Restaurant Site Selection

Michigan State University Extension
Tourism Educational Materials - 33319733
06/06/02

Restaurant Site Selection

University of Missouri-Columbia

Quirk, Neil P. *
Lukowski, Robert F.
Laudadio, Dante M.

M113
33.31
November 1978

Restaurant site selection is a complex decision often
made without proper planning or sufficient information.
It is generally held that the site selection process is
more art than science and therefore difficult to
quantify. The most important aspect of site selection is
to assure that all factors that could possibly have any
bearing on the decision are considered carefully.

Small restaurateurs do not give enough attention to site
selection. Too often it is a hit or miss proposition
because the restauranteur places too much emphasis on his
personal experiences including management and marketing
skills a means of attracting and holding customers. Those
skills are very important--but are only partial
substitutes for a good location.

_________________________________________________
* Neil P. Quirk is Management Assistance Officer,Small
Business Administration, St. Louis. Robert F. Lukowski
and Dante M. Laudadio are State Extension Specialists,
Food Service and Lodging Management, University of
Missouri-Columbia.

The information in this publication is based on
Mr.Quirk's Research Project for the Master of Science
Degree.

Chain operations, on the other hand, have considerable
background information on their customers (customer
profile) and will try to find locations where their
establishments will attract the same type of customers.
The success of national multi-unit operations indicates
that more than intuition is being used in selecting the
"right" location. Armed with comprehensive data,
including demographic data, present and planned
transportation routes, city and downtown land uses,
municipal restrictions and other related factors, they
are relying less and less on intuitive decisions.
However, single unit or small multi-unit operations rely
almost exclusively on intuitive decisions in site
selection.

Most small restauranteur cannot afford a detailed
feasibility study that may cost as much $5,000. What they
need is a simple site selection criteria model designed
to focus attention on those facto that must be considered
when choosing a restaurant site. The site selection
criteria model discussed in this manual can be thought of
as an extensive systematic check-off list. It is not a
complex quantitative device requiring sophisticated
input, computer analysis, or "expert" interpretation. The
model is a simple, straightforward approach to site
selection. It can be used by any restauranteur who faces
the problem of finding a suitable site for his operation.

A few of the factors listed may be of little importance
to some restauranteurs. However, the majority of the
factors are very important---worthy of close scrutiny.
The model serves only one purpose: to assist the
prospective restauranteur in reviewing the list of site
selection factors and in considering the ramifications
that each may have on the prospective location(s) before
he commits his resources to a particular site.

Feasibility Considerations

The considerations outlined here while the most
important, are only a few items that should be considered
prior to site selection. It must be remembered that each
situation is unique and therefore possesses its own set
of considerations. What applies to one situation may have
little or no bearing on another.

Money. The first consideration when attempting to
determine the feasibility of a restaurant operation is
money. Does the prospective restauranteur have the
necessary capital and is be capable of borrowing any
additional funds he needs? The monetary requirements for
establishing a new food service facility include:

1. Initial cash or down payment

2. Interim financing

3. Long term financing

4. Equipment and fixture financing

5. Reserve for contingencies

6. Working capital

If the estimated cost of the proposed facility is beyond
the prospective restauranteur's financial capabilities
then the project cannot (should not) be undertaken.

Management Ability. The second consideration must be a
close look at the prospective restauranteur's management
abilities. A thorough analysis (or self-analysis) of the
individual, partnership, or corporation must be
completed. The operation of a successful restaurant,
regardless of size or type, depends on good, steady
management.

Henry Fayol stated that management is basically composed
of planning, organizing, actuating (directing) and
controlling. Later students of management have added
staffing to his initial list. Staffing is of particular
importance to the food service industry. Thousands of
books and articles have been written about the art and
science of management. Therefore, it would seem unlikely
that such a huge amount of information can be reduced
realistically to five principles. However, if a
prospective restaurateur would explore and honestly grade
his capabilities in these five areas---planning,
organizing, directing, controlling and staffing---many
doomed operations would never be started.

PLANNING.

Does the prospective restauranteur posses the ability to
formulate a comprehensive plan that will carry him
through the process starting with the initial "idea" to
the "grand opening" and beyond? This overall plan (the
dream phase) must be workable and adaptable.

ORGANIZING.

Does the prospective operator have the skills to form a
coherent plan? Can he establish appropriate priorities
that can lead to an orderly achievement of goals? The
organizing segment (the structural phase) is the
blueprint for success.

DIRECTING.

Does the prospective restauranteur have the leadership
skills to set the organization into motion? Does he know
how and when to direct? Can he use his organizational
resources: men, money and materials, to best achieve the
objectives laid out in his plan? The directing process
(the motion phase) is the successful blending of men,
money, and materials into a workable operation that is
capable of achieving the restauranteur's goals.

CONTROLLING.

Does the prospective operator have the capacity to
maintain the efficiency of his organization by continuous
inspection, testing, and verification? Is he aware of how
his operation fits into the environment and how each
affects the other? Does he have the ability to make the
necessary changes if his operation lags behind or gets
off course? The controlling task (the inspection phase)
is the continuous policing process of the organization.
It is designed to assure that the methods and the people
chosen achieve the goals of the organization.

STAFFING.

Does the prospective restauranteur possess the skill to
handle the awesome task of developing an efficient and
compatible team? Does he have the capacity to train them
and orient them to his particular operation? Can he cope
with a union should his personnel decide to organize?
The staffing problem (the people phase) is continuous by
nature and will never cease requiring constant attention
and understanding.

