Copyright 
Lebhar-Friedman, Inc. Jul 14, 2008| [Headnote] |
| Find the right place, right now |
In an era of expensive rents and numerousdining options, trying to find a spot where your restaurant stands out can seem overwhelming. But it's not impossible. The style of the eatery, menu and targeted clientele all play a role in where a restaurant should locate to be successful.
For a restaurant chain such as Subway, it helps to have a business model that's adaptable to practically any space. With nearly 29,000 restaurants worldwide, Subway franchises are able to exist in some unique places, including school cafeterias and even a Baptist church in Buffalo, NY.
"We have a very simple operation," says John Devine, president of Subway Real Estate Corp., based in Milford, Conn. "There's really no grilling or frying required. We're very popular right now in schools and hospitals because of our healthy meals."
In the ever popular outdoor shopping centers, or strip malls, the best place to put a Subway is on the end, Devine says. There, more gtass usually is available, allowing passers-by to see employees making sandwiches inside. The company counts on franchisees to help seek out decent locations, Devine says.
"That works well tot us, because [franchisees] really have a pulse of what's going on in their area," Devine says. "The franchisee is really one of the strongest factors we have in finding good locations."
Choosing the right location goes beyond falling in iove with a neighborhood and settling on a fair price for a building or unit. A significant amount of research is required, sometimes involving entire teams of experts, who examine demographics, accessibility, traffic counts, visibility and parking,
Austin, Texas-based Fuddruckers locates in areas where at least 35,000 vehicles are passing the restaurants each day, says Keith Coleman, vice president of franchise development for the chain.
"It's the same thing as Out of sight, out of mind,'" Coleman says. "You've got to be front and center."
As a casual, sit-down dining concept, Fuddruckers tends to be more of a destination for customers, Coleman says. The restaurants are located mostly in communities that have populations of 50,000 or more and average household incomes of $55,000 and higher.
"We want to be able to get three groups of people: one from retail; two from commercial traffic; and three from residential," Coleman says. "With the economic model that we have, we're not going to be able to put a restaurant in every five miles. We need to separate them out so they can draw the traffic that's needed."
Raving Brands of Atlanta, which includes concepts such as Shane's Rib Shack, Planet Smoothie and The Flying Biscuit Cafe, makes simple access for customers a priority, says Chris Alien, vice president of real estate for the chain.
"Convenience is a big deal," he says. "We're in between fast food and full service sit-down. We're not exactly a destination, but we're not exactly fast-food drive-thru. Parking is a huge issue. People have too many choices."
So exactly where are the surefire hot spots for locating restaurants these days? In 2008, it's all about mobility, folks are commuting further and eating more meals on the go, giving an advantage to those restaurants near or just off of major interstates. like Fuddruckers, Denny's could be considered a destination, as some people are willing to travel for a Grand Slam breakfast. 8ut Denny's also is a pioneer, locating from its start in places where hungry, travel-weary customers are looking to pull off the road and grab a quick brte. Four out of 10 Denny's restaurants are found at major interstates and highways, says Stephen Dunn, vice president of development for Denny's.
"Denny's was ahead of that trend before anybody," he says. 'That's how Denny's grew."
Visibility and signage also are important to Denny's, which long has been associated with its iconic yellow, diamond-shaped sign, Dunn says. Although a potential site might seem demographically and aesthetically ideal, a strict sign ordinance in the community could make locating there tough.
"We will not go into a location if all the physical attributes are perfect except signage," Dunn says. "Nobody will risk a major investment without the appropriate exposure, and the key is signage. If we cannot be visible, It's not worth it for us."
| [Photograph] |
| ABOVE: Denny's is a pioneer, locating from its start in places where hungry, travel-weary customers are looking to pull off the road and grab a quick bite. |
What's another issue that can turn a seemingly great location into an operator's worst nightmare? The lease. Blair Salisbury, president of the Los Angeles chapter of the California Restaurant Association, says a bad lease and lack of forethought dooms a location from day one.
"Once you sign a terrible lease,you cannot survive," he says."You start cutting corners in other areas. The first one is food quality."
