Opening a restaurant is all about location, location, location. However, not every restaurant is suitable for every location, and vice versa. It comes down to a combination of restaurant concept and ideal customer. If you can define your restaurant type and identify your target demographic and its most populated areas, you’ll be well on your way to choosing a restaurant location that sets your business up for success. In this guide, we’ll cover:
- Restaurant Location: The Restaurant Concept Formula
- Identifying Your Ideal Customer
- Additional Information to Consider
If you’re opening a restaurant you’re going to need reservation software. There are two major companies to check out: Yelp Reservations and OpenTable. We highly recommend Yelp Reservations, which allows customers to place a reservation straight from your Yelp page. Click here for a free demo.
Restaurant Location: The Restaurant Concept Formula
Your restaurant concept is important because it defines the demographics and psychographics of your ideal customers. The formula for your restaurant concept is: cuisine type + restaurant style. The first step in determining your restaurant’s location is defining your cuisine type, which helps identify your ideal customers’ psychographics. The second step is to finish the concept equation by determining your restaurant’s style.
Your restaurant’s cuisine type dictates your consumers’ psychographics, which are their attitudes, aspirations, and other psychological identifiers. For example, an Italian restaurant has a different customer-type than an organic or vegan grill. The customer psychographics of an organic grill include such things as being health-conscious and outdoorsy, while the psychographics of an Italian restaurant is more family-oriented, with a desire for comfort and tradition.
Your style dictates your customers’ demographics, which include such things as income level, age, sex, and more, which we outline below. Every restaurant can be boiled down to one of four styles: fast food, bar & bistro, casual, or fine dining. Read the profiles and determine which style your restaurant falls under.
- Fast food: 15-35 age range, spontaneous and not planned, often connected to another activity like shopping or an evening out with friends. Lower income profile, high population density and high foot traffic are all key considerations.
- Bar & Bistro: 25-45 age range, high disposable income, often takes place after work, often spontaneous, most customers drink alcohol, relaxed social ambiance is important, price point depends on the neighborhood.
- Casual dining: Families with children aged under 16, mid-income households, safety of location is important, often planned, customers will drive, often connected to another activity like shopping or going to the movies.
- Fine dining: 35+ age profile, high-income couples and executives dining out, high price point, high service expectations, pre-planned and booked in advance, arrive by car and expect onsite parking, willing to drive up to 30-minutes drive-time from home.
Identifying Your Ideal Customers
Once you understand your restaurant’s concept, the next step is to identify the ideal consumer for that concept. This will help you decide on the best location to open your restaurant.
Remember that you want to put your restaurant in a position to succeed. This means that you need to choose a location that’s easily accessible for your ideal customers. You need to understand who they are, where they’re located, and which locations are populated enough – and have enough activity – to support your business.
Read the six sections below to understand the tools and resources needed to define your target market and figure out where that demographic is most concentrated.
- Describe Your Customers
- Understand Their Habits
- Where Are They Located?
- Are There Enough of Them?
- Customer Activity: Foot & Vehicle Traffic
- Competitor Analysis
1. Describe Your Customers
This is the most important question you can ask yourself when choosing the location of a restaurant. Who is your target market? In order to define this group of people, you’ll need to conduct specific research and come up with segmented customer profiles.
The first step is to describe your customers. You need to fully understand who your ideal customers are and what they all have in common. Like we mentioned in the section above, you’ll need to define their demographics, psychographics, as well as the associated behaviors, in order to get an accurate picture of who they are:
- Demographics – Information such as age, gender, relationship status, median income, religion, environment, and ethnicity
- Psychographics – Consumer personality type and personal preferences
- Behavior – Similar behavior, such as likes and dislikes, hobbies, and extracurricular activities
For example, the demographics of a casual dining consumer include males and females, aged 35, married or seriously dating, a median income of $80k, and living in a starter home. Their psychographics may be that they enjoy healthy food and a fun and lively atmosphere. Their behavior might include an outdoor lifestyle and attending live events.
You can determine these criterias by conducting in-person research. Start by visiting restaurants with similar concepts and observe their mix of customers. You can even go to their websites and see who they’re marketing towards. Determine demographics by surveying the customers who frequent these restaurants. Ask them questions about their psychographics and behavior, such as interests and lifestyle choices. Visit your chamber of commerce or other local business organizations and obtain information from business experts.
2. Understand Their Habits
The second step is to understand your customer’s decision-making process and buying habits. Your target market’s demographics, psychographics, and overall behavior will dictate the way in which they make purchasing decisions.
Questions to ask yourself include, but aren’t limited to:
- Are they impulsive diners?
- Do they plan ahead when choosing a restaurant?
- Do they leverage Google, Yelp, OpenTable, and other information sources?
- Are they reliant on the recommendation of friends and family?
- What do they value most? Atmosphere? Service? Price?
