What to Consider When Scouting a New Restaurant Location [eGuide]

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E-GUIDE
WHAT TO CONSIDER
WHEN SCOUTING A NEW
RESTAURANT LOCATION

Introduction
Whether you are looking for your first restaurant location or expanding with multiple units, the issues remain
the same. Choosing the right location is the most important business decision you will make.
The location you choose represents the single largest, long-term, fixed cost obligation of the business. Within
the operating spectrum of your new restaurant you can make many choices involving your variable costs.
Although once you’ve locked yourself into a location your choices become slim. You are betting everything on
this single decision. You are fixing a position in the universe through which you believe customers will find and
sustain your restaurant. It won’t move, unless you are planning on opening a food truck.
You will bind yourself legally to this facility and the costs related to operating it for years to come - very often
with trailing liability if things don’t work out. Your business revenue may go up and down – but your cost of
occupancy often remains fixed and your financial stability may be decided by your cost of occupancy.
In this data driven world, you can learn a great deal from demographic studies and census data, but the
winning restaurant operator understands fully this is a people business and you need to have real street
sense to maximize your choices.
The number of considerations involved in choosing your next restaurant location can be overwhelming.
To help you out, we’ve given you some simple guidelines to help you in this very complex process.
In this eGuide, I won’t discuss the primary requirement – money. That is a subject that requires its own
discussion. For this exercise, it will be assumed that you have identified a source of financing and that you are
working off a defined budget.

What Comes First - the Concept or the Location
Restaurants involve both arts and science. Many of the decisions involving their creation and operations are
driven by emotion or an artistic sense of what will appeal to the public and drive the success of the venture.
Most people have an idea of what they want their restaurant to be long before they find a potential site.
Unfortunately for many of them, they are not willing or capable of making the changes that their market calls
for. It is far easier to be a good matchmaker than back peddling a year or two down the road to re-engineer
your concept. If you are totally set on a specific concept / menu, make sure you do your market research and
ground work thoroughly before committing to a location.
Your concept / menu and brand are your business drivers. If people are attracted to what you are offering in
food, service, ambience etc., your concept / menu should be strong enough to consistently attract patrons to
fill your seats. It is your restaurant's soul. If it doesn’t fit the market you are considering – move on.

Who is Your Customer?
Even before the location, many restaurateurs have a good idea regarding the type of restaurant they wish to
open. Rarely does it evolve the other way. Occasionally a more seasoned operator might find that one out-
standing spot and create the right style of restaurant to fit that particular location.
In any case, before you do anything you need to answer the following questions:
• Who is your primary target audience?
• Who is your customer?
• What is their price point?
Having definitive answers to these three questions is the key to the success of your new location.
Is it a young tech professional market? Hipster urbanites into eclectic funky places? Young families with
mortgages seeking places that they can bring their kids? High income executives seeking more upscale
environments? Baby boomers downsizing in a golf community? Whatever the market is – establish a clear
vision of who you are trying to attract and serve. They may not be your entire customer base, but this will be
the primary driver of sales.
Who Lives and Works Here?
With the vision of your primary target audience upfront in your mind, you can begin the search. An old
restaurant site search standard states - “85% of your patrons will come from no more than 3 to 5 miles from
their bedpost”. People will eat out more in close proximity to where they live and work.
When people are in transit, opportunity and accessibility will drive dining decisions as evidenced by diners
and other quick serve restaurants popping up along major thoroughfares and highways. It is more about pass
by traffic than it is about who lives there.
Decide What is Most Important to You
Did you stumble across what you believe to be a killer location without consideration for the target market
or specific restaurant concept? Are you married to a single concept / menu that fits your skill set? Is it more
important to be located in the new hot neighborhood or are you seeking population density or a certain
income demographic profile? Is your budget the biggest consideration?
Make sure you get your priorities clear, because once on the hunt, emotions often take control of reason and
many buyers find a thousand reasons to justify a really bad decision.

What Type of Location Best Fits Your Vision
Types of locations – advantages and disadvantages:
1. Urban Commercial / “Downtown” – Primarily commercial neighborhoods. Usually in a major metropolitan
area surrounded by offices with little or no residential zoning.
Advantages – strong demand generators such as offices and retail. Potentially good lunch and
early dinner business. Could be a great Monday through Friday business. Depending on the city,
you might even get more favorable rents.
Disadvantages – less local traffic because of light residential component. Serious drops in
traditional dinner business and on weekends, vacation periods, holidays etc.
2. Urban Mixed Use / “Uptown” – Greater residential component. Mixed residential, commercial and
sometimes offices. Smaller businesses and local shops may be the only demand generators.
Advantages – stronger dinner business and late night business with ability to build regular
clientele. Also a high concentration of urban apartment dwellers.
Disadvantages – less commercial / corporate office traffic. Lunch can be extremely tough in
these areas.

