According to the National Restaurant Association, there are over 1 million restaurants in America that are vying for diners to enter their doors and find their way from first time customers to life-long brand ambassadors. That comes out to about 1 restaurant for every 330 people living in the United States. Tough competition.
So, just how do you stack the cards in your favor? In addition to concept consideration, menu, and the now all-important entertainment factor, a successful entrepreneur knows that the location can make or break an establishment, even when all the other factors are top-of-the-game.
Before we take a look at where those in the industry are headed and why they’re going there, let’s go over the main factors to consider when choosing your next destination.
Concept
I recently spoke with Hudson Piehl, COO of Acutely, a data-science company that helps those in the restaurant and entertainment industries make low-risk, high-reward expansion decisions, about the hot markets in the U.S. When I asked what locations he would recommend, he stated, “It really is concept based. I don’t think that you can say that one location is better than the other. It really depends on what you’re trying to achieve.”
As an example, one of their clients that they’re helping expand is a high-end entertainment concept that, because of their unique offerings, can open up in just about any big city in the U.S. In this era of rising minimum wages and high rents, a high-end concept can more easily absorb the costs in some of the tougher markets such as New York City and San Francisco while a “lower-end QSR can struggle in those environments.”
If you’re looking to develop a scalable concept for growth, there are a multitude of consultants and companies that help with branding, menu, and design. These include Synergy Consultants, Ellish Marketing Group, and Aaron Allen & Associates.
According to Aaron Allen & Associates, when positioning your brand, “You don’t merely want to be considered the best of the best, you want to be considered the only one who does what you do.”
Of course, there are also those multi-concept groups that stand out because every one of their locations is unique. One of these is One Off Hospitality in Chicago, a company that offers 13 diverse and different concepts including Big Star, Blackbird, The Laurel Room, Publican Quality Meats, and The Violet Hour. “One Off is the opposite of big branding, knock ‘em out and spread ‘em out entrepreneurship. One Off implies that each project is unique and is operated with a spirit of complete and utter creativity.” –One Off Hospitality.
Density
While it’s important to consider the overall competition in an area, it’s even more vital to take a look at direct competitors—those restaurants that fall into your type of concept and menu design. When Bid-On-Equipment analyzed 236 cities across America to determine the top 50 cities to start a restaurant in, one of their benchmarks was competition which they analyzed via restaurants per capita. Surprisingly, the two cities with the least number of restaurants per person were Huntington Beach, CA. and Nashville, TN.
Keep in mind that last year saw an unprecedented number of Nashville restaurants closing their doors—which could be part of the reason why their “restaurants per capita” rate makes the city look so inviting. What the statistic doesn’t tell you is that from 2011 to 2016, the city’s restaurants grew at a steady rate. Then, from the fall of 2016 to the fall of 2017, they fell by 2 percent with independent restaurants declining by a remarkable 5 percent.
This example illustrates the importance of looking at numerous data and statistics before making your next move. Starbucks, in addition to their own real estate analytics team, has an in-house mapping and business intelligence platform called Atlas that helps them develop their expansion strategy.
If you’re not quite ready to develop your own data and analytics software, there are those businesses that specialize in collecting and analyzing mass amounts of data in order to help you expand successfully. A few such organizations are Acutely and Emerging Concepts.
Disposable Income and Age
According to Statista, in 2018, those whose household incomes that fell in the $40,000 to $49,999 range spent about $2,653 dollars a year eating away-from-home. That number almost doubled for those households with an income of $100,000 to $149,999. This statistic shows the importance of looking for populations with a certain amount of disposable income.
The other factor to consider is the age of the surrounding community. According to a study conducted by the USDA, the age group that dines away-from-home most frequently is 35 to 44-year-olds, with those age 25 to 34 coming in at a close second. Keep in mind that 45 to 54-year-olds have the highest average monthly earnings, a consideration for those with fine dining concepts.
Restaurant Sales Per Capita
This number is one of the most important considerations when choosing your next location, and one that tells you just how much money is being spent on dining out in that particular city. According to Bid-on-Equipment’s analyses, Paradise, NV took a strong lead in this segment with a whopping $7,889 being spent by the population. The second closest city, you may wonder? Arlington, VA with $4,556 and Orlando, FL with $4,056.
This number prompted us to look up a city that we knew very little about, Paradise. What we found is that we actually know quite a bit about it, because the Las Vegas strip is located in Paradise, NV. Yes, the “strip” is not even in Las Vegas—who knew? We found that this city also ranks incredibly high in industry workers per capita—with 11,164. No other city that made the top 50 even came close, which leads us to the next factor when considering a site—the available labor force.
