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    The Guide to Finding a Favorable Restaurant Site

  • It requires both quantitative and qualitative data, and much more.

    McDonald's
    There are four key questions operators should consider when evaluating a potential market.

    Picking a restaurant site isn’t what it used to be. According to Buxton, a leading customer analytics and predictive analytics platform, the process is more than just simple demographics and a hunch based off experience. It describes the work as a “blend of art and science.”

    The company released a report, “Restaurant Site Selection: Minimizing Losses, Maximizing Success” that could assist operators by putting them on the path toward the right market and trade areas and making a solid investment.

    1. Identifying the Market

    Buxton states the first step in site selection is usually identifying the market. This initial objective can be done in one of two ways.

    The first method is to analyze big-picture factors such as population growth, employment rates, real estate activity, and consumer spending. The other method is what Buxton refers to as a “bottom-up” approach where you first identify potential trade areas within a region that meet the necessary requirements and then move back up to the market level. The advantage to this approach, Buxton states, is that it helps streamline steps later in the process. But it does require technology that can run algorithms on every possible combination of trade areas to find the best groupings.

    The company lists four key questions when considering potential markets: which markets have the right types of consumers, where is the best balance of competition, where is the best place to build multiple locations, and can your existing supply chain support the market?

    When it comes to the consumers, Buxton adds that looking at psychographics, rather than basic demographics, can provide a better idea of the potential base. For example, such things as purchasing behaviors, media preferences, and lifestyle characteristics provide more specificity and a more accurate assessment of potential customers.

    Buxton says that it’s OK to have competitors in a market, but it’s crucial to make sure there is enough demand. In addition, it is important to keep in mind that markets that can support multiple units allow for economics of scale and to not place units in a market too far away from the supply chain structure or else there may be struggles to keep it profitable.

    2. Identifying Trade Areas

    After finding the most suitable market, Buxton says the next move should be finding the best trade areas. When looking at trade areas, it’s imperative to remember that consumers care more about how long it takes to reach a destination as opposed to how close it is, according to the company. Therefore, Buxton notes that “identifying trade areas based on drive times yields the most accurate view.”

    Buxton writes that you should focus on trade areas that meet criteria such as:

    Positive performance estimates

    This one is simple—ensuring the area will produce enough sales to meet your goals.

    Customer mix and concentration

    Buxton states that you want to find a trade area that is close to your customer profile. Under this criterion, the company writes, “Given the restaurant industry’s expansion into new dayparts and delivery channels, it’s also important to understand who your customers are for the dayparts and channels that drive your success to ensure the correct customer mix for each location.”

    Acceptable competition and helpful co-tenants

    In some cases, restaurants benefit from being close to other restaurants, which is also known as the “restaurant row effect.” There are other times where a co-tenant could boost business. You must take into account whether these factors would help or hurt your particular restaurant.

    High traffic counts

    This criterion is also self-explanatory—you want an area where a large number of consumers congregate.

    Minimal cannibalization or trade area overlap

    If you’ve settled on an existing market, Buxton says that you need to understand how your new location will affect your other sites and whether that potential effect is acceptable.

    Buxton also advises that if you are entering a far-away market, then “pick your best trade area to concentrate on first. A successful first location provides both the brand recognition and cash flow needed to fuel additional locations.” If the market is closer, then “consider approaching the market gradually to build brand recognition organically.”

    3. Identifying the Optimal Site

    After establishing the best market and trade areas, the final step is to find the actual site. Per Buxton, after using quantitative data to validate the market and trade area, qualitative data becomes a key driver at this stage.

    Some characteristics to look out for include: quality of site and visibility, parking availability and access to mass transit, ease of ingress/egress, presence of left-turn signal, space for a drive-thru lane, if necessary, appropriate real estate, and costs to operate at the site.

    4. Site Selection Models

    The last portion of Buxton’s report dives into the pros and cons of using site selection models.

    The company states that the advantages to using models are estimation of performance potential, confirmation of information from brokers, and understanding what is required to be successful in a trade area.

    The disadvantages to site selection models are the limits of what can be quantified, such as measuring foot traffic, and they can’t truly replace what Buxton states are the “fundamentals of good site selection.” Buxton’s example of this is “A model might give a high score to a site located next to a highway—based on the assumption that the highway will provide both good accessibility and visibility—but if the closest available site next to the highway actually has poor visibility or accessibility, then it likely will not live up to the full potential indicated by the model.”