customer experience, which defeats the purpose. Another pitfall is not having a clear exit plan — what happens if the pop-up is wildly successful? Do you have a lease lined up? What if it flops? How do you wind down gracefully? Luna: And the host business relationship can sour if expectations aren't aligned from the start. I've heard of pop-ups where the host started complaining about smells or noise. Lucas: Absolutely. Sarah put together a one-page partnership agreement that covered hours of operation, trash removal, liability insurance, and a 30-day termination clause for either party. She also had a weekly check-in with the studio manager. Communication is key. Luna: So for a franchisee listening who's thinking about trying this, what's the first step? Lucas: First, check your franchise agreement — see if pop-ups are allowed and what the approval process looks like. Second, identify a host business whose customers match your target demographic. Third, draft a simple proposal: what you'll offer, what you need from them, and how you'll split revenue. Then start small — maybe just two days a week to prove the concept. Luna: You've also mentioned that some franchisees are using pop-ups as a recruiting tool for staff. Can you expand on that? Luna: Sure. Sarah hired two part-time employees for the pop-up, both of whom became managers at her permanent location. She got to test their skills in a low-pressure environment before making a full-time offer. And because the pop-up was in a trendy area, she attracted applicants who might not have applied to a suburban bakery. Lucas: That's a nice secondary benefit. And it ties back to the theme of using pop-ups to de-risk multiple aspects of expansion — real estate, menu, staffing, marketing. It's a more iterative approach than the traditional 'sign a lease, build out, hope for the best' model. Luna: Are there any franchise brands that are particularly well-suited to this strategy? Lucas: Brands with a small footprint work best — coffee shops, bakeries, ice cream, juice bars, even some quick-service restaurants that can operate from a cart or kiosk. But I've also seen a service-based franchise do a pop-up inside a co-working space: a mobile car detailing franchise that set up in the parking lot of a WeWork for a month, offering discounts to members. Luna: I'd imagine the franchisor's attitude matters a lot. Some are very rigid about where you can operate, while others are actively encouraging this. Lucas: That's the trend I'm seeing. In the last two years, more franchisors are embracing pop-ups as a growth tool. The International Franchise Association even had a panel on pop-ups at their 2025 convention. The message was: stop thinking of pop-ups as a gimmick. Think of them as a data-collection platform. Luna: So what's next for Sarah? Is she planning more pop-ups? Lucas: She's actually in talks with a different fitness chain in Dallas to run a three-month pop-up this fall. This time, she's bringing her own mobile trailer so she can also serve a nearby office park at lunch. It's almost like a rolling laboratory. Luna: I love that. It's a much more scientific approach to expansion. Instead of guessing, you test, learn, and then commit. Lucas: Exactly. And for franchisees who are capital-constrained or risk-averse, this might be the smartest way to grow in 2026. You don't need $300,000 to open a new location. You need $15,000 and a good partnership. Luna: And a willingness to experiment. I think that's the through line here — franchisees who treat each pop-up as a hypothesis are the ones who get the most value. Lucas: Right. So if you're a franchisee and you've been eyeing a new market but hesitate because of the cost or uncertainty, consider a pop-up partnership. It might be the lowest-risk test you can run. Luna: And if you've tried this approach, we'd love to hear about it. We might even feature your story on a future episode. Lucas: For now, that's our take on pop-up partnerships. Thanks for listening.