If you’d like more information on restaurant sales per capita, take a look at 24/7 Wall St.’s Full-Service Restaurant Spending Index. USA Today published their findings—the top 50 urban cities that have the highest fine-dining restaurant spending per capita. Breckenridge, Colorado came out on top.
Restaurant Workers per Capita
If you’re currently in the restaurant industry, I don’t need to tell you about the challenging labor issues that have come in the wake of increasing minimum wages and a 3.6 percent unemployment rate—the lowest in five decades. That and rising operating costs are currently a restaurant’s biggest challenges.
In order to give yourself a fighting chance in this area, check a city’s wage laws and talk to some in the area about labor challenges. Also, keep in mind the eight states that do not have a “tipped wage.” These include Washington, Montana, Minnesota, Oregon, Nevada, California, Alaska, and Hawaii.
This site contains minimum wage laws by state as well as minimum wages for tipped employees. Keep in mind that, before 2012, only five localities had minimum wage laws that overturned the state’s. Today, 50 counties and cities have local minimum wage ordinances. The UC Berkeley Labor Center offers a snapshot of the cities and counties with their own ordinances.
According to Mat Focht, CEO of Emerging Concepts, a national real estate company that helps restaurants and entertainment venues successfully expand, when asked about the challenges facing restaurants today, said, “Labor is probably the biggest challenge, due to low unemployment and the effective wages. As an example, in San Francisco a dishwashers makes over $20 an hour, which is about half of what they make in Chicago.”
Population Growth
Along with workers, you need guests. With the U.S. population growing by over 2,000,000 people every year, or 240 new bodies an hour both from new births and immigration, it’s clear that there are cities bulging at the seams. The fastest growing cities continue to be located in the southern and western parts of the U.S. According to the U.S. Census Bureau, Phoenix, AZ is at the top of the list with San Antonio and Fort Worth, TX, Seattle, WA, and Charlotte, NC making the top five.
Five-Year Survival Rate of New Ventures
We’ve all heard about the survival rates for small businesses: 20 percent fail within the first year, 30 percent in the second, and 50 percent, after five years in business, have not made it to their sixth.
While I hate to be a glass-half-full kind of person, the truth is that failure rates for restaurants are greater, though not as great as the famous Chef Rocco once proclaimed. On a reality television shown known as “The Restaurant,” he claimed that a startling 90 percent of new restaurants failed within the first year. That will get viewer’s attention—and became a commonly quoted, though untrue, restaurant statistic.
According to Cornell and Michigan State Universities, who conducted a study over a 10-year period, the numbers are closer to a failure rate of 27 percent in the first year, 50 percent after three years, and 60 percent that shut their doors after five years. Needless to say, making it past the five-year mark is a worthy goal and the reason that many entrepreneurs take a look at the five-year survival rate for new businesses.
The average five-year business survival rate in the U.S. comes out to almost 51 percent. Some states that top that number include Iowa and Massachusetts with 55 percent, Minnesota at 54.8 percent, California at over 53 percent, followed closely by Oregon and Alabama at a little over 52 percent.
Now that you know what to look for, let’s get to the nitty gritty—the top cities that restaurants are drawn to as 2020 emerges.
The Top Cities for Opening a Restaurant
Search Google on this topic, and you’ll see several different lists that comprise the top cities for restauranteurs—and no two are alike. This goes back to our first consideration—your concept. What’s good for one brand is not always good for the other. With that in mind, let’s take a look at the most popular cities that are making the restauranteur’s cut.
Arlington, Virginia
This came out as the top city from the survey conducted by the equipment resale company, Bid-on-Equipment. The statistics that brought it to the top included:
- Sales per Capita: $4,556
- Workforce per Capita: 7,711
- Median Income per Capita: $108,706.
This Washington DC suburb has experienced a massive population explosion, in part due to their close proximity to the nation’s capital, about a 20 to 30-minute metro ride away. Companies such as CACI International, Stouffer’s, and The Nature Conservancy, to name a few, have made Arlington their home—large companies with employees eager for the best in dining experiences.
Austin, Texas
Austin holds claim to the second largest restaurant market in the nation. Longitude, a hospitality branding & experience design agency, took into account competition, restaurant sales per capita, population in the 35 to 54-year-old range, labor force, cost of living, and five-year survival rate of new ventures before coming up with their top 10 cities for opening up a restaurant. Cedar Park, Texas, a suburb of Austin, came out on top.
