Growth | January 2011 | By Daniel P. Smith

The Growth 40

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Among medium-size markets, Texas reigns supreme, as the top three entries—McAllen, Brownsville, and El Paso—all call the Lone Star state home. Driven by finance and education, energy, and sprawl, Texas has become host to some of the nation’s most aggressive quick-service growth plans. CKE Restaurants, for instance, has nearly 300 commitments for Texas-based Carl’s Jr. outlets.

“Texas’ economy has held up stronger than most and is an attractive market overall because you can reach people at a rapid, cost-effective pace,” CKE Restaurants’ executive vice president of global franchise development Ned Lyerly says.

Ironically, McAllen and Brownsville, the top two among medium markets, also report the lowest median household income among the top 40. In fact, they are the only two markets with median household incomes below $30,000. Modest incomes, however, do not foster modest expectations. Both Texas metros located deep in the state’s south display favorable population-per-quick-serve figures, as well as high Growth Index scores.

As with the large markets, the Northeast, Pacific Northwest, and Southwest dominate among mid-size markets. Four New York metros—Utica, Poughkeepsie, Albany, and Syracuse—make the medium’s top 15. A pair of Oregon cities, Eugene and Salem, joins Spokane, Washington, in representing the Pacific Northwest, while Albuquerque joins the three Texas metros as Southwestern markets positioned for quick-service growth.

Among the contiguous 48 states, only Boulder, Colorado, and Durham, North Carolina, break the regional superiority. Boulder boasts the Growth 40’s most white-collar employment base (74 percent of its workers hold salaried jobs) while Durham holds one of the report’s highest Growth Index scores and remains rich in academic and health care opportunities. By 2014, Durham is expected to add nearly 50,000 residents, outpacing metro areas of a similar size.

Again mimicking their large-market brethren, the presence of a major university also bodes well for growth among mid-size metro areas, with El Paso, Boulder, Eugene, Syracuse, Durham, and Albuquerque also enjoying an expansive student base and the stability that comes with the university presence.

Although there’s also growth potential in Anchorage and Honolulu—two markets with tourist appeal and high median household incomes—operational challenges are likely to keep quick-service expansion in those distinct, even remote, markets at a moderate level.

“As promising as those markets are, you face the challenge of having a customer base that isn’t familiar with your product in addition to having a place so far away that it’s difficult to get product into stores,” Taco John’s vice president of development Brett Miller says of Anchorage and Honolulu.

Small Markets

TOP 15 Small Markets QSR Units Population
Per
QSR Unit
Growth
Index
2005-2014
Population
in 2014
Households
in 2014
Median
Household
Income
1 Yakima, WA 59 4,040 127.78 251,087 86,573 $42,284
2 Hilo, HI 27 6,775 122.59 187,574 69,123 $53,640
3 Ithaca, NY 26 3,914 121.47 105,440 41,067 $46,724
4 Dunn, NC 33 3,437 125.01 129,162 48,639 $40,244
5 Sierra Vista, AZ 40 3,256 125.90 136,648 53,977 $35,890
6 Wenatchee, WA 34 3,193 126.10 117,525 44,740 $40,717
7 Bellingham, WA 60 3,310 123.08 218,746 87,013 $50,492
8 Kingston, NY 52 3,495 121.25 185,250 75,496 $49,547
9 Las Cruces, NM 63 3,224 123.67 222,796 79,450 $35,115
10 East Stroudsburg, PA 44 3,773 119.79 171,699 62,520 $51,819
11 Torrington, CT 44 4,305 117.69 189,380 81,899 $69,220
12 Santa Fe, NM 45 3,245 123.02 154,727 64,030 $48,543
13 Albany, OR 36 3,286 121.61 128,021 49,256 $44,182
14 Vineland, NJ 36 4,400 116.65 165,437 57,938 $46,961
15 Olympia, WA 79 3,152 122.60 278,441 112,667 $57,474

For Pitney Bowes’ analysis, it was critical to distinguish smaller metro markets (100,000–250,000 residents) to ensure a more accurate comparison and to identify future areas of growth that have not yet been tapped by many quick-serve brands.

Not surprisingly, the growing reigns of the Northeast, Southwest, and Pacific Northwest extend to the top 15 small markets as well, while only Dunn, North Carolina, and Hilo, Hawaii, break the regional strongholds. Among small markets, five call the Pacific Northwest home, five are in the Northeast, and three carry Southwestern addresses.

“A lot of this has to do with employment. You’ve got technology growing in the Pacific Northwest while Texas, like the Northeast, is driven by finance and education,” Beery says. “Areas in the Midwest, California, and the Southeast have been hard hit by important variables, including falling home prices and employment difficulties in core manufacturing.”

Taco John’s, which has carved a reputation in modest-size towns throughout its 42-year history, loves small-city America. The Wyoming-based chain utilizes cost-effective television advertising to prompt an initial trial, a reality it cannot mimic in big-city media markets. It also works to be the first quick-service Mexican eatery into the market to avoid competitive battles.

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