3. Central Business District (CBD) / Retail Corridor – most often in a suburban setting. This is where
everyone in town comes to shop and recreate. Think of this area as the “Town Center”.
Advantages – A Central Business District often has strong local traffic, and the area is filled with
demand generators. Also a true destination for residents of surrounding real estate. It’s usually a
center for retail, entertainment and other restaurants. This clusters of restaurants provide shared
exposure to market and offer diners variety and increased frequency in the area.
Disadvantages – Traditional retail is experiencing heavy challenges with decreasing traffic and
competition for internet retailers. Heavy restaurant competition might not be advantageous if too
many similar concepts compete for limited dollars. These locations are subject to community
business fluxes such as school vacations, holidays, bad weather etc. Lunches will very often be soft
and the vast majority of sales will be derived on weekends. Also, very often the cost of real estate
may be artificially high due to limited availability of space and restrictive zoning.
4. Regional Mall – Most often a recognized stand-alone - a broad market region that attracts customers from
a wide radius and offers heavy variety of retail, entertainment and restaurant options.
Advantages – Originally these locations offered high foot traffic and concentration of customers
seeking to spend considerable time at the location. The traditional retail environment is changing
and compressing and they no longer attract the same traffic as in years past. Today the primary
drivers of traffic to regional malls are very often the restaurants and entertainment venues like
movie theaters. Clusters of restaurants provide shared exposure to market and offer diners variety
and increased frequency in the area. Competition is usually restricted (ie. Only one Italian restaurant
or steakhouse permitted).
Disadvantages – Regional malls have dying traditional retail traffic. Also, the high cost for rent,
common area charges and build out continue despite recent developments in retail contraction.
Independent restaurants are forced to compete against well-financed national chains. These
locations are subject to community business fluxes such as school vacations, holidays and bad
weather. Typically the majority of sales will be derived on weekends, and operators are subject
to strict mall operating rules governing hours of operation etc.

5. Big Box Retail / Freestanding Pads – Big draw retailers and discount houses like Costco and Walmart
that attract regional car traffic but very little foot traffic. Freestanding pads in front of these locations
are primarily the domain of national restaurant chains and high volume independent regional chains /
operators.
Advantages – Freestanding pads leave a big foot print with high exposure to highways and vehicle
traffic. Big boxes are also demand generators that give visual exposure to a restaurant. A cluster of
restaurants on pads offers greater traction, and true destination for residents of surrounding real
estate. Also, Competition is usually restricted, which clears the area for plenty of parking
Disadvantages – This type of real-estate often has a high cost for build out, rent and common area
charges. Deals for pad sites are typically for land leases requiring the operator to pay for the build
out of the facility. Many landlords have eliminated or reduced their contribution to tenant
improvements, even for highly qualified operators. If the developer / owner of the complex agrees
to pay for build out with cost recovered through future rent payments, escalations can crush the
long-term viability of the restaurant. High demand for these locations from well organized national
chains and franchises also make it difficult for some independents to compete.
6. Strip Center Retail – These smaller clusters of retail stores, restaurants and service providers like banks,
supermarkets and Post Offices are built in line to address the needs of local communities.
Advantages – If tenant mix is good it draws people to the location for multiple reasons. It offers
higher visibility as a destination for residents of surrounding area, and competition is usually
restricted. Parking is usually positive and rents remain generally competitive.
Disadvantages – Most favorable location in many strip centers are the “end caps” otherwise visibility
and logistics might be compromised. Tenant mix is vital to generating foot traffic, and a poor mix
results in negative perception of center with negative spillover on the restaurant. Also, the parking
may be at a premium with restaurant competing with other businesses for parking spaces.