Over five years ago, this same suburb, that is just 17 minutes from downtown Austin, made the top of NerdWallet’s best cities to start a restaurant due to a surge of new residents. In 2017, Cedar Park was graced with 70,000 residents with a median age of 35 and an average household income of $96,612. As of 2019, that number has risen to close to 77,000. It has grown more than 400 percent in the last decade and is one of the fastest growing suburbs in the nation.
First Watch, a Sarasota, Florida-based health-minded café chain, with 11 locations throughout the greater Houston area and in College Station, recently opened their doors in the suburb and have plans to open an additional 18 units throughout Texas and Southwestern Louisiana.
Looking at their online reviews for their site in Cedar Park reveals that they may have some customer service issues. No matter where you go, the cornerstones of a restaurant must be addressed: excellent customer service, great food, nice ambiance, and streamlined operations.
Companies that are designed to help secure these areas specifically for restaurants include Compeat, a leading provider of integrated accounting, back office, workforce, and business intelligence solution, and Jolt, a tablet-based software that manages daily operations for brands such as McDonald’s, Buffalo Wild Wings, and Chick-fil-A.
Minneapolis, Minnesota
Despite Minnesota’s expensive labor and poor business tax climate, Minneapolis rated second on Longitude’s list of best cities. This is due, in part, to their high five-year business survival rate and fair amount of expendable income.
To find out about a state’s business tax climate, check out the Tax Foundation’s State Business Tax Climate Index.
Milwaukee, Wisconsin
Lending Tree took a look at the 50 largest metro areas in America and based their “Best Places to Open a Restaurant” on the following: Annual revenue, payroll costs per employee, number of restaurant per 100,000 household with income of $50,000 or more, and number of restaurants per 100,000 residents aged 35 to 54. With that in mind, they determined that the opportunity is ripe for flyover countries, those areas that, unlike coastal cities such as San Francisco and New York, have lower labor and property costs and less restaurants per capita. Milwaukee, Wisconsin came out on top followed closely by Cincinnati, OH.
Jason Morgan, past CEO of Zoe’s Kitchen that grew from 3 locations to 250, and present CEO of two emerging fast casual concepts, had this to say about the effect of high rents, “As an emerging concept that’s trying to grow, the biggest thing we’re probably seeing today is that rents are too high…Everyone’s going to Dallas, Houston, and Atlanta…and ultimately driving rents to a point where it’s not profitable enough for folks to be signing up deals.”
Orlando, Florida
WalletHub considered 19 key metrics when determining the best places to open a restaurant. These included the five-year business-survival rate, affordability, access to financing, lowest labor costs, and highest availability to human capital. After tabulating the data, Orlando, Florida came out on top.
Smaller suburbs in the surrounding area, such as Maitland, which is just 10 minutes away, may offer less competition and lower costs while maintaining access to the larger labor pool.
Oklahoma City, OK
The city where “deep fried” is a way of life, came in at a second to Orlando with lower business costs but less access to resources. Rounding out the top five were Miami and Tampa, FL, and Austin, TX. On the other hand, Oklahoma City came out on top in a study that listed the top urban centers to open up a small business when considering job growth and five-year survival rate of ventures.
It’s interesting to note that the two cities with the highest average growth in terms of small businesses both came from the Old North State—North Carolina. These cities are Charlotte and Winston-Salem.
Of course, there are always those restauranteurs that are drawn to the bright lights and big names found in the most popular food-centric cities such as New York, San Francisco, and Los Angeles.
According to Hudson Piehl of Acutely, many of their clients are finding new, profitable locations in Chicago, Dallas, Atlanta, and even Charleston, which he sees as an up-and-coming powerhouse where good deals can still be had.
He does, however, agree with the many industry experts that believe America’s major metro areas are experiencing oversaturated markets, labor shortages, rising real estate prices, and a consumer demand for locally sourced products that has driven up operating costs. Because of this, some business owners are turning to Small Town, USA. Let’s take a look at a few of the smaller cities that are making the grade.
Small Towns
I spent 15 years of my life in a small town on the Central Coast of California, population 6,000. Here’s a few things you could count on: The two best restaurants in town would be packed on the weekend and the corner hot dog and hamburger stand, which morphed into a beautiful outdoor dining eatery, would involve a 15-minute wait before you could even place your order. Mind you, this was a town that, though not a destination spot, had it’s share of tourists passing through on their way up or down the coast to Los Angeles, San Francisco, and Big Sur.
This story leads us to a few key elements to look for in a small town—tourists and travel. According to the National Restaurant Association, tourists generate about 30 percent of sales in the fine-dining sector. Look for towns that are on the way to something bigger, though not always better, and ones with a calling card for tourists, students, or new businesses in the surrounding areas.
