Location, location, location: What makes a good one?

| by Elliot Maras
Location, location, location: What makes a good one?

Everyone knows that location can make or break a restaurant. For those business owners intimidated by the multitude of factors they need to consider in selecting a location, a seasoned real estate expert offered some helpful tips during the National Restaurant Show at McCormick Place in Chicago.

James Walker advises restaurant owners to know who their customers are before selecting a location.

James Walker, vice president of development at Subway, began his presentation by introducing an acronym, P.A.V.E. — people, accessibility, visibility, energy — as a formula for evaluating real estate, which he called the literal foundation of a retail business.

In his role at Subway, Walker's goal is to source, select, build and open locations to be financially viable and sustainable throughout the duration of the lease.

In assessing the "people" part of the equation, Walker said it's important for a restaurant to know as much as possible about its customers when selecting a location. If customers are millennials, for instance, you look for a location that is close to the area where millennials live, study or work.

Traffic — i.e., the movement of people around the location — is important. You want to know the traffic count for both pedestrians and vehicles, and such information is available, Walker said.

More importantly, however, is the flow of the traffic in relation to the location. Does the traffic flow to the location or away from it during meal times?

"How does that traffic flow around your restaurant?" Walker asked.

Assessing accessibility

In considering the accessibility aspect of the equation, factors include the proximity of businesses and schools, the visibility of the location from the street, and the number of stop lights and stop signs near the location.

To understand these factors, it is important to actually drive to the location, Walker said. There is no other way to know, for instance, how much the shrubs in the area obstruct the signs on the building.

"Physical barriers can be street signs," he said, adding that such barriers include bus stop signs, traffic signs, stop signs trees and bushes. 

Available parking space is also an important accessibility factor. And, due to the growth of delivery services, the question of what constitutes sufficient parking is not as simple as it might seem, Walker said. The location must have room for patrons who are stopping by to pick up their own orders and for third-party delivery services that are picking up orders to deliver.

In assessing visibility, Walker said that a freestanding building is the most visible type of building. For locations in a strip mall, an endcap location is the most visible. In an L-shaped shopping center, the winning space is the center.

One of the most important tools restaurants have to improve visibility is ample signage. 

"The more signage the better," Walker said, noting that some Subway restaurants have as many as six signs drawing attention to them. 

Restaurant owners should negotiate with the local government entities to post the largest possible sign, he said, adding that this is not a negotiation the restaurant has with the property owner.

Walker encouraged his audience to post billboards on highways advertising the location, in addition to reader boards, flags, banners and pendants.

"Make sure you have a real clear sign [advertising] where you are," he said.

As for the "energy" part of the equation, Walker said it is important to make sure there is plenty of traffic around the location during meal times. It also helps to have a mix of compatible businesses nearby — merchants who attract the same clientele but are not competitors.

Other contributing factors to a high energy score are minimal store vacancies and low store turnover. This information is available. The restaurant owner should also observe how well surrounding businesses maintain their physical appearance.

"Is it a destination site?" Walker asked.

If the location meets all of these requirements, the next question is how long this will continue to be the case.

"Try to determine what that site is going to be like 10 years down the road," he said.

Lease considerations

Once you have found a good location, it is important to have a lease that provides the best possible terms, Walker said.

In negotiating the lease, a restaurateur needs to know the fair market value for properties in the area, information that real estate brokers can provide.

Tenants should negotiate for as many lease exit options as possible, Walker said. He favors short-term leases with options to exit.

For buildings in shopping centers, he suggested negotiating a payment amount that depends on the tenant occupancy rate.

"I'll start paying you full rent when your occupancy is full," Walker offered as a negotiating point.

He also suggested negotiating exclusivity for your type of business.

Owners who are not experienced at negotiating leases should find someone who can help them, Walker said.

Elliot Maras
Elliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.

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