Answer these questions by speaking with the potential customers you identified through the research you conducted previously. This will help you better understand how your ideal customer thinks. For example, fast food and fast casual consumers are impulsive diners that are looking for convenience. Those who frequent fine dining establishments usually plan ahead, book reservations in advance, and want a high level of service.
Based on the information you gather, the next step is to create customer profiles for your target market.
A customer profile is the best way to segment your overall target market into individual “customer portraits.” It creates personas that represent the typical patrons of your restaurant concept and helps you better conceptualize how your target market is segmented. It’s possible that you’ll create multiple customer profiles for your restaurant, but not always.
If you’re choosing a location for a casual restaurant, for example, you might have three customer profiles:
- Millennials: Late 20s, single, college-educated, middle class, impulsive buyer, uses technology and verified recommendations to make decisions, active, median income of $60k annually, concerned about price
- Generation X-ers: Early 40s, married, well-educated, upper-middle class, plans ahead, relies on friends’ recommendations, median income of $80k annually, married, two children, family-oriented
- Baby Boomers: Late 60s, married or recently divorced, upper-middle class, median income exceeding $100k annually, three grown children, one grandchild, focus on health and service
You’ll want to give each customer profile a name (first and last) and a picture. This makes your ideal customer – or customers – tangible. To help you create the best consumer profiles, read our article and download our free template.
3. Where Are They Located?
Once you’ve identified your target market and drawn up the necessary customer profiles, you’ll need to figure out where your ideal customers are located. Remember that you want to put your restaurant in or around communities of your target market.
One of the best ways to find where your ideal customers are located is through the U.S. Census Bureau. The Bureau provides a public tool called “Quick Facts,” where you can find such population information as size, age and sex, race and origin, specific characteristics, education, health, and more. The Quick Facts tool is searchable by city, state, or zip code, allowing you to find key consumer information for specific areas.
The Quick Facts tool can help you identify neighborhoods, cities, and even states that are the best for your restaurant concept.
For example, if you’re opening a fine dining restaurant and know that your ideal consumer is a male who’s older than 65, you can figure out exactly which zip codes have the highest density of this consumer. Further, the tool can show you details like average commute time and median income, which gives you greater insight regarding customer habits, including the ideal restaurant location for your business. For example, an area with long commute times might be ideal for a restaurant with drive-through service.
When identifying where your target market is located, we recommend that you first define a restaurant location radius. If you live in Los Angeles, for example, you might want to limit your search to the Los Angeles County area. If this is the case, obtain a list of zip codes within L.A. county from Zip Codes to Go and search for each one using the Quick Facts tool. This will tell you which zip codes are best for your restaurant, based on the density of your ideal consumers.
Another helpful resource available to the public is the U.S. Census Bureau’s Industry Snapshot tool. This can show you state-specific restaurant industry numbers, such as the number of establishments, annual gross revenues, and more. While it won’t tell you anything about your ideal customer specifically, it’ll give you insights into the overall competitive environment and better your understanding of the communities you’re trying to target.
Use these tools to create a list of 5 – 10 communities that are a good fit for your restaurant location.
4. Are There Enough of Them?
So, you’ve officially identified your target market and come up with specific customer profiles. You’ve then searched the Census data for the zip codes of communities that fit within your search radius and have the highest amount of your ideal customers.
The last thing you’ll need to do is verify that there are enough of them. A rule of thumb is that your restaurant should be located in a community accessible to at least 50,000 people, as noted by NerdWallet. This is due to the fact that you need statistical significance when determining such things as customer demand, interests, and density.
Golden Corral, for example, requires a minimum population size of 50,000 when determining restaurant location. Larger and more popular chains, such as the Olive Garden, require a population size of 100,000. However, unless you’re opening a restaurant on par with the Olive Garden, 50,000 is a good size for an independent restaurant.
Next, verify that there’s enough of your ideal consumer among those 50,000 citizens to keep your restaurant flush with daily customers. Do this by first calculating your desired daily restaurant capacity. Take the number of patrons you expect to have in your restaurant at any given time and multiply it by the number of times you can “turn” a table. Restaurants average 15 square feet per person, meaning that you need to divide the desired square footage of your eating area by 15 to figure out how many people it can fit at any one time.
Then, assume that you can cycle through tables once every two hours (or shorter for fast food), meaning that if you have a six-hour dinner service, you can turn your tables a maximum of three times. In this example, multiply your desired capacity by three to determine the capacity for the entire dinner service.
So, if you’re looking at locations with 3,000 square feet of table space, the capacity would be (3,000 / 15) = 200 people. Then, multiply 200 x 3 to figure out that you can service 600 people in any one night for dinner. If your ideal customer eats at your restaurant one to two times a month, are there enough of them to keep your restaurant busy each night? Using this example, you’ll need somewhere around 18,000 ideal customers in a community, or roughly 36 percent of the overall population.