Verizon took a look at some of the best smaller cities to open a business in based on population (had to fall between 50,000 to 75,000), income per capita, broadband access, tax scores, and non-farm businesses per capita.
The number one city? Logan, Utah—a college town that attracts both die-hard skiers and summer hikers. It’s also home to Utah State University—a campus that draws in a higher percentage of out-of-state students than any other public university in Utah.
Another city in Utah that made the top five is South Jordan. Part of the Salt Lake City metro area, this town, that lies along the Jordan River, has grown from a little over 50,000 in 2010 to over 74,000 in 2019, and has seen a boom in tech startups—all with their share of hungry software developers and techies that have to eat.
The other small cities rounding out the top five all dwell in the sunny state of Florida, and include Sarasota, Coral Gables, and Doral. Sarasota’s idyllic beaches and its neighboring islands create a tourist-fueled economy. It also happens to be home to the headquarters for Boar’s Head. Coral Gables boasts the highest income per capita and Doral is home to 8 universities and colleges.
Utah, Florida, and Texas are listed as the top three states to start a business in, according to Seek Capital’s study using 21 factors including business tax climate, labor force, cost of living, and one to five-year business survival rate.
Now that we’ve got an idea where to set our compass, let’s take a look at where the experts believe we should avoid, or at least think carefully before staking our claim.
Tough Markets
Lending Tree once again took a deep look into 50 U.S. metropolitan areas and weighed several factors including cost of labor, ratio of restaurants to households with an annual income of at least $100,000, number of restaurants per 100,000 residents aged 35 to 54, and estimated revenues.
New York City, San Francisco, and New Orleans made the top three worst places to open a restaurant due, mostly, to overcrowding which makes it difficult for a new restaurant owner to enter the fray.
It’s clear that making a decision when determining your next restaurant site requires a tremendous amount of data and foresight. Fortunately, there are companies that specialize in capturing this data in order to help restaurants make the best move. Acutely and Emerging Concepts, working in tandem, help top restaurant operators around the country successfully expand using predictive analytics and data science. According to Mat Focht, they “are able to project sales within 85 percent accuracy before they even open a unit.”
The data required to come up with this impressive number comes from a restaurant’s Point of Sale system (POS) and Customer Relationship Management (CRM) system—the brains that collect information regarding customer insights, habits, spending profiles, menu favorites, and demographics. These are two of your businesses most important assets. Fortunately, there are several companies that are top-in-the field in this area.
Tech Company lists 10 Best Restaurant POS Systems which includes TouchBistro, Square POS, Lightspeed Restaurant, and Toast. Restaurant-specific CRMs include: Eat, TouchBistro, Seven Rooms, and Upserve.
Both Toast and Upserve provide “how to” expansion guides to help you sort through the multitude of steps and decisions required when expanding your brand.
For more information, Shopkeep has listed several key elements that a restaurant should look for in their POS system.
In addition to technical data, visit the area and the restaurants that you consider competitors. Who are their customers? Do you see a need that they are not filling?
Foresight and patience will serve you well as you sift through the potential cities and towns that will be home to your next successful venture. Keep in mind, “No one can whistle a symphony. It takes a whole orchestra to play it.: –Halford Luccock.
Resources
- Bid on Equipment. Best Cities to Start a Restaurant. 02/2019. Link
- Alfs, Lizzy. Why are so many Nashville restaurants closing? 02/2018. Link
- Conway, Jan. Average food away-from-home household expenditure in the U.S. 2018. 10/2019. Link
- Saksena, Michelle J. et al. America’s Eating Habits: Food Away from Home. 09/2018. Link
- Comen, Evan. Restaurant Spending: U.S. Cities Where People go out to Eat all the Time. USA Today. 09/2018. Link
- National Employment Monthly Update. The NCSL Podcast. 10/2019. Link
- The U.S. Population Situation. World Population Balance. Link
- Fastest-Growing Cities Primarily in the South and West. United States Census Bureau. 05/2019. Link
- McIntyre, Georgia. What is the Small Business Failure Rate? 11/2019. Link
- Sidney, G. Restaurant Failure Rates: Where Do They Get Those Numbers? com. Link
- DePietro, Andrew. Best States to Start a Business. Seek Business Capital. 11/2019. Link
- Kiernan, John S. Best Large Cities to Start a Business. 05/2019. Link
- The 10 Best Cities for Opening a Restaurant. Link
- Wylie, Melissa. Most Promising Places to Open a Restaurant. Lending Tree. 10/2018. Link
