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More from Foodservice Equipment & Supplies Magazine
restaurant development + design: Real Estate Modeling and Site Selection
- 1. Real Estate Modelingand Site Selection for Restaurants These slides are part of a free webcast from restaurant development + design magazine. Go to Slide 6 for a link to the webcast, if it’s still available on demand.
- 2. Today’s Objectives Outline thesteps operators should take before hitting the streets to look at sites. Explore the steps restaurant operators should take during site selection. Discuss the relationship between the business plan and site selection. Describe what operators should look for in a location and the surrounding area. Answer your questions!
- 3. Meet Our Panelists JeffreyYarborough Big Ink Real Estate Greg Goddard Penn Station Matthew Mabel Surrender Inc.
- 4.
- 5. Today’s Restaurant RealEstate Market The times they are a complicated… Base rents are high More restaurants than restaurant space on the market Big question: What rent can you live with in a down economy?
- 6. About this webcast Formore information on his webcast visit: http://www.rddmag.com/realestate
- 7. Restaurant Site Selection:Where to Start? The process begins before you pound the pavement. All starts with the business plan, which includes a financial proforma. Know what you want out of your restaurant and this location. Understand the factors that make your business successful. Conversely, identify those factors that can hurt your business.
- 8. Restaurant Site Selection:Where to Start? After developing a plan and identifying a target market, the next steps include: Leave the real estate business to the brokers. Have broker research the facts, including: Traffic counts Neighborhood crime rate What other tenants say about the landlord
- 9. One Concept’s Approachto Real Estate Look at your model and understand where your concept can take you. Penn Station’s sales split evenly between lunch and dinner so location has to capitalize on both dayparts. Takeout business is important, too. Adjusting the unit size allows for entry into better places without compromising dayparts.
- 10. Using an Analytics-BasedApproach Combine POS data with other data to form a better picture. Work with a vendor to project how demographics will evolve. Net result is a smaller pipeline with higher opening values. Next step is to launch a loyalty app which will provide more data.
- 11. Exploring Site Modeling Lots of data available to restaurants of all sizes, not just chains or the big ones. Can include information on the competition, area demographics, projected revenue and more! Data alone is not enough. You need to live in the area and verify the model.
- 12. Data’s Impact onSite Selection Penn Station’s approach: Leverage data from the other locations in the system Replicate the high- performing locations Use analytics to provide as much clarity as possible Know where you want to start and finish in each market
- 13. Managing Site Selection Factorsto consider when looking at specific locations: How much can you vary from your target square footage without impacting financials? Will you have to adjust your operating model to make the location work? Go back to visit the site more than once. Understand the competition’s impact on your site selection.
- 14. Land Matters: Leasingvs. Owning Questions to ask when deciding whether to lease or buy the land: How well do you know real estate? What’s your overall goal? Is this your first unit? Prove your concept first before you buy. Buying real estate ties up cash. Can your business plan withstand this?
- 15. Good Restaurant Locations What makes a location good varies by concept. Good restaurant locations relate well to your target audience and how they want to patronize the restaurant. For new and emerging concepts finding the right first location can often make or break the business. How you approach your research will depend on whether it is your home market or some place new to you.
- 16. Making Informed Decisions Do your demographics. Spend time in the areas where you want to put your business. Do the people in the area reflect your target audience? All these factors help find the right location.
- 17. Key Ingredients forthe Right Location Factors in Penn Station’s approach: Daily needs that generate traffic are important People who live in that market have to support your store Understand the demographics of the businesses around you and how they impact performance
- 18. Financial Health What landlordswant to see: Your financials and/or business plan What your business will look like Their portfolio of tenants work well and blend together You be successful because it helps shape their success
- 19. Budgeting for Rent Budget for occupancy costs, not just rent. Develop a successful rent to sales ratio. Mind the details, such as: Tenant improvement money Personal guarantee Assignments How the landlord communicates with you
- 20. Diving into theDetails Key points to ponder: Explore the surrounding neighborhood Know your neighbors and how they can impact your business Will your concept mesh with the surrounding area
- 21. Getting a FairDeal Hire a good broker AND a good real estate attorney Make sure you hire people that have your best interests in mind Keep in mind you have to live with the lease for its duration
- 22. How Penn StationGets the Deal Done Try to mitigate risk by: Work with tenant reps to find the right sites Know what does and does not work for your concept Examine the practical aspects of a site Review demographics
- 23. Is the SiteRight? Remember a seat does not equal revenue. A guest does. Will this location attract the right number and type of guests? Budget for three levels of success: break even, intermediate and superior. Ask if your budget expectations are realistic.
