You’ve achieved success at your restaurant, and now you’re considering expansion into a new market. It’s an exciting time, but the milestone is also a source of significant anxiety.
The simple truth is that a third of new restaurants don’t survive their first year, often due to macroeconomic factors and other variables that are beyond their control. However, as a restaurant owner, there’s one important factor you can control: location. By understanding the importance of location and geospatial context, you can offer your new restaurant the best possible chance for success.
The importance of location when opening a new restaurant
Misalignment between a restaurant’s target market and physical location is a sure recipe for underwhelming results. For example, a family-friendly restaurant located in an area known for its nightlife and bar scene might achieve limited success because the family demographic doesn’t mesh with the surrounding environment.
Most restaurateurs understand this principle. However, there are other factors to consider. For example, if a restaurant launches a second location too close to its primary location, the new restaurant could cannibalize business at the existing location and negatively impact sales. Additionally, while a secluded location may struggle to capture foot traffic, a location in a crowded area may have to contend with increased competition from surrounding restaurants and venues.
Location inevitably influences operational aspects of the restaurant. For example, a remote location might necessitate a more comprehensive local marketing strategy encompassing both traditional channels (e.g., TV, radio, and billboards) and emerging channels (e.g., social media). On the other hand, establishing the restaurant in a densely populated area may require marketing initiatives peppered with deals and exclusive offers, or an increased reliance on pop-up events and brand partnerships.
Numerous considerations come into play when selecting a site for a new restaurant. To enhance the likelihood of success for the new location, it’s important to determine where customers are journeying from and the environment best suited to meeting their needs and preferences.
3 tips for determining the location of your new restaurant
Understanding the importance of location is one thing, but how can you put this concept into action during the research and planning stages of the process?
Here are three locational tips to keep in mind when gearing up to launch a new restaurant:
- Understand your target customers via geocoding
An important starting point when planning your new restaurant location is understanding who your target customers are and how far they’re willing to travel for your products/services. From there, you can further narrow your location options based on other factors like the price point or type of cuisine you serve.
Start by performing trade area analysis to understand where your current customers are traveling from. You can do this through geocoding, a process in which you translate a physical address into a set of geographic coordinates. In addition to asking customers for their zip codes, there are various geocoding software solutions available to expedite the process and minimize manual interventions. Armed with a sizable customer data set, you’ll have a deeper understanding of where your customers are traveling from most often. Depending on the nature of your restaurant, this data set could consist of hundreds or even thousands of customers.
In general, customers are typically willing to travel farther for high-end establishments than they are for fast food restaurants or convenience dining options. So, if your patrons are willing to travel 15 minutes on average, your target location should account for common customer demographics and firmographics within a 15-minute radius of any new locations you’re scouting.
- Look for surrounding restaurants that complement (rather than compete with) yours
Matching your restaurant’s location with its target demographics is a simple enough concept, but it can prove difficult to execute. Often, your ideal location may be too expensive to ensure profitability — or competing restaurants may have already staked their claim in the area. This is where confident decision-making — backed by data — and a deeper understanding of your trade area is necessary.
For example, many restaurants that find success through expansion are experts at moving quickly into fast-growing areas or even predicting population growth before it happens. Using this strategy, the restaurant locks into a lease that’s far cheaper than what it will likely cost in a year or two.
In addition to preserving your bottom line, being one of the first to open up shop in an emerging market gives your business a competitive customer advantage. You’ll have a greater opportunity to earn customer loyalty, which can pay long-term dividends — almost half of all customers who join a restaurant’s loyalty program use their membership multiple times per month.
Even if there are already restaurants with a similar profile to yours in a new market, your new location can still thrive by complementing the existing dining scene rather than directly competing with it. For instance, a high-end seafood restaurant would find greater success in an area known for its high-end Italian, Korean BBQ, and steakhouse establishments, as opposed to an area already saturated with seafood options.
- Target areas with a sizable hiring base
Similar to the way in which you evaluate whether a target market has enough residents that fit your ideal customer base, you also need to consider whether it offers a large enough pool of hirable employees.
First, identify the experience levels and profile of your existing employees at your current locations. Then, consider potential expansion locations where employees with those same skill sets and motivators live. For example, if you run a fast-food restaurant, consider a location close to a local university, which has countless young people looking for part-time work opportunities.
Ensuring your target location has both a high number of potential customers and employees improves the odds of success.
Focus on what your restaurant can control — prioritize location
You can’t afford to neglect the importance of location throughout the research and expansion process.
To prevent your new location from falling flat, leverage the power of geospatial context to learn more about your existing customer base. Consider the surrounding restaurants and businesses in your target market and take action once you’ve found an area that shows potential.
By making an effort to prioritize location in the research and planning stages of the process, you can give your new investment the best possible chance for success. And in the competitive and volatile restaurant world, every advantage counts.
Berkley Charlton is the chief product officer at Smarty, a leader in location data intelligence.