As the owner of multiple restaurants in Pasadena, including El Cholo Cafe, Barn Burner and Dona Rosa Bakery & Taqueria, Salisbury understands just how crucial location is in his business. But he also knows that operators must work with landlords to come up with lease agreements that are fair to both parties. A restaurant owner should not spend more than 8 percent of his sales on rent, says Salisbury, who also serves as president and chief executive of Hospitality Management Services in Pasadena.
"If it ends up being higher than 8 percent for their rent, it gobbles up their profit," Salisbury says. "It is 'location, location, location' in our industry, but that's not the only factor that makes restaurants fail."
| [Photograph] |
| ABOVE: Owner of multiple restaurants in Pasadena, including Dona Rosa Bakery, Blair Salisbury understands an owner should not spend more than 8 percent of his sales on rent. |
| ABOVE: Barn Burner, a Texas-style barbecue restaurant, is a concept born partly out of the building that houses the operation. |
Leases should include provisions that protect operators during tough economic times, Salisbury says.
"A lot of smart landlords will say, 'If sales are not there, you'll have protection to survive,'" Salisbury says. "There are other landlords who say, 'If he fails, I'll just find someone else to come in there.' When the economy slows down, these landlords who have leases that don't add up are going to be stuck with empty buildings."
And negotiating an ideal lease is something that can start prior to a potential site's even being on the market. In communities where competition is fierce for a good restaurant location, operators have to put their ideas in motion for a first-rate spot before someone else does. Salisbury's Barn Burner, a Texas-style barbecue restaurant, is a concept born partly out of the building that houses the operation. The bank next door to El Cholo Cafe owned a barn-like structure that Salisbury thought would be perfect for a barbecue restaurant. He made it clear that he was interested in the site, which at the time was occupied by an antique shop. But when the property became available in 2004, the bank notified Salisbury.
"They said, 'Are you still interested in doing a barbecue place?'" Salisbury says, "I realized if I didn't put a restaurant there, someone else would. I would also lose all my parking for my El Cholo."
Once an operator finds a dream location, he should contact a real estate professional who is familiar with the restaurant business, says Bill Michael, managing broker for United Realty and Development in Oak Brook, III. Operators should steer clear of brokers who won't look out for their best interests, he says.
"[The operators'] expertise is in the kitchen and creating the food and ambience," Michael says. "They may not have the expertise in negotiating the lease or purchase. By hiring me or consulting with me, I do what I do best, which is to negotiate for operators looking for space. I save the operators time, money and effort."
Michael has spent 15 years working in commercial real estate in the Chicago area, where prime space is limited and leases can be pricey. He is in negotiations for a 6,8oo-square-foot restaurant planned for the ground floor of the Millennium Centre in Chicago's highly coveted River North neighborhood. That A-list location likely will lease for about $34,000 a month. Michael says.
With property values and rents so high, it's crucial for any restaurant owner to have the proper financial backing before going into business.
"The other factor where restaurants fail is they're under capitalized," Salisbury says. "They're scrambling for cash within the first few months, and within a year they close."
And Salisbury insists that no operator should ever sign up for a location without the approval of a certified public accountant. His CPA looks at everything first, he says.
"I do not sign a lease without my CPA, who's a restaurant specialist," Salisbury says. "My CPA looks at It and says, 'This is doable,' or 'You're crazy.'"
In addition to making sure a franchisee's chosen location is appropriate in terms of demographics, access and other issues. Subway's Devine says the company offers guidance on the lease agreement.
"We look at it in terms of whether or not the economics of the deal make sense," he says.
As the mortgage crisis continues and housing prices fall, homebuyers are finding residential properties more affordable. Longtime restaurateurs such as Salisbury say the commercial market might have deals for restaurant owners right now as well.
"These are the times you can find the better deals," Salisbury says. "When times are great, you're bidding against eight or 10 people for a location."
| [Sidebar] |
| "IT'S THE SAME THING AS 'OUT OF SIGHT, OUT OF MIND' |
| YOU'VE GOT TO BE FRONT AND CENTER." |
| -Keith Coleman, Vice President of Franchise Development for Fuddruckers |
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