- 24. Franchisee Effect Four keysto working with franchisees during the site selection process: 1. The more clarity, the better. 2. Manage expectations and guide them. 3. Be as transparent as possible. 4. Implement realistic timelines.
- 25. Questions from theAudience
- 26. Closing Thoughts fromOur Panelists Jeffrey Yarborough Big Ink Real Estate Greg Goddard Penn Station Matthew Mabel Surrender Inc.
- 27. Greg’s Lessons Learned Make sure your market plan outlines the success factors. Know your risk factors. Good sites have lots of parameters but the perfect site does not exist.
- 28. Matthew’s Common SobStories to Avoid I never read the lease or I used the attorney the broker suggested and never read the lease. I never talked to the city about core infrastructure improvements. I did not get an exclusive on my core menu item. My concept is so strong it can overcome a different demographic. My restaurant has to be this big or I can’t make money.
- 29. Jeffrey’s List ofMistakes to Avoid Don’t have 10 brokers looking for the same team. Don’t be lured by a landlord that loves your restaurant but will not meet your needs. Don’t lock into too tight of a geographic area.
- 30. Thanks to OurSponsor
- 31.
- 32. Future Webcast Ideas Weare listening, too! Send your ideas for future webcasts to: Joe Carbonara joe@zoombagroup.com You may download the slides from the toolbar below. A link to the CEU quiz will be sent when the webcast archive goes live.
- 33. Thanks for Listening VisitUs Online at: www.rddmag.com Follow Us on Twitter: @RDDmag
Editor's Notes
- #5 TriMark is the country’s largest provider of foodservice equipment, supplies and design services. Countless restaurants rely on TriMark’s expertise to realize their vision for success; from design/build to supply distribution, TriMark is there every step of the way. We are TriMark, and we bring it! Visit trimarkusa.com to learn more.
- #6 Joe: Describe the state of the real estate market, as it pertains to restaurants. Matthew: It’s a very complicated time right now. Rents are aggressive and it intimidates some Base rents are skyrocketing and we are seeing because there’s not a lot of restaurant space and the economy is good. Most are paying a percentage and you have to know whether you can live with that in a down economy.
- #8 Joe: Before we start pounding the pavement looking at physical locations, there’s lots to do. Where do we begin? Jeffrey: Understand/know what you want out of this: How much money do you want to make? Or are you trying to hit unit volumes for a franchisor? Get the 10,000 foot view on it. If we understand the factors that can make us successful, then we also know what can hurt our business and this helps us avoid those pitfalls. Start with a business plan should that has a proforma outlining seating, menu, avg check, how many covers, etc. Understand how you are going to make money. Look at labor and rent, too. THEN we get into the real estate hunt.
- #9 Joe: So I have a plan in place and a target market or area. Now what? Jeffrey: Are you doing this by yourself or hire a broker? My advice is to leave the restaurant business to the restaurant operator and real estate to the brokers. Let the broker do the research for you. This includes: Facts such as traffic counts, crime in the neighborhood, what other tenants say about the landlord. Typically, the landlord will pay the broker even though they represent you. This will help you get a better deal and ensure you are covered in getting better guarantee
- #10 Joe: How has Penn Station’s approach to finding the right real estate changed in recent years? Greg: Used to be population, density and more but we went into analytics a few years ago Somewhere within the population number there was a big discrepancy. Learned we had a key socio demographic makeup when we are successful. Our sales split evenly between lunch and dinner. So need to capture both and have a different customer for each. Much of our business is carryout so went from 1800 sq ft to 1400 to 1600 sq ft. This allows us to enter better spaces without compromising AUVs. Steadier flow of business over more time so can do same volume with less square footage. As a result, we now are taking locations they used to pass on. To create more opportunities through real estate you have to look at your model and where you can go.
- #11 Joe: In order to use an analytics-based approach, data is necessary. Where do you get it from? Greg: Starts with POS data from the past 60 months or so and then cross that with other market factors. Provides them with the data and they merge it with other info. And works with a data provider that projects demographic change Modeling has been very impactful. Launching a loyalty app that will allow them analyze consumer data to find out where they come from, how they use them and more. It’s really changed the way we do business but it makes you realign. Pipeline shrunk because we are making better decisions. But our opening values are higher. So we are growing with better stores.
- #12 Joe: Site modeling is a term that gets tossed around a lot these days. In your own words, what goes into site modeling? Matthew: There was a time when only the chains could model their sites. Now there are lots of resources where you can get demographics, competition, egress and ingress, projected revenue to other sites and more. This is fantastic because you can make an informed choice. Living, working in the area; revenues of the other restaurants in the area and more. Psychographics can tell you more about the makeup of your guests. Joe: So when selecting a site is all about the model? Matthew: It’s a combination of the data and the people: Need to live and verify the model. Walk around and talk to the people in the market.
