In our last article we continued our series on how to start a successful business, with a look at how to lease commercial real estate for your business. In today’s article we are going to continue that series with a look at choosing a business location for a retail store or restaurant.
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When considering where to open a retail store or restaurant you should keep in mind the following:
Area – Who lives within a reasonable distance of a location?
Access – Is going to the location an easy drive or walk? Will drivers be able to park?
Noticeability – How many people will see the location as part of their normal activities?
Local Neighborhood – What types of shopping activities are nearby?
Let’s take a look at how you can evaluate each.
Area – Can a certain geographic location support your business?
I read an article recently that suggested that you should consider the area that your business serves as the distance that most people drive to get to get to the grocery store. For example if most people drive 15 minutes to get to a grocery store in your city, you should think of the area that your business serves as a 15 minute commute from your location.
I think this is a good starting point for thinking about the geography a potential location can serve. However, it has limitations. Firstly, it assumes that people are coming to your place of business from home, instead of from work, which may be farther away. Also, the model doesn’t recognize the different types of shopping and dining experiences. While potential customers might only be willing to travel 10 minutes to pick-up a pizza, they might be willing to drive 45 minutes for a fancy dining experience.
When deciding on how big the area your business serves, think about how far a person might be willing to travel to buy from you. Generally speaking, the lower the dollar amount of the purchase, and more regularly they make a purchase, the shorter the distance customers are willing to travel.
Once you decide on the area that your business serves, you should research the area. Here are some questions to answer:
How many people live there?
Are the people that live in the area your target customers?
Do the people that live in the area spend money locally?
For around $20, you can get a report from a company like EASI Demographics which will provide this information for distances of 1, 3 and 5 miles from your location.
Another important question is what does your competition look like?
For example, if you’re opening a restaurant, how many and how successful are restaurants with similar price points and food styles?
There are no hard and fast rules on what constitutes market saturation. However, one barometer would be the success rates of new restaurants, and whether or not you believe that your restaurant could be successful without taking away a big portion of the business from another restaurant. If you need to demolish a competitor to have success, the area is probably not fertile ground for starting that type of business.
Access – If customers cannot get there easily, they are less likely to come.
What constitutes access in major cities and downtown areas is different than suburban areas. In a downtown area, you want to look at foot traffic and proximity to public transportation like subways and bus stops. In suburban areas, it all comes down to the car.
Ideally, you would want your business directly off a major roadway with good traffic. Many state and local municipal governments survey the traffic on roads and can provide you with this data. In fact, the data can be as granular as the sections of particular roads.
Here is a sample from New York State. The key number is the Average Annual Daily Traffic (AADT) which is the number of vehicles that typically use the road per day. This data can be very helpful in comparing two locations that both “look” like they have similar traffic.
The data is however imperfect in many respects, it can be outdated and doesn’t tell you time of day, day of week, or type of traffic that may be using the road. What type of traffic will work best for your business?
Once people get to your business will they be able to park?
Another way you can ask this question is will there be enough parking for customers and employees during peak hours (lunchtime for many businesses) or a peak season (Christmas time for many businesses).
A customer that cannot find parking will not be able to shop and may not come back. A general rule of thumb for retail stores is that there should be 5 to 8 parking spaces available for every 1,000 square feet of retail space.
Restaurants require more parking.
You should have a parking spot for every 3 dining seats in a restaurant, plus a spot for every employee. A restaurant with 36 seats and 8 employees during dinner service should probably have around 20 parking spots. Many municipalities also have minimum parking space requirement for restaurants in their zoning laws.
Noticeability – Will your store be your business’s biggest advertisement?
There are two types of noticeability:
Your customers can notice you because they are going to a nearby location. For example, if your store is located in a department store mall, a number of potential shoppers may be walking around the mall to visit other stores. As these shoppers have already parked and are in a shopping mindset, there is a high probability that they will walk into your store. For this reason many retail stores like being in malls with anchor tenants (large department stores) which advertise heavily and draw people into the the mall.
2) Drive By
Your customer can notice you because they drive by your store and see signage or a window display. In determining your “drive by” noticeability, the size and location of your signage make a huge difference. As we discuss in our article on how to lease commercial real estate, you should ask your landlord if there are any restrictions on building a sign and check out local zoning ordinances. If you can have a big sign, the number of people driving by your establishment becomes even more important.
Local Neighborhood – Do you want to be located near the competition or far away from it?
Have you ever noticed that car dealers tend to be clustered around each other? There is a very good reason why! When shopping for a new car or high value ticket items, shoppers tend to visit multiple dealerships before they make a purchase.
However, just because they want to visit multiple dealerships doesn’t mean that they want to travel to find them. A potential car buyer might be inclined to take a test drive in a car that is not at the top of their “try” list, if its next to a dealer which sells a brand they like.
There is also solid academic “game theory” behind locating next to a competitor. Here is great video from Jac de Haan which explains it. For some businesses, like cars, furniture stores, and other high value purchases, I think locating near the competition is a good idea.
I also like the idea of locating near a complimentary business when there is a potential for cooperation instead of competition. For example, I think a veterinarian restaurant might want be located near a pet store, a casual dining establishment by a movie theatre, and an ice cream shop next to a school.
When thinking about your local neighborhood, you should consider the perceptions of potential visitors. If you operate at night, will shoppers feel safe in the area? The level of lighting, the number of people around, and the area’s reputation will all play a role in how safe visitors feel.
That’s our article for today, if you have any questions or comments please feel free to leave them in the comments section below. Also be sure to stay read the next article in this series where we discuss how to choose the right computers for you new office.
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