Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Pop-Ups to Test New Markets
Transcript
- Lucas: You know that moment when a franchisee is staring down a seven-year lease on a location they’re not 100 percent sure about — and they want a way to hit pause before signing? Luna: That’s basically every franchisee I’ve ever talked to. The anxiety of committing to a site that could underperform. Lucas: Exactly. So a growing number of them are borrowing a tactic straight from the direct to consumer playbook: the pop-up. Not as a one-time event, but as a deliberate market-testing tool before opening a permanent unit. Luna: We’ve seen this in retail for years — Glossier, Casper, all those brands did pop-ups before going permanent. But for franchisees? That’s a newer twist. Lucas: It’s still early, but I’ve been tracking a specific case from a multi-unit QSR operator in the Midwest. Let’s call him Mark — he runs about a dozen locations of a national burger chain. Last year, instead of signing a lease for a new store in a growing suburb, he opened a pop-up inside a food hall. Ninety days, forty thousand dollars all in — build-out, equipment, staffing. Luna: Forty thousand versus what, half a million for a traditional build-out? Lucas: Closer to six hundred thousand for the full unit. So the pop-up was basically one-fifteenth the risk. And the numbers were revealing. The pop-up did about sixty percent of the revenue per square foot of his average permanent store, which sounds disappointing until you realize the food hall had a fraction of the marketing spend. But what really made the test valuable was the labor data. Luna: Labor is such a wildcard right now. What did he learn? Lucas: He discovered that the suburb’s available labor pool was too thin to staff a full unit during lunch rushes — even with higher wages. If he’d signed the lease, he would have been scrambling to cover shifts for the first six months. The pop-up let him walk away with that knowledge for forty grand instead of six hundred thousand. Luna: That’s a huge insight. But I wonder — does the franchisor get nervous about pop-ups? I can imagine some brands worrying that a pop-up doesn’t reflect their quality standards, or that it dilutes the brand. Lucas: That’s exactly the tension. In Mark’s case, his franchisor was initially skeptical. Their operating manual didn’t even have a pop-up clause. They approved it as a one-off experiment, but they’re now drafting language to define what constitutes an approved pop-up. Things like minimum square footage, required equipment, hours of operation. Luna: So the franchisee gets the flexibility, but the franchisor wants guardrails. That makes sense. I’ve heard of a few franchisors who are proactively adding pop-up provisions to their franchise disclosure documents — essentially codifying pop-ups as a legitimate growth path. Lucas: That’s the smart play. Instead of fighting the trend, they’re creating a framework. Some are even offering reduced royalty rates for pop-ups, because they recognize the lower revenue and the value of market validation. Luna: Okay, but what about territory rights? If a franchisee opens a pop-up in a territory that technically belongs to another franchisee, that could get messy. Lucas: Happening right now. There’s a case I’m following where a franchisee used a pop-up in a neighboring territory to test demand, and the territorial franchisee claimed it violated their exclusivity. The brand had to mediate. Ultimately, the pop-up was allowed because it was temporary, but it opened a conversation about whether pop-ups should be exempt from territory protections. Luna: That feels like a ticking time bomb for a lot of brands. They need to clarify that in their agreements before it becomes a litigation issue. Lucas: Agreed. And it’s not just about territory. There’s also the question of whether pop-ups cannibalize existing locations. If you put a pop-up too close to a permanent store, you might just be splitting the same customer base. Luna: But that’s the whole point of testing, right? You can measure that. Mark’s pop-up was far enough from his other stores that there was minimal overlap. He actually picked up new customers who hadn’t visited his brand before. Lucas: Exactly. And that’s the other hidden benefit — brand awareness. A well-placed pop-up in a high-traffic area like a food hall or a festival can introduce the concept to thousands of people who wouldn’t have driven to a standalone location. Luna: I’ve seen data that pop-ups can boost eventual permanent store sales by 15 to 20 percent, just from the pre-launch buzz. It’s almost like a soft opening that lasts three months. Lucas: Let’s talk numbers on that. One franchisee I know in the health and fitness space — a boutique gym concept — ran a pop-up in a vacant retail space for six months. They spent seventy-five thousand on lease and equipment, and they signed up two hundred members during the pop-up period. When they opened the permanent location a block away, those two hundred members converted at a rate of over ninety percent. Plus, they had a wait list. Luna: So the pop-up effectively pre-sold the membership base. That’s brilliant. And it also helped them fine-tune their class schedule and staffing