Take your list of top zip codes and re-rank the areas based on the population analysis of your target market. This will help you verify the top locations that have enough people to keep your restaurant busy.
5. Customer Activity: Foot & Vehicle Traffic
But wait, there’s still something else you need when deciding if there’s enough of your consumers in an area to open a restaurant. It’s all about activity. You want to ensure that there’s enough traffic in each one of the locations on your list.
Traffic is key. Locations may be highly populated, sure, but do people drive in these areas? Are the areas walkable, with high foot traffic? You want to pick a location that has high levels of activity, thus increasing your patronage. For a population of 50,000 people, you’ll want total daily traffic (foot traffic + vehicle traffic) of at least 21,500. Anything less and you risk choosing a location without enough activity.
Foot traffic is important because it represents the flow of people who could potentially walk by your restaurant. The most basic way to verify foot traffic within the areas you identified is to manually count passersby with either a tally counter or through the use of security cameras. This is time-consuming, to say the least.
An easier option is to use the SAP Digital Consumer Insight tool. This provides foot traffic reports by leveraging location-enabled mobile phones. All you have to do is login, define your area, and generate a foot traffic report. You can even break down the data by age, gender, and home zip code so you know you’re tracking your ideal customer.
For more information, read our article that’s dedicated to determining foot traffic.
Motor traffic is equally important when choosing a restaurant location because it represents people who might drive by your restaurant, both residents and out-of-towners. Fortunately, all cities, counties, and states periodically conduct what’s called a “traffic count.” These counts use cameras to count the exact number of cars that drive on a specific road or pass through a specific intersection over a defined period of time.
So, if you’re looking at a specific restaurant location, you can search for your exact street or intersection and see what traffic looks like, on average. Some states, such as Michigan, have online traffic counts that are searchable by street name.
Other states, such as California, have downloadable Excel files with traffic counts for all streets within a city or county. Los Angeles, for example, has a spreadsheet that you can download here. New York City, likewise, has its own Traffic Volume Counts (2012-2013).
Determining flow of foot traffic and motor traffic can help you decide whether or not there’s enough activity in the areas you’re considering for your restaurant. You already have the overall population size of your potential areas. Factor in this additional traffic data to make a decision regarding the best place for your restaurant concept.
6. Competitor Analysis
Another way you can identify where you’ll find your ideal customer type is to look at competing businesses. Restaurants often choose to be located next to their fiercest competitors. You’ll often see a McDonalds and a Burger King in the same vicinity, or a cluster of fine dining experiences in a downtown area.
This is because an established restaurant cluster of similar establishments is likely to have great restaurant location demographics. If you are confident about the quality of your restaurant experience, setting up near the competition establishes choice and gets local people thinking about dining out when they are in your area. The combined offer also acts as a magnet to draw more diners in as the restaurant choices increase. You can also benefit from overflow traffic at busy times like Friday nights, or at lunchtimes when people have limited time to wait.
The alternative to this is to find a restaurant location away from your competition. This may mean that you will not have to share the customer flow with competitors, but you will also have to ask yourself why no one else has considered this area before? Most people would consider this a bigger risk, but potentially one with bigger rewards if you really know your ideal customer in detail and get it right.
Visit all of your direct competitors and analyze every aspect of their restaurant experience: their advertising, website, restaurant reviews, external signage, meet and greet, décor, menu options, price point and more. Just as important is to understand the restaurant seating capacity, the number of customers dining, the type of customers, their dwell-time and likely spend.
A very important question to consider is whether the local area is saturated with your restaurant concept. If there are already three pizza restaurants on a street, you’ll want to think long and hard before opening a fourth. There are no hard and fast rules on what constitutes market saturation. However, a good rule of thumb is whether or not you believe that your restaurant could thrive without taking away a big chunk of business from another good restaurant. If you need to kill a competitor to survive, this is probably not a risk worth contemplating.
Complimentary restaurants have concepts that are different from your restaurant, but their price points are often in the same range as your own. These complimentary restaurants help establish specific areas within a community that offer multiple eating options. Customers often seek out these areas to window shop and find what they’re craving in the moment. Sometimes your customers will eat with the complimentary restaurants, and other times they’ll eat with you. The benefit, however, is that complementary restaurants are less competitive than restaurants with the same concept as yours.
A good strategy may be to locate in a cluster with a number of complimentary restaurant choices and away from any direct competitors. Will Hayes, owner of The Grill House, adopted this strategy when he opened his new restaurant in August 2014:
“Our location is within a strip mall anchored by a large supermarket, two other full-service restaurants and two fast casual food locations.
