Whether you are planning to open your first restaurant or expand your operation, one of the most important decisions you must make is where to locate your business. Businesses of all types perform poorly – or fail altogether – due to a poor location. A poor location ultimately results from poor site selection. How else can you explain that identical restaurants from the same chain or franchise system will vary as much as 200% in sales volumes? Of course, you will need to factor in restaurant size, marketing budgets, management and so on; however, these are all secondary to the importance of location, in our opinion.
As we point out in our book, Negotiating Commercial Leases & Renewals FOR DUMMIES, and explain when we regularly speak at the International Restaurant and Foodservice Show of New York, essentially, there are three types of restaurant models: profitable, break-even and go-broke. A truly profitable restaurant location will make money and the business will appreciate in value. A break-even location will pay the owner a small salary and pay the rent but not much more. The go-broke location that comes to our mind was a local restaurant. This unfortunate tenant remained opened for only three months. Despite our warnings that this was a go-broke location, the business owners poured in $80,000 into their restaurant setup and couldn’t pay their rent by the second month of operation. Don’t let this happen to you. Site selection matters.
Of course, if you thought that site selection for your restaurant was all about location – location – location, you’re right … intellectually. However, when restaurant tenants are involved in the site selection process, good old common sense often goes out the window. Consider for a moment that site selection is part science, part art, part research, part luck and part timing.
Therefore, before you even start the site selection process, physically touring available properties; and comparing your options, remember these important factors with regard to your chosen location:
Location within The Location
If you are locating your restaurant within an enclosed shopping centre or plaza, ensure that your business is situated in a prime location (or within the busy food court). The end of a quiet corridor or on the second floor may not be profitable.
When conducting site selection for your restaurant, consider both drive-by and pedestrian walk-by traffic.
Can your restaurant be easily accessed? Customers driving by may be nervous to turn left across a busy roadway into your parking lot and will go elsewhere. If you are located within a shopping mall or plaza, remember not to be bound to that mall’s opening and closing hours and ensure that you have a separate outside door for your customers to use.
Is your restaurant conspicuous to passers-by? Look at sight lines carefully. Are there any trees or other buildings, which will make viewing your restaurant more difficult? Is there an empty field next to the property in question? If so, consider that the landlord may wish to build on that land in the future.
When negotiating for parking, first establish the availability and preferred locations. It’s harder to negotiate for parking spots after they have all been taken rather than when there is a surplus of parking. Trust us, parking is worth negotiating on – so that you, your staff and your customers have a place to park. Also, if you need more stalls than are assigned to your space, negotiate for them now.
Don’t forget to negotiate your signage requirements. Most tenants neglect to do this and simply take whatever the landlord offers. There are two things to ask for in terms of signage: a less expensive monthly charge or a certain amount of free signage. Many restaurant tenants pay rent for signage, but forget to negotiate it entirely. If your restaurant uses pull-away street signs or sandwich boards, negotiate hard for this now as most landlords have policies in place regarding all signage criteria.
These are the largest major tenants of a property. Often, these will be department stores and grocery chains for retail properties. Confirm the stability of these anchor tenants. How long have they been leasing as a tenant in the property? Do they plan to renew their lease? We well remember when neighboring tenants at a local shopping plaza near one of our homes were caught completely unaware when a major grocery store, as the anchor tenant, moved out. This grocery tenant continued to pay the rent on vacated commercial space, thereby restricting any direct competitor to move in. This resulted in less traffic being drawn to the property for other tenants.
Friend or Foe? Don’t assume that a real estate agent working for a landlord-paid commission will help you find the best restaurant site. Commission splitting among agents can make your tenancy less valuable.