- #13 Joe: How does the use of data impact the way Penn Station approaches site selection? Greg: Key steps to find right location: Based off of analytics trying to get as much clarity to stack the deck When you have close to 300 locations, you capture a lot of data and now it’s about how you capture and leverage that data. We try to replicate the top 20 percent of our system. You look at a market to identify where you start and where you want to finish.
- #14 Joe: Ok searches can take lots of twists and turns. What if operators start to discover locations that vary somewhat from their target size, etc.? Jeffrey: Say, for example, the broker brings you a location that’s less rent but is 1,500 sq ft larger. Can I fill it? If so, great. If not, not a great place for me because you will always look empty. Makes you look less exciting to consumers. Conversely, find a space that’s smaller than you had hoped, which means you get fewer seats in it. Go back to review financials because revenue will likely be less. Or can you stay open longer to make up for the revenue? If not, walk from the space because it will be hard to make money. Do your homework in advance. And even if you have past familiarity with a location go back to visit in current time. Joe: And what about the competition? What role do they play in site selection? Greg: That’s the next level for us to consider. Model against quick casual restaurants that produce a similar check average And if you are near them those other co-tenants are going to spend money to drive customers to their location. They may not eat your food every day but the awareness is pretty high.
- #15 Joe: For some restaurant operators, owning the land is an attractive idea. For others, leasing is best. How can you decide whether to lease or own? Matthew: If you have a first unit with a new concept, you should lease unless you are financially strong enough to buy. You have to prove your concept first to know you can service the debt. The restaurant industry has a low barrier of entry but you find out there’s a lot you need to know. Most people don’t know anything about real estate but for a few real estate is part of their overall play. Most people do not have the wherewithal to do that because it ties up cash. If you are wrong about the location then you are stuck with the real estat.
- #16 Joe: What makes up a good location? Matthew: It’s a good location relative to your target guest. This may include access for people on the weekends. Good traffic for lunch. And nearby residential for dinner. All depends on your concept. Some concepts are more neighborhood-y and others are more destination-oriented. So you have to understand your target guests and where they want to see you. For a first location, you have to be right about your target guest. If you don’t get the location right, you could be dead. Often don’t get a second chance. Are you in your home market or somewhere else? Home market: You will have assumptions about what people want and don’t. Where they will and won’t go. You will have to test it. When it comes to modeling sites, you have to test this and you have to look at the data. Outside of the market: You will fly in and the broker will show you the market. You will look at demographics and modeling. But stay in the community for a few days and find some people beyond your broker who will answer your questions
- #17 Joe: What are some factors to weigh when trying to find a location? Jeffrey: As a broker, will test the waters with the client to make sure they are passionate enough to run the business. This is not like buying a stock. You have to be engaged. But it still comes back to location, location, location. Do your demographics. Sit in the neighborhood where you want to put your business. Are the people there your customers? Look at the rooftops – do they house or draw customers? If you have a high-end restaurant and you see a bunch of apartment buildings this might not be the right place for you.
- #18 Greg adds: High daytime populations are good for us but what you need to focus on daily needs traffic generators. There’s lots of appeal with outlet malls or regional malls. But you have train someone who comes to that area once or twice a year. You want to support your store by what lives in that market. Anything else that comes in to the store is a bonus. Has stores next to Whole Foods and others like Trader Joe’s and does not do as well there given the demographic that shops those places. Does better adjacent to other grocery stores such as Publix. We do a little better next to Home Depot instead of Lowes. The former skews more male as does our target market.
- #19 Joe: Financial health plays such an important role here, doesn’t it? Jeffrey: Absolutely. In the past, landlords would take anyone but today more landlords are asking to see your financials. Today, if you don’t have the money, they don’t want you to come to the table. If you are raising the money while you are doing site selection, they will want to see your business plan so they know you are close to striking a deal. A look book that shows the landlord what your business will look like and sound like can help them see what’s about to happen. Can be photographs or images from other places. Just needs to communicate the vibe you are trying to create. They want to see you can finish the construction project and not run out of money before you open the doors. Landlords want their portfolio of tenants to work and blend together. And they want you to be successful because it can generate more money for them due to lease clauses.
