The classic real estate saying “location, location, location” applies to choosing a site for a new restaurant. Location influences the success or failure of a restaurant in a host of ways, from attracting enough initial customer interest to being convenient to visit. But the restaurant’s location is also interrelated to other factors, some of which are changeable, while others are not. A great restaurant location, for instance, must have affordable rent, or it does not matter how much foot traffic the site receives.
Unfortunately, many restaurants fail within three years, and a lack of planning contributes to this hard reality. Sometimes, restaurants that would be otherwise successful go out of business because they are inaccessible or unknown to their potential customers. As might be expected, visibility and accessibility have a disproportionate effect on new restaurants that are not established yet with a core of loyal customers. Before signing a lease, restaurant owners should not get carried away with anyone location until they have done their homework on the location. You must be certain that when you choose a location you are using your head as much as your heart.
In a perfect world, the basic requirements of running a successful restaurant are simple: supply good food and service. The practical details, such as the location, stymie many entrepreneurs, as they do not fully plan out what will get people in the door.
A visible, well-placed location is the best way that a new restaurant advertises its existence to the neighborhood. It says “Here I am” and awakens the curiosity of potential customers. In the early stages, customers have to find out about a restaurant from somewhere; otherwise, they won’t be able to enjoy your food and service. As an owner, you want to choose a location that makes your restaurant convenient and desirable to customers.
Few factors have more impact on restaurant success than location, but many beginners choose spaces for the wrong reasons. Your location ties your cuisine and concept to local demographic mixes of residents and people who work in the area.
You should choose the right area by studying the region before committing to any plan. Common market targets include business professionals, urban hipsters, families with children, sports enthusiasts, culture aficionados and fast-food customers. We will have a deeper look into demographics a little later.
Choosing a restaurant location is one of the more permanent choices a restaurant owner makes. You cannot move the restaurant without significant expense and trouble. So making a snap decision without doing any research may leave an owner with a location he or she may later regret. It is never wise to let the pressure of an attractive location going to another tenant shorten your systematic examination of the site’s positives and negatives.
Not everyone likes the same foods or restaurant concepts. So a demographic analysis that is based on information about the patrons’ backgrounds is a helpful predictor what your customers’ tastes will be. The analysis helps a restaurant owner make an informed choice about whether his or her restaurant is in the right area.
For anyone new to the term, demographics means data about a given population. The data can include a number of categories, such as age, gender, ethnicity, religion, household size, marriage status, income and education level, just to a name a few. Demographics often tell us a lot about purchasing behavior and dining habits.
Each restaurant location has a different demographic makeup in its immediate neighborhood. This makeup consists of the workers and residents in the vicinity and others, such as tourists. Luckily, much of the data on demographic makeup is available for free through the national government. In the case of the United States, the national census provides an in-depth description of the people who live in different areas. Connecting that data to eating preferences may take additional research, however, but it is well worth the extra effort.
We can make some general conclusions. Be mindful that there are always exceptions, and a little local knowledge will bring fresh insights to your demographic research. The patterns below show how demographics can impact the restaurant industry:
Restaurant owners cannot expect to change the habits of a demographic population radically but should find the right population for their concept and cuisine. You cannot do that without knowledge of the local demographics.
The immediate surroundings of the restaurant site is of equal importance. Visibility, amount of foot and vehicle traffic, nearness and easy parking are critical to success.
Still, creative problem-solving skills may finesse certain problems, especially if the location is ideal in other ways. Yet, restaurant owners have to be realistic about the limitations of a site.
Visibility
For new restaurants, visibility is critical. Restaurants tucked behind buildings or without any place for signage are at a substantial disadvantage. Similarly, restaurants with narrow store fronts might go unnoticed. These visibility barriers can have a negative effect on a new restaurant, cutting off an initial stream of customers from curious passers-by.
Many of your initial customers will come in out of pure curiosity. These people have an open mind, live nearby or intrigued by your storefront or signage. Walk-ins are a valuable pool of customers, especially in high-traffic areas. That’s why visibility is so important to success. Sometimes, landlords can help with visibility issues by providing additional signage on the sides of buildings or in parking lots.
Amount of Foot or Vehicular Traffic
Each sidewalk or road has its own unique characteristics. Busy roads mean more eyeballs, but highways often cause customers to miss restaurant facades and signs. Sidewalks aren’t created equal, as some go unused, while others are always brimming with people. Traffic is critical for attracting potential customers from the street. In some locations, high traffic means busy people who might not notice your restaurant or stop long enough to read signs.
Amount of Foot or Vehicular Traffic
Each sidewalk or road has its own unique characteristics. Busy roads mean more eyeballs, but highways often cause customers to miss restaurant facades and signs. Sidewalks aren’t created equal, as some go unused, while others are always brimming with people. Traffic is critical for attracting potential customers from the street. In some locations, high traffic means busy people who might not notice your restaurant or stop long enough to read signs.
Before you choose a location, you should observe the traffic patterns around it to anticipate potential problems. Make sure to check both daytime and nighttime traffic on weekdays and weekend. Otherwise, you might not receive a steady supply of customers throughout the day or week.
