Across the past few years, Ed Crochet has viewed dozens and dozens of potential restaurant buildings. With a lease about to run up, Crochet determined it was time to move him and his partner’s restaurant, Fiore Fine Foods, citing “location” among the driving factors.
“I wouldn’t say location is as important as providing good quality for the price point, but it’s among the top five things that can make or break the success of any business, especially a food business,” says Crochet, based in Philadelphia. “We’ve found ourselves wanting to be in a location that’s easier to get to, with more people, and specifically people looking to go out.”
Location plays a central role in nearly any restaurant business plan. Factors like budget and space necessities inherently dictate your options. But there are other key components to consider, too, and unless you’ve already built a name with a hyper-dedicated following, it’s important to examine those closely.
“I always encourage folks to be patient – it’s often a process, and letting your need to grow or open drive the location can break you,” says Eddie Dewey, owner of commercial real estate firm Dewey Property Advisors.
Below, we break down what to weigh when choosing a restaurant location.
Target customer demographics
Identifying who you’re trying to attract is a necessary part of any business plan, and that’s because it majorly impacts everything from the menu to marketing to, yes, location. Your target customers will guide your location research – where do these people typically live and work?
“You want to look at traffic counts and populations within one to three miles, and also five- to 10-minute drive times,” says Dewey.
Your real estate agent can help pull location data, but tools like the U.S. Small Business Administration, Esri, and CoStar enable you to do upfront market research on your own.
Visibility & accessibility
Historically, restaurants in highly visible locations have a better chance at succeeding. Less promotion and marketing is required when customers can easily find you. But, visibility is directly linked to rent prices.
“A lot of restaurateurs can cut their rent by 50% or even 70% if they go into an off-the-beaten-path location,” says Dewey. “Visibility is not quite as important as it used to be because of social media, so I find out what’s important to the operator and their vision for the space. If it’s a BBQ-brisket concept that requires lots of outdoor seating, for example, maybe that’s a candidate for being more tucked away and becoming a destination.”
In major markets, you can use online walkability calculators to get an idea of how highly trafficked an area is. The more walkable/bikeable the location, the more likely you can expect to draw in customers who simply stumble upon your business on the street.
If you’re not in a walkable area, parking capacity should generally become a top priority. “Even if you have to walk a little bit from your car, that’s fine, but you don’t want to have a frustrating parking experience,” says Dewey.
Current infrastructure & zoning
Restaurants must be housed in commercially zoned areas, and each municipality generally has their own regulations you must follow. If your top location choice didn’t previously house a restaurant, contact the municipality’s construction and zoning departments to confirm you can legally open a restaurant at the given location.
It’s far easier – and typically less expensive – to choose a location that formally held a restaurant.
“Even if there isn’t decent equipment there, you’ll save so much money on just the electrical and plumbing – tap fees alone can cost you $25,000 to change a water line,” says Dewey. “The other thing you’re saving is time – construction costs have skyrocketed, and you’re talking about 12 to 18 months for a build-out, depending on the market.”
Competition
Generally you want to avoid going into an area that’s already filled with similar restaurants. If you’re a pizza concept, for example, and there are already two in the neighborhood, you’ll need to devote substantial time and money to steer customers away from their existing favorites.
That being said, there are benefits to locating your restaurant next to other restaurants that aren’t direct competitors. The more businesses in an area, the greater the foot traffic, and people who visit nearby restaurants may notice yours along their route.
“Businesses like to be together. If you can be a part of something that’s bigger than you, that creates ‘destination’ in itself,” says Dewey. “Plus, in lots of towns, people can’t always get into the popular restaurants, and if you’re situated next to them, that can be a big traffic driver.”
Leasing vs. buying
There are a variety of factors to consider when deciding between buying or leasing, but first and foremost, is your financial situation. Do you have the capital available to actually purchase a building? “I’d never go into buying a building if you need to borrow a bunch of money because if the market turns on you, you’re propping that mortgage up with the success of the restaurant,” says Dewey.
If you do have the capital, then it’s important to assess your long-term plans. Are you a brand-new operator or do you already have proven concepts in the market? Is this a first location or second? Buying may make more sense than leasing if: you plan to stay in the same location for a while, and have a track record you can use to weigh your long-term success.
“Most restaurants have a life cycle – they have a 10-year run where they do really well, and then they have to be reinvented,” says Dewey. “So at some point your profits start trickling down, but rents tend to go up.
Buying can provide stability and allow you to build equity. But, if you’re unsure about your long-term plans or want to have flexibility to move locations, leasing may be a better choice. As you weigh your options, be sure to take into account the current real estate market conditions, such as property values and interest. Sometimes it’s just not feasible to buy in the neighborhood where you want to be, or the market is uncertain, either of which may make leasing a better option. Consider consulting with a financial advisor and a real estate agent to help inform your decision.
