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The Major Factors In Selecting a Strong Restaurant Location

By in 2006 - Volume 8

Choosing the right restaurant location is one of the most important factors in contributing to ones success in the business. The restaurant business is very challenging to be successful in and having a strong location will enhance your chances for success. The key factors to consider in choosing the proper location are as follows:

1) rent affordability,

2) demographics match your concept requirements,

3) trade area draw and

4) major market generators in the neighborhood.

1) Rent Affordability – This means that you can afford the rent you will be paying. Frequently operators pay more rent then they should and this can contribute to you going out of business. Restaurant operators should not pay more than 6% to 8% of their sales in rent. This 6% to 8% factor also includes any additional costs you may be paying the landlord which may include real estate taxes, fire insurance and CAM charges (common area maintenance costs) which include security, gardening, common area utilities and maintenance costs, etc. This means that if you are doing $600,000 in yearly sales your rent should be no more than $48,000 ($600,000 sales x 8% = $48,000) in yearly rent.

2) Demographics Match Your Concept Requirements – Demographics are the population statistics in the neighborhood of your proposed restaurant within a given radius of your site. In researching your concept you want to make sure that the neighborhood population can financially support your restaurant. The demographics include the following factors:

a) per capita income – the yearly earnings per person,

b) household income – the yearly earnings per family household,

c) education level – education levels obtained broken down by persons holding a high school diploma, undergraduate degree and graduate degree,

d) percent of income available for spending on food purchases away from home,

e) a breakdown of ethnic mix in the area and f) number of people living in the area.

3) Trade Area Draw – This is the distance an average customer will travel to come to your restaurant. Most neighborhood restaurants draw customers from a one mile radius of the site. Outstanding planned dining restaurants such as the French Laundry in Yountville, Michael Mina and Gary Danko’s Restaurants in San Francisco may draw customers from hundreds of miles away.

4) Major Market Generators in the Neighborhood – Ideally you want to have a mix of the following in the immediate area of your restaurant – a) a strong residential population, b) a strong retail area with lots of foot traffic and vehicular traffic and c) strong traffic generators such as hospitals, theaters, colleges, shopping centers and tourist attractions.

An example of a strong location in San Francisco would be the Irving Street Corridor which includes Irving Street between 5th and 12Th Avenue in the Richmond District. This location has a large residential population with a high household income that is well educated. It is adjacent to the following:

a) 9th Avenue which is one of the major vehicular feeders into Golden Gate Park which is a large tourist attraction which generates close to 75,000 cars daily and lots of food traffic,

b) University of California Medical Center, University of San Francisco and St. Mary’s Hospital and

c) a strong retail area which generates additional foot traffic.

You can not compromise in choosing the right location as this can be a make or break factor in your future success.

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About The Author
Steven Zimmerman, CBI, M&AMI, CBB, FIBBA

Steve is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1,000 restaurant, bar and/or nightclub businesses and many related commercial buildings totaling 2+ million square feet of commercial space, collaborated with over 2,000 clients and completed over 3,000 valuations since 1996.His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building. Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company Steve had over 20 years of restaurant experience and was President and Chief Executive officer of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area. READ FULL BIO | HIRE EXPERT WITNESS - LEARN MORE