The Pros and Cons of 9 Restaurant Location Types
Do you decide on a restaurant location before or after the entire concept?
Restaurants involve both arts and science. Many of the decisions involving their creation and operations are driven by emotion or an artistic sense of what will appeal to the public and drive the success of the venture.
Most people have an idea of what they want their restaurant to be long before they find a potential site. Unfortunately for many of them, they are not willing or capable of making the changes that their market calls for. It is far easier to be a good matchmaker than back peddling a year or two down the road to re-engineer your concept. If you are totally set on a specific concept / menu, make sure you do your market research and ground work thoroughly before committing to a location.
Your concept / menu and brand are your business drivers. If people are attracted to what you are offering in food, service, ambience etc., your concept / menu should be strong enough to consistently attract patrons to fill your seats. It is your restaurants soul. If it doesn’t fit the market you are considering – move on.
Who is your customer?
Most restaurateurs have a fairly good idea of the type of restaurant they wish to open, even before they have a location. Rarely does it evolve the other way. Occasionally a more seasoned operator might find that one outstanding spot and create the right style of restaurant to fit that particular location.
In any case, before you do anything you need to answer the following questions:
- Who is your primary target audience?
- Who is your customer?
- What is their price point?
Having definitive answers to these three questions is the key to the success of your new location.
Is it a young tech professional market? Hipster urbanites into eclectic funky places? Young families with mortgages seeking places that they can bring their kids? High income executives seeking more upscale environments? Baby boomers downsizing in a golf community? Whatever the market is – establish a clear vision of who you are trying to attract and serve. They may not be your entire customer base, but this will be the primary driver of sales.
Who lives and works here?
With the vision of your primary target audience upfront in your mind, you can begin the search. An old restaurant site search standard states – “85% of your patrons will come from no more that 3 to 5 miles from their bedpost”. People will eat out more in close proximity to where they live and work.
When people are in transit, opportunity and accessibility will drive dining decisions as evidenced by diners and other quick serve restaurants popping up along major thoroughfares and highways. It is more about pass by traffic than it is about who lives there.
Decide what is most important to you?
Did you stumble across what you believe to be a killer location without consideration for the target market or specific restaurant concept? Are you married to a single concept / menu that fits your skill set? Is it more important to be located in the new hot neighborhood or are you seeking population density or a certain income demographic profile? Is your budget the biggest consideration?
Make sure you get your priorities clear, because once on the hunt, emotions often take control of reason and many buyers find a thousand reasons to justify a really bad decision.
What type of location best fits your vision?
9 Advantages and Disadvantages:
1. Urban Commercial / “Downtown” – Primarily commercial neighborhoods. Usually in a major metropolitan area surrounded by offices with little or no residential zoning.
- Advantages – strong demand generators such as offices and retail. Potentially good lunch and early dinner business. Could be a great Monday through Friday business. Depending on the city, you might even get more favorable rents.
- Disadvantages – less local traffic because of light residential component. Serious drops in traditional dinner business and on weekends, vacation periods, holidays etc.
2. Urban Mixed Use / “Uptown” – Greater residential component. Mixed residential, commercial and sometimes offices. Smaller businesses and local shops may be the only demand generators.
- Advantages – stronger dinner business and late night business with ability to build regular clientele. High concentration of urban apartment dwellers.
- Disadvantages – less commercial / corporate office traffic. Lunch can be extremely tough in these areas.
3. Central Business District (CBD) / Retail Corridor – most often in a suburban setting. This is where everyone in town comes to shop and recreate. Think of this area as the “Town Center”.
- Advantages – Often has strong local traffic. Area filled with demand generators. A true destination for residents of surrounding real estate. Usually a center for retail, entertainment and other restaurants. Clusters of restaurants provide shared exposure to market and offer diners variety and increased frequency in the area.
- Disadvantages – Traditional retail is experiencing heavy challenges with decreasing traffic and competition for internet retailers. Heavy restaurant competition might not be advantageous if too many similar concepts compete for limited dollars. These locations are subject to community business fluxes such as school vacations, holidays, bad weather etc. Lunches will very often be soft and the vast majority of sales will be derived on weekends. Also, very often the cost of real estate may be artificially high due to limited availability of space and restrictive zoning.
4. Regional Mall – Most often a recognized stand-alone – a broad market region that attracts customers from a wide radius and offers heavy variety of retail, entertainment and restaurant options.
