Location location location!
I bet you’ve heard of this tune before.
It’s basically the song that experienced brick & mortar owners sing when someone asks them tip on how to be successful.
Each day I get people asking me questions about restaurant locations:
How do you choose the perfect location for the food and beverage shop?
How much should I be paying in rent, should I be paying $10,000, or should we be paying $2,000?
Because of how many people ask me these type of questions, I’m going to be answering that here in detail.
I’m also going to be covering the common pitfalls to avoid when choosing your restaurant’s location.
Let’s get into it!
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In A Fantasy World…
Where pricing isn’t an issue…we’d choose to have our restaurant in the heart of downtown, right?
Because it has the most traffic. Which gives more opportunities to convert the traffic into customers (revenue).
But in reality, pricing is a major issue and deciding factor.
It’s the reason why we’re going to be talking about the difference between a destination location, and a high traffic location.
What is a High Traffic Location?
A high traffic location means that there’s going to be a lot of foot traffic. That means a lot of people are walking by that area.
An example of a place that has high foot traffic would be malls, downtown, and financial district.
Since there are so many people walking by, it’s a lot more potential for you to convert these walk by traffic into your customers.
However, “potential” does not equate to revenue if you don’t do a good job converting the foot traffic into your customers.
Most high traffic locations are dominated by big box brands (like Starbucks and McDonald’s) because rent for these spots is extremely expensive. Landlords know these are hot spots and could bring high potential revenue.
What is a Destination Location?
Destination location are polar opposites of High Traffic Locations. They have minimal to no foot traffic at all.
These would be your mom and pop shops tucked in an inner street or residential area. They are out of the way and need to be driven to.
The advantage of Destination Locations is that the rent is a lot more affordable compared to high traffic locations.
But of course the major disadvantage is lack of foot traffic. You need to be able to drive your own traffic. People need to know about you, and people need to drive intentionally to your location, and to consume at your location.
That requires a lot more friction.
To give you an example, 720 Sweets is a destination location because we didn’t want to take the risk of paying five, six thousand dollars for rent just to sell ice cream.
We chose a destination location, a little bit tucked in from the main street, where the rent was a lot more affordable. So even if it takes a while to gain traction we were okay with that, because our risk tolerance was a little bit lower. That’s why we chose a destination location.
Depending on your resources, and the confidence level of your offering, you would be able to choose either a destination location or a high traffic location.
Franchises, and big box shops, and chains don’t just choose downtown locations because they can afford it, it’s also because they have a proven formula.
They know they can convert that foot traffic.
It isn’t so Black & White
In many cases, locations are not as clear cut as either being a destination or a high traffic. There are a lot of different elements that come into play that tips one way or the other.
4 Location Elements
How visible is your shop?
How visible is that location?
When people drive by, can they see your location?
Or, is your shop completely tucked in and out of sight, and there’s no way anyone can ever see your shop?
If it’s completely tucked in, that means that it is a Destination Location to the extreme.
Sometimes there are locations where people do drive-by, and people do see it, although not a lot of foot traffic. Other times the location will be situated at the financial district, which is only busy during work hours. But, then after work hours no one goes there.
There are these elements that you would consider, and you would bring these elements to actually go and negotiate with your landlord.
2.) Crime Rate
How safe would you feel if everyone around that area of your shop is taking drugs, and having multiple break ins, so on and so forth?
You wouldn’t feel that safe, and in turn that rental space would cost a lot less because of the crime rate around that area.
Even though it has a lot of high traffic, it is not the traffic that you’re looking for. And in turn, you can negotiate for a better rate with your landlord.
Is there accessible parking for your location?
If there’s no parking spot dedicated for your restaurant, then that means that is not as accessible as a place in a lot that has a lot of parking space. That itself will take away a lot of different customers.
For example, if you’re catering to a more higher end demographic without parking spots, then you would probably offer valet, which is another additional cost.
Having said that, is your location accessible by bus, or public transit?
If it is, then that means that the prices would go a little bit higher as well because once again, higher traffic.
This is something that no one talks about.
Yet, it is one of the crucial things to consider when deciding a location.
What I mean by that is, you need to be in a place where you feel that it serves your customers. You need to be in a community where you feel belonged.
A lot of times when I choose locations, I would actually be in that location, and be at the competitor’s spot. I would observe how the community is coming together.
When people come in, do the waitress and waiters address each other by their first name? Because if they do, then we know that these are regulars, that they come back again and again.
When I’m there I’m also observing whether people feel like they belong there. Whether they sit there for a long time, or they just grab and go.
Regardless of the fact, you need to be within the community where you feel comfortable, because you’re going to be spending years in this community.
If you do not spend the time to consider this really crucial factor, then you’re going to be stuck in a place where you don’t find any joy and passion in, and that really defeats the purpose of running a food and beverage shop.
For example, when we were choosing location for our dessert shop 720 Sweets, we were driving around the area, and driving across different communities to see which one is most fitting for our demographic.
In turn we were able to find a community which we really, really like. Our shop is very accessible, right in front of the bus station. We were 10 minutes away from the university, and when I was choosing that location I was just at McDonald’s, and I was able to see a lot of university kids just walking and strolling by the streets, even though the traffic is not very dense. But, a lot of university kids are just walking around the area.
This community proves to me that it is catered towards my demographic, and which is the reason why we chose our first shop 720, in that location.
Now that we’ve talked about the different elements to consider when choosing your perfect location, we’re going to be talking about the two deadliest pitfalls that I always see people make.
2 Deadly Pitfalls When Choosing A Restaurant Location
1.) Confirmation Bias
Confirmation bias is basically falling in love with a place that you’ve been to, and you’re finding all these reasons to back up and validate why this should be the place of your choice.
Why this is the place that’s going to make it super successful.
And, you’re finding all these clues just to confirm and validate your emotions, which is you falling in love with the location.
And, you fail to see there’s no visibility, it’s tucked into a corner out of nowhere, there’s not accessible at all, no parking spots, no public transit, yet you’re catering to university kids.
How are they going to be able to get to the shop?
They’re not going to be able to get to the shop.
And thirdly, you fail to see the three other ice cream shops around the area, and they’re all suffering.
These are what I call confirmation bias, and a lot of people fall into this trap because they’re making judgment based upon their emotions, not rationally.
When it comes down to it, choosing a perfect location, always, always be aware of this number one deadliest pitfall, which is confirmation bias.
2.) Not Negotiating
Now, the second deadliest pitfall that I always see is that people don’t negotiate for their rent.
It’s not that they don’t want to, it is because they’re afraid.
Why are they afraid?
Because they’re not well equipped with the education that I’m just sharing with you.
They’re not aware of how much of the surroundings they’re charging per square foot. They’re not aware of the different elements that come into play.
Is the place accessible? Is the place highly visible?
These are the things that you would want to bring up to your landlord after you’ve done your research, to tell them, and negotiate with them, and to rationalize with them.
“Hey, you know what, landlord? Your place is charging the same as something that is comparable, but you’re lacking parking spots. Why can you charge the same? Can’t you lower the rent because you don’t provide parking spots for my guests? And in turn, that would lower our customer satisfaction.”
A lot of times, they know about these things.
I’ve been on the other side before. I’ve been a landlord.
I know my shortcomings, and I know when people pick on them, I would be much more willing to negotiate because they know their stuff.
A few things that you can negotiate:
- build-out cost
- free rent
- not increasing the rent
- lowering the rent.
These are things to consider, and to negotiate for when negotiating with your landlord.
Make sure you guys always, always negotiate with your landlord when choosing a location. Because, at the end of the day there really is nothing to lose.