Grow With the Flow
The best formulas for expansion include equal parts background research, the right people and gut instinct.
Socially oriented young professionals with no kids and plenty of disposable income. Business travelers and conventioneers intent on fine-dining experiences. Suburbanites and small-towners hungry for more sophisticated options.
For restaurateurs targeting these and other distinct customer bases, no single formula leads to the right markets for expansion. What comes into play instead is a highly variable combination of demographics, geography and gut feeling.
“It’s very much an instinctual business,” says Chris Heyman, who will open an outpost of his Los Angeles hotspot, Table 8, next April at The Regent South Beach in Miami Beach. “For operators with a few locations, it’s about what feels right. When it comes to chains with 50-, 70- or 100-unit projects, you look at it in a completely different way.”
|Partners A. J. Gilbert (l.) and Joe Jack target young professionals with plenty of disposable income at Luna Park.
Chain restaurants tend to take a more scientific approach than independents in scouting prospective locations. More and more, these operators turn to site-selection software or real estate consultants to match desired demographics and other measures to available locations. For small, growth-oriented companies in the chain and independent arenas, amassing criteria on which to build can be a continual work in progress.
“You need the units to ... find out what demographics make you successful, and that’s what you use moving forward,” says Hugo Ralli, co-owner of Gibsons Bar Steakhouse and Hugo’s Frog Bar in Chicago. In 2000, Ralli and partner Steve Lombardo took Gibsons to suburban Rosemont, Ill. They will open a second Hugo’s location this fall in Naperville, Ill., about 30 miles west of the original.
In judging markets, the most common metrics used are the population within a preselected radius and average household income. However, additional, more specific measures gain importance depending on the concept and its intended customer base.
College-aimed brands, for example, likely would rank sites by student body size, while business-heavy operations might seek convention centers or office space. For chains with mass appeal, population density and retail occupation often take on leading roles.
Big might be beautiful, but expanding restaurant chains know there’s also something to be gained from thinking small.
Top 10 Fastest-Growing U.S. Cities by Population
|1. Gilbert, Ariz.
2. North Las Vegas, Nev.
3. Henderson, Nev.
4. Chandler, Ariz.
5. Irvine, Calif.
6. Port St. Lucie, Fla.
7. Rancho Cucamonga, Calif.
8. Fontana, Calif.
9. Peoria, Ariz.
10. Cape Coral, Fla.
Source: U.S. Census Bureau, Census 2000
Calabasas Hills, Calif.-based The Cheesecake Factory prospers in top-tier markets but also draws crowds in less-populous locales such as Tysons Corner, Va., and Des Moines, Iowa. About 80% of the restaurants are in malls or retail centers where they act as anchors.
This market flexibility works, says Howard Gordon, senior vice president of business development and marketing, because typically at least three-quarters of business is local. For most markets, the company seeks sites with populations of at least 250,000 within a five-mile radius and average household incomes between $50,000 and $75,000.
The Cheesecake Factory restaurants average about 400 seats in 12,000 square feet, but the chain can execute its menu in as little as 7,500 square feet, giving it the option of using reduced-size prototypes to enter smaller cities and towns. But at 80 units and counting, the company sees many large markets to be filled first.
While mid- and smaller-sized trade areas may serve as secondary expansion targets for some concepts, others use these markets as core growth vehicles.
“People want to dine where they live. There are very few big towns with vibrant downtown residential populations,” says Jack Baum, CEO of Dallas-based Food Friends and Co., which in April purchased the 15-unit Cozymel’s Coastal Mexican Grill from Brinker International. Moving farther from community centers also offers better chances at prime real estate, he adds.
|Top 10 U.S. Cities by Median Family Income
|1. San Jose, Calif. $79,318
2. Anchorage, Alaska $71,065
3. San Francisco $68,247
4. Arlington, Texas $66,261
5. Seattle $65,388
6. Raleigh, N.C. $63,180
7. Lexington-Fayette, Ky. $59,556
8. Honolulu $58,719
9. Charlotte, N.C. $58,237
10. San Diego $57,534
Source: U.S. Census Bureau, 2002 American Community Survey
To capture Cozymel’s desired demographic (25- to 54-year-old suburban couples, with or without kids, and household incomes above $60,000) Baum will develop the brand in places similar to its existing second- and third-tier markets, including Alpharetta, Ga.; Overland Park, Kan.; and Plano, Texas. Ideally, prospective sites will offer populations in excess of 85,000 within a five-mile radius.
Even-smaller markets beckon to Biaggi’s Ristorante Italiano, a 15-unit Bloomington, Ill.-based chain. Todd Hovenden, president and CEO of the upscale Italian concept, looks at four main criteria in selecting markets: population, the presence of a major university (such as in the University of Wisconsin in Madison), a white-collar employer (State Farm Insurance in Bloomington, Ill.) or local government seats (state capitals such as Des Moines, Iowa).
Keeping prices low enough to encourage repeat business can be challenging, but Hovenden says it’s worth it. “You’re really going to stand out in these markets.”
Many chains rely on real-estate consultants and software that factors population and income as well as education levels, traffic patterns, planned corporate and retail development, accessibility and transportation. For independents looking to branch out, more varied, subjective elements often direct growth.
