Site Seeing
Choosing a successful restaurant location is part science, part common sense.

By Deborah Silver, Senior Editor

Restaurant site selection is increasingly complicated business these days. Demographic studies, focus groups, consumer surveys, consultants and endless number crunching are all part of the formula. No restaurateur—single-shingle, multiconcept operator or large chain—can afford to open an eatery today without spending time and money on some or all of the above.

“If you’re an existing operation looking to expand, you have to know if your food has legs,” says Richard Lackey, president of the Council of International Restaurant Brokers. “If you’re a new operation, you have to know if you have something the market wants. And in both cases, there’s only one way to know: Do your homework.”

Concept, food quality, service and economic shifts all factor into a restaurant’s success or failure. But if the customer base in a neighborhood is wrong, accessibility is poor or there simply aren’t enough people, a restaurant, no matter how good the food or trendy the ambience, won’t make it.

BALANCING ACT

Self-knowledge counts for a lot when scouting restaurant locations, but so does the ability to assess the market that a particular site serves. When Buffalo, N.Y.-based Dynamic Restaurant Operation Inc., a licensed franchisee of T.G.I. Friday’s, Denny’s, Papa John’s and Krispy Kreme Doughnuts, decided to open a Friday’s in Boca Raton, Fla., it knew the necessary criteria based on the 15 Friday’s it already owns.

The casual eatery typically is located on 11/2 to 2 acres of land with on-site parking for 125 to 175 cars. Because it draws lunch and dinner customers from a broad consumer base, Friday’s tends to be in high-traffic corridors with large shopping malls, office buildings, and easy access to and from residential neighborhoods.

Dynamic had only to find the site, re-create the formula Friday’s look—oak interiors, Tiffany-style glass windows, and red-and-white-striped tablecloths and uniforms—and the customers would come.

Well, not quite.

The site where Friday’s corporate office in Dallas wanted Dynamic to open was in downtown Boca Raton, not a typical locale for the 35-year-old restaurant operation. “Real estate is hard to come by in Boca. Many of the structures are 50-year-old art deco buildings, and everyone has valet parking,” says James Cosentino, president of Dynamic.

With little surplus land, few up-to-date structures and high-end leases in the buildings that were available, the consumer base had to be substantial. It was: 15 million tourists annually, many from Europe and South America, where Friday’s is well established. “That made the demographics of Boca right. That always drives site selection,” says Cosentino.”

Dynamic selected a ground floor location in an established hotel-condominium building in the city’s thriving South Beach district. It renovated the space and altered the standard Friday’s look to blend with the art deco neighborhood. Although the restaurant opened just last month, it already is drawing a typical Friday’s crowd of single professionals and young families, plus large numbers of the hoped-for foreign vacationers.

Would the site have worked if the plan had been to open one of Dynamic’s other franchises, such as Denny’s or Papa John’s? “Not in that location,” says Cosentino.

The reasons are obvious to site-selection specialists. Friday’s is a destination location, Denny’s is not. People choose to eat at Denny’s on the spur of the moment while driving to and from somewhere else. As a result, the success of any Denny’s depends on a constant flow of car traffic. It also attracts large numbers of senior citizens and families of modest means.

Papa John’s, on the other hand, requires no drive-by, impulse traffic. It does, however, need 20,000 households within a 3-mile radius, the majority of which are solidly middle class with children at home and two working parents who are too tired to cook.

But South Beach draws a young crowd with money to burn. “The key is to match the site to the customer profile,” says Cosentino.

TRAFFIC PATTERN

For venues that aren’t destination locations, traffic—car or people—is the driving force behind site selection. The success of each of the 372 Cinnabon eateries, most of which are in malls and transportation buildings such as airports, depends entirely on how many people walk directly in front of the restaurant each day.

“Our product is primarily an impulse buy,” says Lenore Krentz, vice president of finance for Cinnabon Inc. “Many of our customers don’t think of eating at Cinnabon until they walk by the store and smell the aroma.”

The operation, owned by AFC Enterprises Inc., Atlanta, prides itself on a high capture rate of that foot traffic. Last year the company garnered $158 million in sales. By 2004 it expects to have 1,000 units operating worldwide, a threefold increase over the present number. Some 60 new Cinnabon venues will open in the United States alone this year.

For those who prefer a little less sugar in their snacks, Planet Smoothie, another foot-traffic-dependent chain, gears its products to the health-conscious consumer. The Atlanta-based operator historically has targeted strip malls, but now that the 5-year-old chain is adding soups and sandwiches to the menu, it needs larger locations—shopping malls, transportation sites and office buildings—to accommodate seating.

It also is expanding beyond its Southeastern base to the Northwest, “where our healthy fast-food alternative fits with that region’s health-conscious lifestyle,” says Sid Weinstein, Planet Smoothie vice president of real estate and general counsel.

That strategy also keeps it just far enough from the operations base for category leader Jamba Juice in San Francisco. After Planet Smoothie builds its reputation in Oregon and Washington, it will consider California.