- Advantages – Originally these locations offered high foot traffic and concentration of customers seeking to spend considerable time at the location. The traditional retail environment is changing and compressing and they no longer attract the same traffic as in years past. Today the primary drivers of traffic to regional malls are very often the restaurants and entertainment venues like movie theaters. Clusters of restaurants provide shared exposure to market and offer diners variety and increased frequency in the area. Competition is usually restricted (ie. Only one Italian restaurant or steakhouse permitted). Plenty of parking.
- Disadvantages – Dying traditional retail traffic. High cost for rent, common area charges and build out continue despite recent developments in retail contraction. Independent restaurants are forced to compete against well-financed national chains. These locations are subject to community business fluxes such as school vacations, holidays, bad weather etc. Typically the majority of sales will be derived on weekends. Operators are subject to strict mall operating rules governing hours of operation etc.
5. Big Box Retail / Freestanding Pads – Big draw retailers and discount houses like Costco and Walmart that attract regional car traffic but very little foot traffic. Freestanding pads in front of these locations are primarily the domain of national restaurant chains and high volume independent regional chains / operators.
- Advantages – Big foot print. High exposure to highways and vehicle traffic. Big boxes are demand generators that give visual exposure to restaurant. A cluster of restaurants on pads offers greater traction. A true destination for residents of surrounding real estate. Competition is usually restricted. Plenty of parking
- Disadvantages – Often have a high cost for build out and rent, common area charges. Deals for pad sites are typically for land leases requiring the operator to pay for the build out of the facility as many landlords have eliminated or reduced their contribution to tenant improvements even for highly qualified operators. If the developer / owner of the complex agrees to pay for build out with cost recovered through future rent payments, escalations can crush the long-term viability of the restaurant. High demand for these locations from well organized national chains and franchises make it difficult for some independents to compete.
6. Strip Center Retail – These smaller clusters of retail stores, restaurants and service providers like banks, supermarkets and Post Offices are built in line to address the needs of local communities.
- Advantages – If tenant mix is good it draws people to the location for multiple reasons. Offers higher visibility as a destination for residents of surrounding area. Competition is usually restricted. Parking is usually positive. Rents are generally competitive.
- Disadvantages – Most favorable location in many strip centers are the “end caps” otherwise visibility and logistics might be compromised. Tenant mix is vital to generating foot traffic. Poor mix results in negative perception of center with negative spillover on the restaurant. Parking may be at a premium with restaurant competing with other businesses for parking spaces.
7. Non Traditional Outlets / “Hermit Crabs” – these are anything from concession stands in food courts to snack shops in gas stations, to rest stop eateries on highways, to corporate dining rooms, or lunch rooms in office complexes.
- Advantages – Captive audience. Limited hours of operation. Often little or no rent as an amenity to the building. Facilities often managed and maintained by sponsor / landlord.
- Disadvantages – Little outside exposure to customers except in the case of rest stops etc. Limited hours compress your flexibility to build additional day parts for business.
8. Seasonal Operations – these can be anything from restaurants that operate at ski resorts to waterside with outside dining. These restaurants can experience radical business fluxes and are totally dependent on seasonality.
- Advantages – High traffic in season. Local demand generators build solid market base. An operator can earn a solid return for the year within a few months of operation.
- Disadvantages – Limited prime trade time presents considerable risk particularly if area is weather dependent i.e. if there is no snow at a ski resort one winter, or it rains every weekend at an ocean side resort town in summer. Operator very often must pay rent all year even if operating for only a few months a year. Building a new staff every year is difficult and expensive. Consistency is often in jeopardy from year to year.
9. Specialty /Ambience Driven / Charm Locations – unique restaurants that offer ambience as a primary motivation for customers. Quaint country inns, roof top restaurants with dramatic views, restaurants on cruise boats etc.
- Advantages – Traffic is driven by the location / atmosphere making execution important. Very often the special occasion restaurant of choice. High recognition as supported by the unique character of the restaurant.
- Disadvantages – Usually not the “everyday” restaurant, therefore has limited market. Most often a special occasion or recreational restaurant. Physical character of restaurant may not be strong enough to sustain interest of customers. Might be out of the way and if it isn’t supported by additional demand generators, it may not be viable.
Check out even more on how to improve your restaurant with “11 Best Ways a Restaurant Can Go Digital.”