How to Rethink Restaurant Real Estate
Your restaurant is flourishing. Your dining room is always full and your reputation is growing every day. Now you’re thinking about expanding and opening up a new location.
Once you’ve decided that you have the capital to support a new restaurant location, your first question should be: where? While it’s easy enough to see spaces that might work for your new location, the process of renting or buying a new space is anything but (especially if you are in a larger city like Chicago or Boston).
Restaurant real estate decisions are often complex and require substantial exploration. Since certain types of restaurants have specific space requirements, you need to balance the restaurant concept you think will be successful with the real estate that is actually available.
A good place to start when you’re trying to open a second (or third, or fourth, or fifth) restaurant is data.
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Making data-driven decisions for your new location
First you need to decide on the type of restaurant and concept you want to focus on. It’s easy to replicate your current restaurant model, but that might not be the most profitable opportunity. For example, your sit-down restaurant might be making a killing, but will another one do just as well or would you be better off with a casual take on your more formal concept?
There are two types of data that can help you determine what type of restaurant your new location should be: broad industry data and your own business data.
Use your restaurant industry analysis
When you created your business plan — which is now tucked away in a filing cabinet — you may have included an extensive industry analysis. While a lot may have changed since you first opened a restaurant, you can easily refine some of your findings to help you decide what your new location will look like.
These specific components in your analysis can help you uncover opportunities for your next location:
- Projected industry sales: Restaurant trends can tell you a lot about your next restaurant location. For example, the National Restaurant Association predicts total restaurant sales will reach $798 billion by the end of 2017, which is a 4.3-percent gain over the past year. Moreover, table-service restaurants have seen 3.5-percent growth, while quick-service restaurants have seen a 5.3-percent gain over the past year. This indicates a specific demand for fast-casual locations, which you could see as an opportunity to establish a second location as a fast-casual experience.
- Demographic trends: When you initially researched your target customer, you made some assumptions. Now you can better analyze your own customers to make important decisions about your next location. Refine your original target demographic by looking for customer patterns at your restaurant (age, gender, economic status, etc.). Then think about what those customers are looking for in a restaurant. Why do these guests come to your restaurant and how can you better serve them in a new location?
- Restaurant competition: While you don’t need to mimic the rivals you identified in your initial analysis, tracking competitor expansion can help you uncover opportunities. Take a look at the industry’s competitive landscape. Do other restaurants have multiple locations, and if so, where? Find out when they opened new locations to see if you can uncover patterns.
- Technology trends in the restaurant industry: Technology trends can help you make better-informed decisions when deciding on a new location. For example, customer-facing POS systems in restaurants have become increasingly popular because they allow your guests to order and check out on their own, which helps minimize the need for staff (and space). Emerging restaurant tech trends like this may allow you to lease a smaller space and substantially decrease your location’s cost.
Analyze your restaurant’s performance
There are various performance metrics you should monitor regularly when you manage a restaurant. These metrics can also be key indicators for new locations. Take a look at your business analytics and try to identify some of the following:
- Most profitable menu item: Increasingly, restaurants are focusing on a minimal menu with a few standout items in order to be more memorable to customers. If there’s a single item on your current menu that is making a killing (e.g., your decadent mac ‘n’ cheese or divine blueberry muffins), it might be worth opening a second, niche location, focusing on that item or items.
- Busiest time of the day: Maybe you opened a full-service restaurant that serves breakfast, lunch, and dinner, but found that the lunch hours see the most foot traffic. Using this information, you may consider opening up a new restaurant location that solely serves lunch items.
- Seat turnover rate: By determining how long a guest stays at your restaurant, you can decide which restaurant segment you want to target (i.e., fast casual or fine dining). If your customers are spending less time at your restaurant, you may want to consider opening a quick-service restaurant at your second location.
These two analytical approaches can help you solidify the need for a second location and what that second location should look like. It might even help identify completely new opportunities. If your research has you leaning in a different direction from your original concept, that’s okay. As long as your research and data point to a profitable opportunity — whether it’s a food truck, a super-niche QSR, or a fine-dining restaurant with a totally new cuisine — don’t be afraid to try something new (as long as you have the time and capital to support a second location).
How to find the best restaurant real estate
Now that you have a better idea of the space you’re looking for, it’s time to go out and find it. When analyzing spaces to lease or buy, you want to look at these variables:
- Affordability: First and foremost, you need to be able to afford the restaurant space you decide to lease or buy. Whether the money comes from your pocket or you decide to take out a small business loan, evaluate your financial situation and create a budget for your location prior to looking.
- Property condition: It’s important to assess the quality of the current space when researching restaurant real estate. Remodeling is common for restaurant owners, but if the basic condition of the store is deteriorating, you might want to rethink the location.
- Visibility: Your restaurant may be serving the best food in town, but if customers don’t know it’s there, they won’t venture in. So make sure customers can easily see the restaurant.
- Accessibility: On top of it being visible, you also want your restaurant’s real estate to be easily accessible. When inspecting restaurant real estate to buy or lease, ask about parking or public transit. Customers might be less inclined to come in if it’s not easy to get to.
- Traffic: The amount of foot traffic in the area is a good indicator of new business potential. It’s important to visit prospective locations at various times of the day to get a feel for the clientele that walks around the area and the overall traffic flow. (You also want to make sure the people in the area fall within your target market.)
- Vicinity: Your surrounding neighbors could greatly influence your new restaurant’s profitability. If competitors are nearby, you might risk losing customers to the shop next door. Additionally, construction projects around your restaurant could limit accessibility and drive off guests.
Use real estate to test a restaurant concept
If you’re opening a second location that differs slightly from your original concept — or even if you’re thinking of opening the same restaurant in a new area — you might think about testing the concept before going all in. You can do this with a pop-up restaurant.
Pop-up restaurants are temporary and often take advantage of unusual locations. For example, you could test a pop-up in your existing restaurant or store. Or you could rent out a small space (one you wouldn’t want to use full time) just to test the concept.
Pop-ups aren’t permanent, so they also minimize risk and cost. This could be a good option if you are at all hesitant about investing in a second property. There are even companies, like Appear Here, that specialize in finding spaces for pop-ups.
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