Nearness
Think about how often go to a nearby restaurant and how often you drive 30 minutes or longer just to eat. Only on a rare occassion or vacation do people journey far from home for a particular food. No restaurant should bet everything on that kind of unusual behavior.
Therefore, a restaurant should be as near as possible to the customers it is targeting. In fact, a new restaurant should rethink opening in any location where a direct competitor (same cuisine & concept) is closer to the targeted customer pool. Only in unusual cases, such as when demand is underserved, does it make sense to take on another established business from a position of weakness.
When evaluating a site for a restaurant, map out your competitors’ locations. First, map the direct competitors but also find restaurants that target similar customers. Once done, try to imagine if customers from all directions are likely to visit your restaurant instead of your competitors. Are you convenient enough? Are you different enough? Are you near enough?
Easy Parking
The United States is a car country, so we spend a lot of time in parking lots. We notice when parking lots are hassles and take easy parking for granted. Even people who have want to try a restaurant may change their minds after finding a challenging parking situation.
At a potential site, pretend you are a customer. You have to anticipate where people will park, taking into consideration the size of your restaurant. If your restaurant is full, are there enough spaces? Do other businesses share the same parking lot and spaces? How easy is it to get on and off the road? Is the parking area well-lit and well-marked? Will deliveries interfere with parking throughout the day?
Customers parking expectations vary widely based on geography. Restaurants in busy urban areas might not need parking because of high foot traffic and public transportation. Some restaurants succeed in residential neighborhoods despite parking problems, especially in downtown areas that encourage window shopping and walking. These restaurants could increase parking convenience by requiring their employees to park further away from the premises or offering free taxi or shuttle services from nearby malls, downtown areas or parking garages.
Usually, easy parking and vehicle access should be near the top of a restaurant owner’s list of favorable location features. Fast food restaurants need high visibility and easy access to vehicles. Most of these eateries build drive-through windows, so possible locations need driving lanes and roomy parking lots.
Depending on the location, other aspects contribute immensely to your decision. Many of them involve asking questions of the landlord or doing some in-depth research. But looking into these factors will give you the big picture and enable you to make a more informed choice.
the leasing or sales costs of restaurant property play an important role in overall profitability. If rents run too high, then certain types of cuisine and concepts might make it hard to earn enough profits. It is always a risk when a restaurant’s rent takes up a disproportionate amount of its expenses. Also, consider how long the lease is and whether the rent might skyrocket when you renew your contract due to rising rents in the neighborhood or changing demographics.
Business History of Location
Investigate the property’s past to discover what experiences previous tenants had in attracting customers. Areas can change, but knowledge of former obstacles or benefits could help to increase chances of success. You should think about whether the former tenant was a restaurant or another kind of business. Taking over a space that housed a restaurant might be a positive or negative action based on the restaurant’s popularity, reputation and customer loyalty. Places that have never been a restaurant could have unexpected challenges or present unique opportunities.
Find out whether real estate values are trending up or down. Higher rents could impact cash flow, but having residents with higher disposable incomes might justify paying a higher rent. Real estate prices are a good way to measure the local economy’s health and affluence. Also, study both current and historical trends like the local unemployment rate and median household income.
Consult local chambers of commerce or city managers to discover whether any construction is scheduled in the area. Detours and construction sites could make it difficult to reach certain locations in the near future.
Property condition might make the cost of repairs and alterations unacceptably high. It is a good idea to hire an inspector to assess whether the property is appropriate for your restaurant’s needs. Give yourself some leeway with time and budget costs if any major repair is necessary. Properties seldom have only one structural problem, but many issues don’t become apparent until repairs are underway.
Study the neighborhood and see how many people and cars pass the property. Pay attention to the ages and dress of passersby. High traffic could consist of packs of teenagers, business diners looking for lunch or urban hipsters taking leisurely strolls.
Location is as crucial to success as food and service, so do the due diligence before writing a business plan, committing to a concept or signing a lease. Make sure the neighborhood supports the concept and has the necessary population and demographic profile for success.
Nearby customer sources, such as hospitals, factories and apartment complexes, could provide ready-made customer bases. Being near a large concentration of potential customers give you a group of people for which to focus your marketing efforts.
Studying restaurants in the area gives clues about local trends, but remember that new concepts could become immensely popular. Following the strategies of other business owners could generate frosty receptions from their loyal customers. If three successful fast food restaurants operate nearby, a fourth might challenge the market or decide the pool of customers is insufficient.
All of these factors tie into the question of revenue and expenses. Even great spaces with awesome benefits could prove problematic if the rents are outrageous. In the restaurant business, gross receipts for one day should cover monthly rent in most markets. So if your research shows that your location will struggle for revenue in the beginning, your rent cannot eat up a chunk of your budget. The one creditor that you can’t put off is your landlord.
You should familiarize yourself with the area around locations that are solid candidates. The best information you will gain comes from talking to people in the area and finding out their dining tastes. You will learn about competing businesses and businesses that may attract similar customers. You will better understand the makeup of the neighborhood by simply taking a walk and chatting with 20 or so people. It is good to quiz these people about whether they would visit your restaurant and if they think others in the area would.