Web Exclusive | July 2014 | By Barney Wolf

Boom Town

North Dakota’s economic growth a unique opportunity for quick-serve brands.
Quick service companies expand to North Dakota to capitalize on growth.
North Dakota's 7.6 percent population jump since 2010 has been fueled by hydrautic fracturing.
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Economic booms are nothing new to regional American economies. From the Gold Rush in California to the post–Industrial Age coal fields of Pennsylvania and West Virginia, history shows that workers and businesses have long rushed to parts of the country where valuable resources were discovered.

Now it’s North Dakota’s turn. The identification of a major oil field in the western part of the state led to a boom that’s created thousands of new jobs in the past five years. And businesses, including quick-service restaurant operators, are cashing in.

“We expected good numbers, based on what we heard others had done,” says Matt Andrew, founder and chief executive of Atlanta-based Uncle Maddio’s Pizza Joint, which opened its first unit in the state in June.

But “good numbers” was an underestimate. “It just blew up,” he says of the franchised unit in Minot, North Dakota. “It was a record opening. We’re in a new center, with us at one end cap and Five Guys at the other, and they are doing off-the-chart numbers as well.”

Similar results were recorded at Dickey’s Barbecue Pit in May, when it opened its first central North Dakota unit. It was among the top three store openings in the company’s history, a spokeswoman says.

“We had a line wrapped around the entire building from morning until close,” says Randy Rhone, the Dickey’s owner/operator in Minot. “We’ve maintained a lot of that number and started to add catering, something we couldn’t do earlier just because of the in-store numbers.”

The National Restaurant Association projects North Dakota's restaurant sales will increase 4.8 percent this year.

Now the restaurant sends out a couple hundred box lunches weekly, including many to the barrack-like “man camps” that house thousands of workers in the oil fields.

The oil boom changed the state’s landscape in many ways. Since 2010, its population has jumped more than 7.6 percent, although it’s still one of lowest-population states at 726,000 residents. Minot, a city 100 miles east of the oil fields, is up 13 percent, to 46,000 people.

More important are the demographics represented in the people coming to North Dakota.

“Go back 10 years ago and people were leaving the state, people in their 20s and early 30s, the most mobile population,” says Kevin Iverson, manager of the North Dakota Department of Commerce’s Census Office. “Now we’ve had a total reversal.”

According to Census data, North Dakota’s median age dipped from 37.3 in 2008 to 36.1 in 2013, and “the state has gone from being way down in growth of the 20-to-24 age group to the highest percent in the country,” Iverson says. The data doesn’t include workers in the “man camps” who work two weeks straight before getting a few days off.

The National Restaurant Association (NRA) projects North Dakota's restaurant sales will increase 4.8 percent this year, second only to Arizona. In addition, the NRA predicts 12.2 percent growth in the state's employment over the next 10 years.

Both Uncle Maddio’s and Dickey’s Barbecue Pit expect to open additional North Dakota stores, including in Bismarck, the state capital, and perhaps Williston, which is closer to the oil fields and has seen population soar 42 percent, to 21,000, the past three years. Growth is also planned for more established chains, like McDonald’s, which is adding a third unit in Minot, 13 miles south of the 7,600-person Minot Air Force Base.

If there’s an economic downside to the oil boom, which has been fueled by hydrautic fracturing, or “fracking,” it’s that the historically low cost of living has soared.

“One of the challenges has been the labor market,” Andrew says, noting that minimum wage rules are obsolete. “People won’t come to talk with you unless the starting wage is $10.50 [an hour].” Some employers are even offering signing bonuses, he says.

Dickey’s workers begin at about $10 an hour, “and most are making $13,” Rhone says.

Another issue, Rhone says, is finding commercial space in a region where construction is booming to build the infrastructure that is needed. The economic law of supply and demand has resulted in much higher rental rates for both apartments and retail.

“We used to be able to get space for $15 a square foot, and now it’s pushing the $25–$35 benchmark,” he says.

Higher costs have forced restaurant owners to increase menu prices, contributing at least in part to the openings’ big numbers. But brands have learned to deal with higher costs, Andrew says, “just like an airport location.”

After opening in the relatively good weather of the spring and summer, the new restaurants’ owners are waiting to see how they perform in North Dakota’s notoriously cold winters, during which the lows are often well below zero.

“Weather is an issue,” Andrew says, “but eating out is a form of entertainment, and that’s what people will be looking for. We believe people will still be seeking us.”