7. Non Traditional Outlets / “Hermit Crabs” – these are anything from concession stands in food courts to
snack shops in gas stations, to rest stop eateries on highways, to corporate dining rooms, or lunch rooms
in office complexes.
Advantages – These non traditional outlets have a captive audience, limited hours of operation
and often little or no rent as an amenity to the building. The facilities are also often managed and
maintained by the sponsor / landlord.
Disadvantages – Little outside exposure to customers except in the case of rest stops etc. Limited
hours compress your flexibility to build additional day parts for business.
8. Seasonal Operations – these can be anything from restaurants that operate at ski or waterside resorts
with outside dining. These restaurants can experience radical business fluxes and are totally dependent
on seasonality.
Advantages – High traffic in season, and the local demand generators build solid market base. An
operator can yield a great return for the year within a few months of operation.
Disadvantages – Limited prime trade time presents considerable risk particularly if area is weather
dependent i.e. if there is no snow at a ski resort one winter, or it rains every weekend at an ocean
side resort town in summer. Operators very often must pay rent all year even if they are only
operating for a few months. Also, building a new staff every year is difficult and expensive.
9. Specialty /Ambience Driven / Charm Locations – unique restaurants that offer ambience as a primary
motivation for customers. Quaint country inns, roof top restaurants with dramatic views, restaurants on
cruise boats etc.
Advantages – Traffic is driven by the location / atmosphere making execution important. They are
very often the special occasion restaurant of choice, and hold high recognition as supported by the
unique character of the restaurant.
Disadvantages – Usually not the“everyday”restaurant, therefore has limited market. They are more
often a special occasion or recreational restaurant. The physical character of the restaurant may
also not be strong enough to sustain interest of customers. The restaurant might be out of the way
as well, and if it isn’t supported by additional demand generators, it may not be viable.

Get On the Ground
It is imperative that you realize that you can never have too much information on a prospective location.
When narrowing in on a potential site you should strive to know everything there is to know about the people,
places, businesses, competitors and economic conditions within a 5 mile radius of the target location.
The process, called “due diligence”, means that you must diligently investigate and verify all the information
due to the importance of the decisions.
13 key factors to consider:
1. What is the demographic profile of the area with respect to population, median income, household
income, unemployment rate, crime rate, average house sales and prices? In some cases you can
determine dining patterns for an area with the help of credit card providers.
2. Does the neighborhood / region / market suit your primary target market and physical needs?
3. Are there demand generators in area that will feed your business?
4. What are the potential meal periods – lunch, dinner, breakfast / brunch, take out or delivery? Be realistic.
5. Is this a favorable lease?
6. What is the physical condition of the property, furnishings, fixtures and equipment?
7. What is the volume of traffic and where is it coming from? Is it with you or against you in executing your plan?
8. How is the access to the restaurant? Can you turn into it from both sides of road, etc.? Is it accessible by
foot? Is that important to you?
9. What is the parking situation? How many spots are dedicated to the restaurant? Compare this to seating
and the potential number of employees. Is this a factor in your possible success?
10. Are there any potential obstacles from regulatory agencies such as Planning Zoning Board or
environmental protection agencies?

11. Does this location involve the purchase of real estate?
12. Are there any deficiencies in the property? Such as defective septic, bad roof, vermin, etc.?
13. If you are buying an existing restaurant.
»» What were the restaurants sales for the last three years (demonstrated by tax returns)?
»» How long has the restaurant been in business?
»» Why is the restaurant currently being sold?
»» Is the business being sold or the assets, such as the lease and equipment, being sold?
»» Is the restaurant in financial trouble right now? Late taxes? Behind with vendors? Late on rent?
»» What is the current owner’s relationship with the Landlord and is the lease assignable?
»» If you are interested in selling alcohol – is the liquor license obtainable, transferrable? Is it or the location
compromised? Are there any community or regulatory impediments to obtaining a license?
»» What is the asking price for the business? Flexible or firm?
»» Is the seller willing to hold paper (a seller’s loan)?

The Next Hurdle: Verification
BUYER BEWARE! Before you agree to anything or express further interest you need to verify all of the
information that you were provided.
Some of the things to look for:
• Review the Lease
• Is the seller current with his rent? Speak to landlord – don’t take sellers word for it.
• Are there any liens, UCC-1s, judgments, claims against the business or assets that might encumber the sale?
• Verify the sales claims – do they match the tax returns?
• Do the state / local sales tax returns match the Federal Income tax returns?
• Is the seller delinquent in making tax payments?
• Do the credit card sales seem disproportionate to the claimed sales?
• Do the variable / controllable costs reported on the tax returnsreflect the claimed sales? Cost of Goods
(food and beverage), payroll and rent costs.
• Did you check with the town and regulatory agencies to see if everything complies with your knowledge of
the property?