- #20 Joe: How should restaurants budget for rent? Matthew: Budget for occupancy costs, not just rent. Other factors that comprise occupancy costs include pass thru items, insurance, property and/or other taxes. Basically, what it costs you to be in the building. These should be 10 percent or less of sales. If you can get it less than that, great. More than that, it will be more difficult to make money. Jeffrey adds: There’s more to it than price: Rent to sales ratio: no more than 6 to 8 percent. Tenant improvement money (how much he is willing to support us) Limiting the personal guarantee (Sometimes the entire length of the lease is guaranteed and in the restaurant business there is a high risk of failure. So you don’t want your assets tied up if he finds someone to replace you. Assignments: If the restaurant opts out of the business and wants to assign the lease to a different company or concept, you can do it. Notifications: how the landlord communicates if he wants to put you into default. Because there’s other negative aspects of going into default. For example, you lose your deposit. Independents, growing chains
- #21 Joe: When visiting a site what are some red flags to look for? Jeffrey: Start by driving the neighborhood I look at the space leading up to the parking lot. Drive through the intersections, neighborhoods, etc. within a quarter mile of the site. You need to know who your neighbors are and how they can help/hurt your traffic. How well is it lit? Specifically at night. What do your neighbors’ locations look like? Look at how your concept will mesh with the others? If you are opening a Southern food concept in a market that features all Korean restaurants and business, it might not work.
- #22 Joe: So after a restaurant operator finds a site that suits them, how do they go about getting a fair deal? Matthew: You need a good broker and a good attorney. Not either or…you need both. Use a good real estate attorney that’s experienced in restaurant transactions. The restaurant’s business relationship with the broker can be very confusing. You have to find a broker that is looking out for your best business interests. You have to have people who serve you well. Once the lease is signed, they move on and you have to deal with it for years and years.
- #23 Joe: How does this apply for Penn Station? Greg: Works with tenant reps to find the right sites. We are trying to make informed decisions. You have to know what works for your concept and share it with the tenant reps so they know what works. So we have to look at the practical site selection components to make sure the space works. And they have to market it to make the business successful. What are really doing is mitigating the risk for failure. We are not necessarily trying to find the best site. Looks at the other elements, such as demographics, to make sure everything matches up.
- #24 Joe: So you develop an idea of what you are looking for in a site but during your search you find options that might be smaller or larger or off in a different way. How do you determine what’s right for you? Matthew: Go back to your forecast Start by taking your high end projections and shredding them. Instead, budget for three levels: break even, intermediate level of success and superior level of success. Be realistic when building revenue. Today we see some restaurants are too small but often they are too big. Remember, a seat does not equal revenue. A guest does. Once you have a breakeven you have an idea what it takes to be successful.
- #25 Joe: Working with franchisees can pose a different set of challenges and expectations. How do you address that? Greg: As much clarity that you can provide franchisees helps a lot and analytics are the main tool we use. When working with analytics, have a champion for this. Someone that knows how to make the most of it. Manage their expectations and steer them in the right direction to make them feel comfortable and understand you are trying to make it easier for them. And remind them why they are buying into a system and the benefits of that system. Site selection process: Be as transparent as possible. Can last 10 to 11 months from the time you start looking Many franchisees will be enthusiastic and try to open sooner Remember you don’t control leases, permitting, weather and more. Have to manage expectations and remind them that availability of real estate dictates the process
- #28 Joe: And what are some mistakes Penn Station has learned to avoid over the years? Greg: When you look at a market plan it should show what factors are necessary for success A lot of concepts just want to get stores open. But you have to understand some of the risk factors, like poor visibility or accessibility. Good sites have a lot of parameters but the perfect site does not exist. So find the one with the most going for it and work from there.
- #29 Joe: What are some traps to avoid when selecting a site? Matthew: Here are five common sob stories we hear. I never read the lease. (Lesson: Always read your lease. Every line.) I went to the attorney the broker suggested and the attorney told me what was in the lease. (Hire your own attorney, preferably one that handles lots of real estate deals) I never talked to the city about core infrastructure. (Find out what’s planned for the area you are entering.) Did not get an exclusive on my core menu item. (There’s lots of competition today. Be savvy.) My concept is so strong it can overcome a different demographic than my other restaurants. (It can’t.) My restaurant is got to be this big or I won’t be able to make money.
- #30 Joe: What are some mistakes to avoid when researching a site? Jeffrey: Don’t have 10 brokers looking for the same team. Make your broker an integral part of your team. Don’t be lured by a landlord who loves your restaurant but has a site that does not meet your financial and emotional needs. It has to support what you need to be successful. If those factors don’t match, your restaurant will not be successful. Don’t be afraid to widen your search. Don’t lock yourself into too tight of a geographic area. If you want to open up in Chicago, are the suburbs a better option? Other towns? Could be better for growth opportunities; lower rent. There are markets where you can meet your financial goals.
- #32 TriMark is the country’s largest provider of foodservice equipment, supplies and design services. Countless restaurants rely on TriMark’s expertise to realize their vision for success; from design/build to supply distribution, TriMark is there every step of the way. We are TriMark, and we bring it! Visit trimarkusa.com to learn more.