Expanding gradually into home turf of a primary competitor is an obvious strategy. But sometimes the obvious is not so readily apparent and restaurateurs have to retool their original plans. Outback Steakhouse Inc. of Tampa, Fla., used to focus on establishing sites in residential neighborhoods, where it thought its dinner-only concept would find the most patrons.

While it hasn’t abandoned those areas, Outback has discovered other equally lucrative markets for its product—expressway interchanges, power malls and hotel districts—some distance from suburban rooftops. With prime real estate becoming harder to find, Outback is also building restaurants in secondary locations and beefing up signage.

But no matter where the sites, the chain is careful not to cannibalize its own locations. That’s of particular concern now that Outback has 520 units and plans to open some 65 annually.

“We try to keep our restaurants at least 10 miles apart, more if they’re at interchange locations,” says Denny Rouse, Outback vice president of real estate and development. “Other than that, I just look for a busy Olive Garden and move in next door.”

TAKING COUNSEL

Common sense seems to be behind many location choices, but most restaurants can’t afford to let logic alone dictate site selections these days. Numerous consulting firms are devoted entirely to the science of finding profitable locations by establishing customer profiles and running demographic information through mathematical models to determine the economic potential of various sites.

“Sophisticated computer technology has made our job much more accurate,” says Mark Heyman, managing partner with UniFocus, a performance-management firm in Dallas. “We’ve been able to pinpoint performance accuracy of new sites to within 3%.”

Certainly some chains and franchise outfits have come to depend on such consultants. When Dallas-based Brinker International Inc. bought Chili’s Grill & Bar, the corporate powers-that-be knew the successful Southwestern-style chain had to grow. It opened up certain territories to franchisees, which were required to develop a specified number of venues annually.

“A restaurant operation with too slow or stagnant growth will lose its management staff, so it has to figure out how to expand efficiently,” says Richard Gallivan, a real estate consultant with Restaurant Sites of Hampden, Mass., which worked with Chili franchisees in the Northeast.

For a growing restaurant chain like Chili’s, pinpointing appropriate new sites is not as easy as it is for proven brands, according to Gallivan, because its consumer patterns are not as well established. “The best thing that a lesser-known operator can do is simply try and duplicate the characteristics that made it successful in its original locations,” Gallivan says.

For Chili’s that meant finding high-traffic arteries with about 100,000 middle-class people in the vicinity, primarily suburban office parks and retail centers.

INDEPENDENT VARIABLES

Hiring consultants to find sites certainly makes the job of expanding chains and franchisees easier, but independents usually don’t have the resources to secure outside help. As a result, independents often take a niche approach, going to an emerging part of a city, for example, to stake a claim in uncharted territory. Others are even less systematic in their approach to site selection, “opting to stick their fingers in the air to see which way the wind is blowing.” says Rhonda Rhodes, a director of market research with UniFocus.

But independents don’t have to rely on gut feeling alone to choose a location. “The bottom line is, rent should not exceed 6% of your sales,” says Michael Counihan, president of Counihan Consulting & Design Associates of Austin, Texas.

Most independents get into trouble when they try to duplicate their initial success with a second and third restaurant. “If you don’t understand what made you successful in the first market, then you’re incapable of traveling to another one,” says Richard Lackey of the Council of International Restaurant Brokers. “When fast-food chains grow beyond a certain size, they become virtually idiot-proof. Independents never have that luxury.”

Slow and Steady Wins the Race

Saltgrass Steak House of Houston has carved out quite a niche for itself in its home state. It has a history that makes for good Web site reading (“Our story goes back to the mid-1800s when millions of Longhorns roamed freely through Texas.”). It has a “Texas to the Bone” movie poster-style ad campaign plastered across billboards throughout the state and saturating local publications. And it has a smart way of running a business.

The company has grown slowly, opening 15 restaurants since its 1983 debut, all in Texas. Three more will be added to the state roster this year and plans to expand beyond the Lone Star State in 2001 are under consideration.

Saltgrass hired a local consulting firm to target the best sites in its home territory first (Houston, Dallas/Fort Worth and San Antonio), as well as to pinpoint the top steakhouses in the country. That way, when the time is right, Saltgrass simply will gallop across the Texas border and know exactly where to go.

Look Before You Leap

When Bertucci’s Inc. decided to expand its successful, 80-unit Italian chain outside the Northeast, the Wakefield, Mass.-based company leapfrogged over numerous states to open new venues in Chicago and Atlanta.

It seemed to make sense. Both cities are major metropolitan areas where ethnic restaurants tend to thrive. But soon after the expansion, it became clear there was a problem: no one outside the Northeast knew what the concept was.

After struggling for five years, Bertucci’s has conceded defeat. The 20-year-old dining operator, owned by NE Restaurant Co., has closed the doors of its six Atlanta operations and adopted a wait-and-see attitude with its seven Chicago venues. It will refocus attention on expanding in the Northeast corridor, where the Bertucci name is known and its units profitable.

“The company learned a basic lesson the hard way,” says Richard Gallivan, a real estate consultant with Restaurant Sites of Hampden, Mass. “It’s better to stay in your own backyard until you’ve fully built up your core market than to run amok across the country. Saturate your native region and then evolve slowly from there.”