It’s easy to imagine that any restaurant location can succeed with the right menu, staff, and style. But the reality is that your location determines the upper limit of success, and a bad one can drive your business deep into the red. Over time the wrong location can put even the best restaurants in the world out of business, no matter how good the food, service, reviews, brand, or atmosphere.
While most people have some loose understanding that location is important for restaurants, the specific reasons why can be less clear. And if you find a building with the right features and price, you might be tempted to ignore the warning signs of a bad location.
As a leading developer of site selection software and lease management solutions for restaurants, we’ve helped some of the world’s favorite restaurant brands like KFC, Taco Bell, Dunkin’, and Wendy’s find and manage their real estate.
In this article, we’ll highlight some key reasons why location is so critical for restaurants. And along the way, we’ll share insights into how major restaurant chains avoid bad locations with a quality location strategy.
For starters, let’s talk about one of the main ways location affects your business: it determines who your restaurant can serve.
Wherever your restaurant operates, the vast majority of your revenue will come from people who live, work, and regularly spend time within a short distance of your location. Depending on the type of trade area the location is in (rural, suburban, urban, etc.), it might be a 30-minute drive or just a few miles. Some customers will travel further occasionally, but since the commute is more difficult, they’ll do it less often.
You’re fighting for a piece of the pie, and your location determines how big the pie is.
Before deciding on a location, you need to be confident that enough of the right people spend time in the serviceable area. What are the demographics of the surrounding area? How much do they spend? How closely do they align with your current customers at other restaurants, or the people you’re trying to reach? Will you primarily serve college students? Senior citizens? Middle-class families? Office workers?
Census data with raw population figures and household income information might help you in the market planning phase, but it won’t cut it when it comes to actual site selection. Just because people live in a particular city doesn’t mean they spend time (and money) near the building you’re considering.
To get the granular data they need to consistently choose good locations, most major restaurant chains rely on site selection software like Tango Predictive Analytics. Tango overlays mobile location data from Near Intelligence onto a sophisticated GIS mapping solution to show you how demographics move through a given trade area.
But choosing a good location is about more than simply knowing who’s going to be near your restaurant. You also have to think about your location’s visibility, accessibility, and competition.
Say you’ve found a site right next to the busiest intersection in your target city. All the right people drive nearby every day. But a series of other buildings block the view from the street. People can’t see the location until they’re driving past it, or if they stop at just the right angles in that high-traffic intersection. That site’s probably not a great choice for a restaurant, especially if there are more prominently visible competitors nearby.
Your building constantly advertises your business to passersby. The more people see your restaurant on their way to work, home, errands, and other activities, the more top-of-mind you’ll be when they’re thinking about places to eat. Prominent, highly visible locations increase the local population’s touchpoints with your business—they see you all the time. If your restaurant comes up in conversation, people are more likely to have a frame of reference for it. In fact, an easily visible restaurant may become a reference point for describing other places and navigating the city.
Ultimately, when people see your restaurant more often, they’re more likely to visit, and your business is more likely to become a fixture of the trade area. Whatever your site selection process looks like, visibility needs to be among your criteria. But good visibility and the right demographics aren’t the only keys to an effective restaurant location, either.
Accessibility is a crucial factor in a restaurant location’s viability. When your parking lot doesn’t have enough spaces or it’s difficult to maneuver in, visiting your restaurant becomes a stressful undertaking. But accessibility issues can harm your business before people even get to the parking lot, too.
If customers have to cross multiple lanes of traffic or can only get into your lot from a specific location, it makes the entire process more difficult and frustrating. Drive-thru lanes without adequate space can have a similar effect. So can mall locations that require customers to enter through other stores to get to yours. Even though it has nothing to do with how you conduct your business, it’s part of the experience for your customers—and it may lead them to avoid eating at your restaurant altogether.
Ideally, you want a location with ample parking and simple access that makes your restaurant one of the most convenient options in the area.
Suppose you have two trade areas. In Trade Area A, the local population spends $50 million annually on restaurants, and there are about 10 competitors. In Trade Area B, the local population spends $200 million annually on restaurants, but there are well over 50 restaurants in the area. While the total size of the opportunity may appear larger due to annual spending, the larger concentration of competitors may make it more difficult to have the same degree of success. The “pie” is bigger, but it’s sliced into more pieces.
The challenge for restaurants is to try and assess how big your slice of the market will be in relation to your competitors, and then compare the likely outcome of that opportunity to the other sites and trade areas you’re considering. This is where a reliable sales forecast with accurate competitive analysis becomes vital for making smart real estate decisions. And if your site selection software takes a cookie-cutter approach to evaluating competitors, you’re going to miss out on opportunities and prioritize the wrong locations.
Find a location with the right demographics, high visibility, convenient access, and less competition, and you have a much better chance of operating a successful restaurant.
See why location is everything
At Tango, we equip retailers with the tools and expertise they need to consistently make the best real estate decisions. Over the last few years, one of the ways we’ve been doing that is with a suite of webinars, podcasts, and articles about the role your location plays in your business’s success. We call it Location Is Everything. As online sales and third party delivery services continue to grow and thrive, restaurant owners need to modernize their location strategies and adapt to this increasingly omnichannel world.
See how Tango Predictive Analytics can help your organization.