model before the big lease kicked in. Lucas: Right. They learned that their peak time was Saturday morning, not weekday evenings. That changed how they designed the permanent studio’s layout — more space for the Saturday rush, less for weekday evenings. You can’t get that kind of insight from a spreadsheet. Luna: It’s almost like a real-world A/B test for your entire business model. And it’s not just for food and fitness. I’ve seen pop-ups work for service-based franchises too, like home cleaning or lawn care. They set up a temporary booth at a home show or a farmers market, collect leads, and gauge local interest before investing in a physical location. Lucas: That’s a lower-cost version, but it still gives you a demand signal. The key is to have a clear success metric going in. For Mark, it was labor availability. For the gym, it was membership sign-ups. Without a clear metric, you’re just renting space. Luna: What about the flip side? Have you seen pop-ups that failed and taught the franchisee something valuable? Lucas: Absolutely. I talked to a franchisee who opened a pop-up for a fast-casual salad concept in a downtown office building. The foot traffic was great at lunch, but it died completely after 2 PM. They realized the location couldn’t support a dinner shift, so they walked away from a permanent lease. The pop-up cost them thirty thousand, but it saved them from a five-year lease that would have bled money. Luna: So the pop-up essentially functioned as an insurance policy. I think that’s the most compelling argument — it’s a way to buy information cheaply before making a big bet. Lucas: That’s exactly the framing I use. And it’s not just about avoiding bad locations. It’s about optimizing good ones. One franchisee I know opened pop-ups in three different neighborhoods simultaneously — same brand, same format. One popped, two flopped. They put the permanent store in the neighborhood that worked. Luna: Three pop-ups at once — that’s a bigger upfront cost, but still way less than three permanent leases. And you get comparative data. Lucas: Exactly. And the franchisor benefits too. They get real-world data on which markets are ready for expansion, without having to underwrite the risk themselves. Some forward-thinking franchisors are even creating pop-up kits — pre-approved designs that franchisees can deploy quickly. Luna: I’ve heard of that. Like a shipping container conversion or a modular kiosk that can be set up in a week. The brand controls the look and feel, but the franchisee can move it around to test multiple sites. Lucas: That’s where this is heading. I think we’ll see more franchisors embrace the pop-up model as a standard part of their growth playbook, especially as real estate gets more expensive and labor markets stay tight. Luna: But there’s a risk: if every franchisee starts doing pop-ups, do they lose their specialness? Pop-ups work partly because they feel exclusive and temporary. Lucas: That’s a fair point. If pop-ups become routine, they might not generate the same buzz. But I think the smarter franchisors will treat them as a tool, not a gimmick. Use them for market validation, not just hype. Luna: I also wonder about the operational strain. Running a pop-up while managing existing stores — that’s a lot of bandwidth for a franchisee. You need a dedicated manager or a really strong team. Lucas: Absolutely. It’s not for everyone. But for franchisees who are growth-minded and have the operational discipline, it’s a powerful way to de-risk expansion. And the data suggests it’s working. Luna: Before we wrap, I want to circle back to something you said earlier about the franchisor’s role. Are there any brands that have fully embraced pop-ups as a formal growth channel? Lucas: A few. One of the big pizza chains has a program where they allow franchisees to open pop-ups in college dormitories and sports stadiums during peak seasons. They have a whole separate training module for it. Another brand in the smoothie space uses pop-ups to test new menu items before rolling them out system-wide. Luna: So pop-ups aren’t just for testing locations — they’re also for testing products. That’s a smart R&D play. Lucas: Right. And if the product fails in the pop-up, the brand doesn’t have to pull it from hundreds of locations. It’s a low-stakes sandbox. Luna: It’s funny — we think of pop-ups as this trendy, ephemeral thing, but for franchisees, they’re becoming a strategic tool for smart growth. Lucas: Yeah. And honestly, that kind of practical, data-driven thinking is what separates franchisees who grow sustainably from the ones who overextend and burn out. Luna: Well said. And that’s a good note to end on. Lucas: If these conversations have moved your work forward in some small way — maybe you’ve used a pop-up idea or thought differently about a lease — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. That’s literally what funds making this many of these shows. No ads, no sponsors. Just listeners who find them useful. Luna: Yeah, it’s a small group, but it keeps the whole podcast network ad-free and independent. We appreciate it. Lucas: So next time you’re evaluating a new market, consider starting small. A pop-up might tell you everything you need to know.