Use of a Broker
In order to expedite the process you may elect to engage the services of a qualified broker to help you find
the ideal location. My recommendation is to use a Restaurant Broker that is also licensed as a Commercial
Real Estate Salesperson. DO NOT use a traditional residential or general practice realtor. The nuances of
site selection, commercial real estate law, local and state regulatory issues etc., are far too specialized for
general realtors. You need an expert.
If the Restaurant Broker is really tuned in, they know the market, demographics, economics and opportunities
and will be able to deliver numerous listings in a broad geography. There is no rule saying that you need to
work with one broker except if you sign them as your Buyer’s Broker which means they work for you. They
may however try to sign you to an exclusivity agreement requiring that you only work with them as your
representative. The choice is yours. As with any relationship there are pros and cons.
Conflict of Interest - The Broker you are working with may also be the “listing broker” for many of the locations
being introduced to you. Because of this, a possible conflict of interest might exist.
The old adage that you cannot serve two masters illustrates
that this broker can’t protect the interests of both the buyer
and seller. The Listing Broker has a responsibility to the
Seller to get the best deal possible and that may be working
directly against the Buyer. To address this issue you may
require the signing of a “Dual Agency” disclosure agreement
permitting the broker to work with both parties in the capacity
of mediator. If you are not satisfied knowing that the Brokers
fiduciary responsibility lies with the seller, you are on your own,
or you can retain a Buyer’s Broker to work on your behalf.
Most buyers that are serious use more than one broker. If you do use more than one
broker, make sure that you notify each broker if they happen to present the same
listing. The broker who showed it to you first is considered the “procuring cause”. In
many jurisdictions they must physically bring you to the location in order to achieve
this designation. If not careful because you might find yourself in the middle of a nasty
commission dispute or worse – a lawsuit.
“There is no rule saying
that you need to work
with one broker except
if you sign them as
your Buyer’s Broker
which means they
work for you.”

Guerilla Tactics - Be Your Own Broker
One of my favorite methods of finding out if a restaurant is for sale, is to play detective, then make a confiden-
tial approach to the owner.
I have purchased restaurants that I had admired, merely by watching business levels and keeping my ear to
the ground. I dine out and speak to servers and bartenders as a fellow restaurant guy, always asking how
business has been. However, NEVER ask if the place is for sale or even mention you are interested in buying it
as it spooks the staff and you will alienate the owners.
If you are really connected you can sometimes find out through vendors if a certain restaurant is struggling and
behind on payments. Always a leading indicator that a deal may be possible. All is fair in love and business!
Hedge Your Bet
Since deals are fluid, and you never know what the outcome will be, it’s recommended to try and put together
more than one deal at a time, since you may find insurmountable issues on one and you’ve kept your options
open. You are not obligated to anyone until you place a binder with a signed offer. Even then, if done right,
you can walk away from a deal with your deposit and no penalty… keep reading, I’ll tell you how to do it.

Before Committing to a Site
1. Do a comprehensive Projection / Pro Form
This will reflect REALISTIC, Best Case, Worst Case and Most Likely numbers that is specifically designed
for this location. Make sure that it reflects all occupancy costs and any direct operating costs that might
be specific to this location. If you can’t sustain operations for an extended period of time under your Worst
Case scenario – negotiate further or move on.
2. Consider hiring an “underwriter”or consultant
You should consider hiring an “underwriter” or consultant to do a comprehensive background check on the
business in question. Have them look for encumbrances like liens or judgments that could pose problems.
3. Visit the town hall
Make a visit to town hall or call regulatory agencies to determine if there are any issues that might arise.
4. Leave yourself an out
When presenting an offer or letter of intent to a seller, landlord or developer – leave yourself an out in the
form of a financing contingency or other provisions requiring your final acceptance or approval.
5. Prepare for personal financial scrutiny
Be prepared for personal financial scrutiny. A seller, landlord or real estate developer will want to know
that you have the financial ability to execute your plan and sustain the business.

About the author
David Sederholt
Serial entrepreneur, David Sederholt, has conceptualized,
launched and built numerous companies in a variety of sectors
over the past 40 years, including the restaurant industry. Newly
retired Chief Operating Officer at Strategic Funding, he graduated
from Pace University with a BS in biology and began working in
Biomedical research. Despite his work in the medical field, he
always felt a strong pull towards entrepreneurship.
His first entrepreneurial adventure began with a restaurant in
New York City, which he opened while working in the laboratory
during the day. Learning the lesson of scalability, he ultimately
owned and operated over a dozen restaurants, including the Rattlesnake Southwestern Grills, which he
founded and took public on the NASDAQ markets. David also founded and built numerous ventures in the
financial and real estate industries. As a true entrepreneur, he hardly rests as evidenced by the implementation
plan for his newest venture, an ecommerce platform to disrupt the traditional business consulting model,
targeting independent restaurants and Main Street small businesses.

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