Table 8 partner Chris Heyman set his sights on Miami Beach’s South Beach after another partner, who purchased a condominium there, touted the fine-dining scene. Heyman believes the mindset is different in Miami than in other metropolitan markets he considered, including Chicago and New York City. “South Beach is almost a vacation world, even for people who live there,” he says.
Last year, A. J. Gilbert and Joe Jack opened a spinoff of San Francisco’s Luna Park in Los Angeles, where operations are slightly less expensive than in the Bay Area. Los Angeles’ movie studios supply an abundance of the concept’s main demographic group: young, social professionals in their 20s, 30s or 40s with no children and disposable income to burn. New York City, where the concept will open under a different name later this year (a restaurant already operates under the Luna Park name in the city), has similar appeal: affluent young consumers whose small apartments encourage dining out. Finding the right neighborhood was key.
|Cozymel’s CEO Jack Baum (above) works with a real-estate firm to find growth markets for the casual-dining Mexican chain.
“When you see a Puerto Rican restaurant that’s been open for 30 years next to a hot new boutique, that’s what we want—that urban, exciting neighborhood,” Gilbert says.
Although the chance to gain more widespread exposure appeals to independents looking to expand, it’s not an issue for already-established concepts.
For the founders of legendary Miami spot Joe’s Stone Crab, which has been open since 1913, the choice of additional markets is driven more by partners than locations. Joe’s Seafood, Prime Steak & Stone Crab made its Chicago debut in 2000. Rich Melman’s ICON LLC company partnered with Joe’s on the project.
“Anybody with money can put the restaurant up, but do you have the expertise and the goodwill behind it?” says Joe’s CEO Steve Sawitz.
The next location is scheduled to open in October in Las Vegas, where Melman’s Lettuce Entertain You Enterprises multiconcept company also has a presence.
Operators’ experience and reputation also help guide growth at Gallagher’s Steak House, a New York City institution since 1927. The brand has expanded to Las Vegas and Denver, and future development likely will be limited to top-tier markets such as Chicago and Boston, where Gallagher’s sports-and-celebrity vibe also would play well, says Phil David, vice president of franchising and general manager.
The upscale eatery broke from this formula in 2003, when Washington, D.C.-based contractor Anton Airfood opened a Gallagher’s Steak House at Newark (N.J.) International Airport. The move was risky for a fine-dining operation, David acknowledges, but with travelers arriving up to two or three hours before flights on which food options may be scarce or unappealing, the potential appeared high. The company has not ruled out additional such locations.
Where the Heart Is
Stretching across the United States is a common strategy, but many independents looking to replicate their concepts stay closer to home. Some open suburban versions of city-based restaurants, while others take the opposite strategy.
|Chris Heyman, partner in Los Angeles’ Table 8, chose Miami Beach for its second location.
Upscale-casual seafood brand Skipjack’s chose both. Owner Jeffrey Senior launched the concept in 1986 in Brookline, Mass., and opened in Boston two years later to take advantage of the city’s tourism, convention and corporate business while also gaining exposure to fuel growth. He closed the Brookline unit when the lease expired in 2002 and chose subsequent locations in Newton and Natick, Mass., because they offered another important draw: affluent populations with high disposable income.
The opportunity to serve a well-heeled suburban market that seemed to cry out for more-sophisticated dining options spurred Chef-owner Michael Kornick to bring Chicago hotspot mk to Northfield, Ill., in 2001. Like many of his contemporaries, Kornick relied on his instincts as an area native rather than on formal demographic studies to assess the market’s potential. He researched the business volume of the previous and nearby tenants and studied the proximity of current office space and planned building construction.
Although Kornick expects mk north to be “moderately successful” in the long run, he will not incorporate the mk moniker into further suburban expansion. The strategy, he learned, can create confusion and disappointment when customers’ experiences do not precisely mirror those of the downtown site.
“We’ve found our clientele, and they spend the money and enjoy our quality [touches] ... but it’s less volume than we would have hoped for,” he says.
Spreading Their Wings
Population and income loom large, but operators also have their own ideas about what makes markets viable.
- Alexandria’s on 2nd: Southern cuisine served at his Seattle restaurant is rare in the Pacific Northwest, leading Owner Jim Buchanan to consider expansion to Bellevue, Wash.; Vancouver, British Columbia; Portland, Ore.; and Las Vegas. His criteria include a big-city population, medium- to upper-income levels and easily accessible sites.
- Aquitaine: Chef-owner Seth Woods chose Chestnut Hill, Mass., to open Aquitaine Bis, a complement to his original Boston eatery. Also owner of three other restaurants, Woods prefers the steady business that high-traffic, high-income, densely populated neighborhoods provide rather than special-occasion diners and tourists.
- Gibsons Bar Steakhouse: The proximity of O’Hare International Airport, a large convention center and a multitude of hotel rooms made Rosemont, Ill., a match for Chicago’s venerable Gibsons Bar Steakhouse. Partners Hugo Ralli and Steve Lombardo targeted Lombard, Ill., which offers similar draws, for a possible third unit.