Special Report | September 2012 | By Jordan Melnick

The Town-Gown Affair

Even with a customer base made up of transient students, college towns represent a major opportunity for quick-serve operators.

McAlister's college town locations seek life long brand customers.
An employee at a college-town McAlister's location helps the brand earn potential life-long customers. McAlister's Deli
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Many college-bound students have one word on their minds: freedom. Restaurant operators associate another word with campus life: captivity.

And both groups are equally excited about it.

Indeed, for quick-service operators, college towns represent an opportunity to capitalize on a condensed population of the young, educated, and hungry, people with limited discretionary dollars but also a generational inclination to eat out frequently. They are also predisposed to sing a restaurant’s praises far and wide to friends, followers, and fans across the World Wide Web.

Captivity may be too strong a word, as college students are not necessarily trapped on campus—more that they make a captive audience. Unlike at other nontraditional locations, there is not a point of no return (like an airport’s security check point). Restaurant operators covet locations on or near college campuses for this reason and others, including the potential for strong sales and the prospect of expanded brand awareness.

“I’ll take as many as I can get,” says Tony Gioia, CEO of the San Jose, California–based sandwich chain Togo’s, which has more than 300 locations, including five in college towns on the West Coast. “If you think about it,” he says, college-town locations “are additive to a traditional restaurant retail strategy because these are captive audiences. It is kind of like an airport. So I would want as many as possible.”

Though Togo’s college-town locations—four in California, one in Oregon—perform comparably to its typical stores in revenue, Gioia says he is particularly attracted to the college market because its consumers tend to hail from all over the country.

“It is a great way to get our brand in front of young people who may not be exposed to Togo’s,” he says. “Then what happens is, we get repeat business when they go into the professional world … and they’ll enjoy us for many, many years.”

“The more you can build brand loyalty between the ages of 18 and 22, the stronger you are going to be when those customers go out into the world and start to work.”

Restaurant analyst Darren Tristano, executive vice president at the Chicago-based consulting firm Technomic, sees demand for college-town locations across the quick-service sector.

“There are a very limited number of locations that are available,” Tristano says. “So as they become available, [quick-service] chains are looking for those locations because they’ve got a captive audience built in.”

Like Gioia, Tristano also sees college students as ideal customers for quick-service chains looking to expand in the long term. “The more you can build brand loyalty between the ages of 18 and 22, the stronger you are going to be when those customers go out into the world and start to work,” he says.

For this reason and others, Dunkin’ Donuts vice president of development Grant Benson says college towns “are a rapidly growing opportunity” for the brand. The ubiquitous doughnut-and-coffee concept has 50 locations on college campuses, half of which have opened in the last three years, and it will open 10 more before the end of 2012, Benson says.

“The selling point is that you’re going to a place where a lot of people are gathered, and it’s younger folks who you really do want to recruit to become life-long guests,” Benson says. “From a brand-building perspective, that is a huge benefit. If I can get an 18-year-old to start preferring Dunkin’ coffee over some other brand, that’s a wonderful thing. They may end up being a customer for 50 years.”

Adam Saxton is vice president of The Saxton Group, a franchise company based in Dallas that operates 28 McAlister’s Deli restaurants, including locations at Texas Tech University, Texas A&M University, and Baylor University. He confirms that college locations can provide a big boost to brand awareness.

“[With] the atmosphere on a college campus and in a college town, when people eat at your restaurant, it can endear them to the brand for life,” Saxton says. “They become comfortable with you, and it reminds them of that time in their life. And then as they move on with their careers and move into another market, the brand is familiar to them. It feels like their hometown deli.”

Of course, expanding into college towns also presents significant complexities and challenges to restaurant operators. For one thing, the term college town itself implies that all such places are alike, while the only thing they all have in common is the obvious: a college. Beyond that, college towns vary widely in population size (Ohio State University has more than 55,000 students in a city, Columbus, that is one of the biggest in the country; Dartmouth College, meanwhile, has fewer than 7,000 students in a town, Hanover, New Hampshire, where the popular isn’t much bigger) and demographics, factors that have a strong impact on restaurant performance.

Perhaps the biggest challenge college-town restaurant operators face is managing the ebb and flow of the student population. All markets have their pique periods, but the semester schedule, in which thousands—in some cases tens of thousands—of students may leave town for weeks or even months at a time, presents a unique set of challenges to restaurant operators.

Foremost among these is managing labor. In between semesters, and particularly over the summer, many college towns see their populations drop significantly as students leave in droves for vacation destinations or to return home. For nearby and on-campus restaurants, this means dialing back part-time employees and weathering the lean days with a skeleton staff of full-time workers.