One of the reasons we chose our location, was that our concept was different from anything in the shopping center and a few miles around. We felt that even though we had a recognizable concept as an upscale gastropub/sports bar, the market was currently being underserved. We saw the other restaurants as a chance to increase our initial exposure as well as an opportunity to steal a percentage of diners who were already in the habit of eating out in the area.”
Additional Information To Consider
At this point, you should have the tools and information you need to pair down your list of locations to a select few. The final pieces of information you should consider, then, are specific to the buildings you’re considering.
Look at each of your zip code finalists and determine what’s available for rent or lease. You can either do this yourself using Ideal Spot, browsing various listing websites, or by engaging a broker to help you search. We cover all these options in our article How to Lease Commercial Real Estate.
Things to consider when looking at specific buildings include the following:
Make sure that all the places you’re looking at are properly zoned, large enough for your concept, repaired and updated, and laid out correctly. You can determine zoning by checking with your local chamber of commerce or by Googling: your address + zoning regulations + your city. You can determine proper size by using the approach to square footage capacity, above.
The property should be in a well-lit area with high levels of foot traffic and vehicle traffic. Make sure there’s a high-speed internet provider available at your location— this will be important for your POS system, as well as employee/customer WiFi. Learn how to check the internet status of a location in our guide to setting up Internet for a business.
The terms of the leases offered by available spaces is extremely important to consider. There’s no standard lease agreement. While this makes it hard to identify a rule of thumb, it also gives you the leeway to negotiate favorable lease terms for your restaurant. Some things you should look into regarding your potential leases include the length of the lease, the rent and associated rent increases, tenant improvements, sublease and assignments.
Remember, what your landlord tells you and what your contract says can be two different things. As Will Hayes, owner of The Grill House, shared:
“We learned the importance of slowing down to negotiate important lease terms. After verbal discussions where our landlord told us he would not bring in direct competition, we now know he has gone out of his way to try and attract national franchises that would be direct competitors. While it has worked out for us so far, we know next time to insist on a non-compete clause in our next lease agreement.”
You should always consult a professional when considering lease terms. For help, check out these additional articles on negotiating the most favorable lease terms:
- How to Lease Commercial Real Estate
- Commercial Leases: Negotiating the Best Terms
- The Commercial Lease: What You Should Know
- 10 Items That Every Tenant Should Consider When Negotiating a Lease
Accessibility and Parking
A commercial space that isn’t easily accessible is a bad commercial space. Even if you choose the perfect community for your restaurant, based on population density and activity, you can ruin it with a location that makes it hard to get there.
Ensure that the spaces you’re considering have adequate parking. A good rule of thumb is to have a parking spot for every three dining seats, plus one for each employee. Additionally, make sure that your restaurant location can be accessed by foot. Examples of business locations with adequate accessibility and parking include such places as a shopping center or shopping mall.
Last but not least, make sure your building is “up to code.” Does it have proper wiring, fire alarms, sprinkler systems, handicap-accessible doors, restrooms, ramps? A walk through with your local building code enforcement officer, (for example, Jefferson County, New York), will help you determine what needs to be done and what it will cost before you can open for business.
This may sound obvious, but it’s easy to forget that empty space always feels much larger once it’s been furnished. Try to picture the space you’re considering full of kitchen equipment, a walk-in refrigerator, storage space, dining tables and chairs, staff and diners. Of course, if your concept is high-end fine dining, your visitors will probably expect more elbow room.
Something else that’s is easy to forget is that the space needs to be kept clear for health and safety reasons and to ensure smooth running for busy staff when your front doors open for business. Understand the local code requirements for this and make sure to build them into your calculation of minimum floor space requirements.
It’s also important to better understand the neighborhood that surrounds your potential restaurant locations. Is it a safe community? Does it have good walkability? Is there a large employee pool that can work within your restaurant concept?
All of these questions can help you determine if the neighborhood fits your restaurant concept.
What’s more, you want to ensure that the community is growing. Is there a college in the area? Are there young families? Is it a desirable place to relocate? Are there other entertainment options, such as a sports venue, that draws people into the neighborhood? This will show you whether the neighborhoods you’re considering will benefit from future growth.
You can use the U.S. Census tool to help you determine growth by comparing population estimates from different years; the tool displays two years worth of data. You can also at home values and unemployment rate to determine economic growth.
The Bottom Line
The most important thing you should consider when choosing a restaurant location is your customer. You need to figure out who they are, where they’re located, and what areas have population densities that can support your restaurant concept.
But well before that, you’ll need to define your style of restaurant. Each restaurant concept has a very specific target market. This includes your broad restaurant category (fast food, fast casual, bar and bistro, casual, or fine dining) as well as your type of cuisine.
From there, you can use customer profiles, U.S. Census tools, and traffic counts to determine the specific zip codes that are best for your restaurant. Then, look at available leases and consider properties, their lease terms, accessibility and parking, and the surrounding neighborhoods. This will help you determine the exact business location for your restaurant.