Fast-food hot spots: pick the right city for your fast-food franchise – Blake Group’s Restaurant Growth Index
Elaine Pofeldt
It’s a common dilemma: You’re ready to buy a fast-food franchise, but you’re not sure which city to do business in.
The key to finding the ideal location is to figure out which factors will make your individual restaurant succeed — and use them to guide your search, experts say.
“The common mistake people make is that they jump right to selecting the site rather than thinking: Who are my customers? Where are they? Where should I be looking?” says Dexter Marston, principal of Retail Site Selectors in Minneapolis. “What might be ideal for selling hot dogs may not be so hot for selling some new Italian restaurant concept or Asian food.”
Profit From Demand
It goes without saying that you should open your fast-food restaurant where there’s a demand for it. But it’s not always obvious where the demand exists.
The Blake Group, a marketing consulting firm in Sisters, Ore., uses its Restaurant Growth Index to predict a restaurant’s success in a particular city, says Gary Blake, president. The index considers residents’ propensity to eat out, as well as the supply of the demand for restaurants. Blake separately considers fast-food sales per capita, the amount of after-tax spending money that local residents have, overall fast-food sales, and the local crime rate, Blake says. Its demographic data comes from Market Statistics Inc. in New York City.
Not all factors influence a restaurant’s fate equally, Blake says. For instance, overall sales may be high in big cities, but the cost of doing business may hurt profits.
Don’t Ignore Demographics
These are the areas that scored highest on the Restaurant Growth Index: (In each of the following lists, the areas are followed by their population in 1995 and the amount the average resident spent on fast food).
1. Bloomington and Normal, Ill (139,900; $491) 2. Cheyenne, Wyo. (79,300; $620) 3. Nashville (1.1 million; $468) 4. Santa Fe, N.M. (135,900; $575) 5. Ann Arbor, Mich. (526,900; $401) 6. Kalamazoo and Battle Creek, Mich. (447,900; $366) 7. Indianapolis (1.5 million; $543) 8. Champaign and Urbana, Ill. (162,900; $551) 9. Lincoln, Neb. (230,800; $539) 10. New York City (8.6 million; $193)
Residents have the greatest after-tax buying income in these areas: 1. Bridgeport, Stamford, Norwalk, and Danbury, Conn. (832,000 $227) 2. Naples, Fla, (188,000; $320) 3. West Palm Beach and Boca Raton, Fla. (983,600; $331) 4. Middlesex, Somerset, and Hunterdon Countries, N.J. (1 million; $225) 5. San Francisco (1.7 million; $354) 6. Seattle, Bellevue, and Everett, Wash. (2.2 million; $366) 7. Washington, D.C. (4.5 million; $369) 8. Trenton, N.J. (329,900; $284) 9. Bergen and Passaic Countries, N.J. ($1.3 million; $263) 10. Anchorage (257,600; $357)
These are the areas with the highest fast-food sales per capita: 1. Myrtle Beach, S.C. (154,000 $789) 2. Flagstaff, Ariz (119,000; $634) 3. Sioux Falls, S.D. (155,500; $626) 4. Cheyenne, Wyo. (79,300; $620) 5. Rapid City, S.D. (87,400; $614) 6. Columbia, Mo. (124,500; $600) 7. Monroe, La. (147m400; $594) 8. Honolulu (880,599; $593) 9. Bloomington, Ind. (115,400; $590) 10. Albuquerque, N.M. (665,600; $587)
These areas have the highest overall fast-food sales: 1. Chicago (7.8 million; $373) 2. Los Angeles and Long Beach, Calif. (9.2 million; $293) 3. Detroit (4.3 million; $409) 4. Washington, D.C. (4.5 million; $369) 5. New York City (8.6 million; $193) 6. Atlanta (3.5 million; $471) 7. Houston (3.7 million; $382) 8. Phoenix and Mesa, Ariz. (2.6 million; $499) 9. Philadelphia (5 million; $242) 10. St. Louis (2.5 million; $470)
Find the Right Space
Even if a city looks like fast-food heaven on paper, your restaurant may not succeed if you open up in the wrong spot, experts say. Choose a space that’s near a high concentration of potential customers, easy to get to, and not so expensive to rent or buy that it will hurt your profits, Blake advises.
Locations that are great for retail may not be ideal for fast food, says Doug Dickerson, owner of Molgren Research, a site-selection firm in Minneapolis. According to Dickerson, most of a fast-food restaurant’s customers will live or work within a two-mile radius. A roadside restaurant would ideally be located along a thoroughfare where traffic moves slowly, he says.
“Fast food has to have traffic,” Dickerson says. “Retail isn’t so reliant on traffic.”
Blake recommends looking at data that pinpoints how people in a given area spend their money. A 30-year-old with children may be inclined to eat at different types of restaurants than a single person the same age, he notes.
And trust your gut, he adds.
“Pure demographics aren’t enough,” he says. “Too much reliance on the data and not enough looking at a site and really doing your homework is not good. Too much reliance on observation can lead you down the wrong path. What really works is a combination of art and science.”
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