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    Succeeding in a Vanishing Market

  • On paper, the state of West Virginia does not look like a must-have quick-serve market. But a distinct personality gives operators there reason to be optimistic.

    Route 2 in West Virginia rolls south along the slow-moving Ohio River, bobbing up and down above the river’s bank and along the slopes of the foothills of the Appalachian Mountains. Houses are few and far between, dotting the long stretches between quiet industrial river towns, and each of the few roadside businesses looks like it might have closed decades ago.

    The hotdog stand sneaks up on you, and you’ll likely miss it if you aren’t looking for it. Tucked against a ridge and partially hidden by a row of trees, the small operation stares out over the mighty Ohio, which on this day is filled to the brim with April rain showers. A U-shaped gravel parking lot offers two entrances but no discernible parking spots, and junk crowds every corner of the quick serve’s outer vicinity.

    The scene might seem grim, and while it really isn’t (more on that later), this rural setting stands as a snapshot of much of America’s vast territory. Census data shows that suburban and urban regions of the U.S. continue to grow faster than the rest of the country and earn a larger share of the U.S. population, leaving much of the rural countryside desolate and abandoned.

    According to the 2010 U.S. Census, metropolitan statistical areas, defined as geographic entities with core urban-area populations of at least 50,000, grew 10.8 percent between 2000 and 2010. And micropolitan statistical areas, with between 10,000 and 50,000 people, grew 5.9 percent. Together, metropolitan and micropolitan statistical areas contain 83.7 percent of the total U.S. population.

    Meanwhile, geographic entities outside the “Core Based Statistical Areas”—or with fewer than 10,000 residents—grew only 1.8 percent, significantly less than the national growth rate of 9.7 percent.

    While the quiet riverside scene could provide a stark look into dozens of towns across the Midwest and Northeast—the South and West continue to grow fastest among U.S. regions as manufacturing towns slowly fade—it seems particularly appropriate in the state of West Virginia.

    The Mountain State is something of a statistical anomaly on the East Coast. Bordered by economic giants like Ohio (population 11.5 million), Pennsylvania (12.7 million), Virginia (8 million), Kentucky (4.3 million), and Maryland (5.8 million), West Virginia has a modest population of 1.8 million people and grew a mere 2.5 percent between 2000 and 2010, worse than all but five states. The largely rural and mountainous state—the only one entirely within the Appalachian region—has only five cities with more than 20,000 residents; for comparison’s sake, there are seven cities in California starting with the letter V that have 20,000 or more residents.

    For the quick-serve industry, one that uses complex algorithms and careful trend mapping to plot new-unit expansion, West Virginia doesn’t come across as a must-have market.

    Dewey Guida, owner/operator of two casual-dining chains in Weirton, West Virginia, and a board member with the West Virginia Hospitality and Travel Association, says West Virginia has been hit especially hard by the declining manufacturing and natural-energy industries.

    West Virginia has been hit especially hard by the declining manufacturing and natural-energy industries.

    “When you have basically lost much of your main core industries, such as your steel mills, some of your chemical plants—and coal is always under fire, very hard to get permits and all of that kind of stuff—people are moving from West Virginia across into the border states,” Guida says. “One of the problems I think we’re confronted with is many of our cities are older, so the infrastructures are old and with the general economy as it is, we don’t see any retailers coming in like they did in the bigger boxes to generate more chain activity.”

    In fact, all of the restaurant activity in West Virginia seems to be quiet. According to the National Restaurant Association’s (NRA) 2011 Forecast, restaurant sales in the state are projected to grow just 1.9 percent in 2011—dead last among all 50 states, and a half percentage point behind three states tied for second-to-last.

    Further, no West Virginia market made it onto QSR’s 2011 Growth 40 list of hot restaurant markets. The state, it seems, is struggling to drum up any kind of restaurant excitement.

    Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA, says a number of factors go into future restaurant sales projections, including “demand for convenience, growth in real disposable and personal income, growth in employment, growth in population, and the proportion of the food dollar that’s spent away from home.”

    All of these factors, Riehle says, are important to gauge when determining where to grow a restaurant company.

    “From an operator’s perspective, there’s really no substitute for doing due diligence about what the demographics are of a potential site area, as well as understanding what the local employment forces are,” Riehle says.

    The unemployment rate in West Virginia, at time of press, stood at 9.1 percent, slightly worse than the national rate of 8.8 percent. According to the NRA, the state’s total employment is projected to grow 1.5 percent in 2011, while total population is expected to grow 0.2 percent.

    Real disposable income, meanwhile, is projected to grow 2.7 percent in 2011, worse than all but nine states, according to the NRA.

    Dennis Denman, a Domino’s franchisee who owns 15 stores in West Virginia, says the income levels in West Virginia present the biggest challenge to his stores.

    “West Virginia has one of the lowest average household incomes in the United States, and the discretionary income that used to be there for eating out, whether you go to a restaurant or you order in, is now being used for things such as gas and groceries and the day-to-day living expenses,” Denman says.

    Indeed, West Virginia’s median household income level, $40,627, is third worst in the nation, ahead of only Mississippi and Arkansas, according to the U.S. Census Bureau.

    But things aren’t all doom-and-gloom for West Virginia, despite what the numbers might suggest. Much like the city of Detroit, a market written off by many, the Mountain State has much to invest hope in and offers reasons for quick serves to be optimistic.