Analysis of Operation.

A third consideration is an analysis of the actual type
of operation proposed. Is there an indication of demand
for the product? How much volume, considering the
anticipated mark-up, will the operation need to make a
profit? Considering the volume, is it necessary to locate
in a community with a population of a certain minimum
size or income level?

Labor Market.

A fourth consideration is the quality and quantity
factors of the labor market. What are the minimum
acceptable labor standards required for the type of
operation? Does the selected community possess these
minimum standards? A restaurant desiring to use a
particular ethnic staff for example, must be certain that
the personnel are available and willing to work.

Supply.

A fifth consideration is one of supply and logistics.
Does the operation require food items that can be
purchased from almost any purveyor or does it require
"specialty" items available only from specialty
suppliers? What state of freshness is necessary? Fresh
seafood, especially exotic varieties, might be impossible
to find in many inland areas. Special air shipment
charges often drive prices above the point at which the
item can be sold in sufficient volume. Is the nature of
the business one that requires frequent or even daily
deliveries? If these questions are answered positively
then many remote locations do not qualify for
consideration simply because many suppliers will not make
deliveries as often as necessary.

Assuming then that the venture is considered feasible to
this point, the next step is to determine the best site
available for the proposed restaurant.

SITE SELECTION CONSIDERATIONS MODEL

1. Region and State

2. Municipality
* Large city
* Intermediate city
* Small city
* Rural community
* Highway Interchange

3. Locational Factors
* Residential areas.
* Industrial areas
* Central trade areas
* Shopping centers
* Recreation areas
* Sports facilities
* Education facilities
* Other attractions

4. Locale
* Type of neighborhood
* Customer profile criteria
* Site(s) available
* Other types of businesses in neighborhood
* Pattern of Growth
* New construction or remodeling underway

5. Appropriate Zoning and Codes
* Restaurant specifically allowed
* Parking space(s) criteria
* Sight code
* Use permits
* Building height and setback restrictions
* Lot width and depth requirements
* Building size to lot ratio restrictions
* Curb breaks
* Food service and liquor license requirements

6. Competition
* Total number food service facilities in area
* Total number of operations selling like foods
* Total number of operations selling similarly priced
foods
* Total number of seats in each category
* Type(s) of food available
* Level of service
* Alcoholic beverage availability
* New competition under construction or planned

7. Specific Lot Characteristics
* Clear title or lease considerations
* Exact size and shape diagramed
* Boundaries measured and walked
* Total square footage computed
* Minimum building square footage determined
* Parking square footage determined
* Additional square footage required
* Soil analysis
* Leveling, grading or filling requirements
* Geological engineering study
* Natural drainage of site and adjacent property
* Landscaping and other features

8. Traffic Arteries
* Traffic counts
* Street patterns and flow direction
* Number of lanes
* Surface type and condition
* Curbs and sidewalks
* Type and quality of lighting
* Ingress/egress to site
* Obstacles and hazards
* Public transportation
* Distance(s) from intersections, transit, terminals,
landmarks
* Other characteristics

9. Utilities and Municipal Services
* Electricity
* Gas
* Other energy source(s)
* Water
* Sewers
* Police protection
* Fire protection
* Hydrant(s) existing or proposed
* Trash collection

10. Visibility
* Driving
* Walking
* Degree of obstruction
* Sign location and height

11. Cost Data
* Site cost
* Cost per square foot
* Site Improvement cost(s)
* Taxes

12. Comparables
* Professional appraisal
* Highest and best use

Site Selection Consideration Model

Selection of a suitable site should come after the
restauranteur has gathered the pertinent information and
organized, analyzed, and evaluated it. The investigation
should be exhaustive and follow a logical process.
Decision factors will vary in importance depending on the
individual and the type of restaurant under
consideration. The amount of money available and the
availability of property also play a part in most site
selection decisions.

The decision-making process in site selection must
include large amount of information assembled and
presented in a clear manner. If this is not done, the
chance of making a wise choice is very slim. The site
selection model illustrated on Page 3 helps the
restauranteur assemble and analyze the pertinent
information in a clear and orderly fashion.

Discussion of Factors

Region and State. It might seem too fundamental to begin
a site selection criteria list with such a broad
consideration as region and state. However, if one has
lived in, and enjoy, the desert Southwest most of his
life, the opening of a restaurant in northern Minnesota
may prove ill-advised. Many large fast food franchisors
assign new locations to prospective franchisees by the
position occupied on their waiting list with little or no
consideration given to geographic preference. Therefore,
if a prospective restauranteur and his family would not
be happy in a particular region or state it should be
avoided.

Municipality. The criteria for determining the optimum
size of the municipality in which to operate is governed
by many considerations. The type of restaurant planned,
the capital investment, the prospective restauranteur's
desires, and the whims of franchisors are just a few.

Many types of operations require large cities because
they must meet volume and average check minimum. A
roadside chain will open on highways that have a
specified minimum traffic volume. A clean, well-managed
cafe on the other hand, can operate successfully almost
any place. The main concern is simply matching the
prospective operation with the appropriate size
municipality.

Locational Factors.

Simply stated, the habits of certain customers tend to
dictate the location of a restaurant.

Great restaurants generate their own traffic;
unfortunately, the vast majority of restaurants are not
of this quality. So the "average" food service facility
must depend, at least in part, on other traffic
generators. It might be a busy regional shopping center
or a downtown central business district or even a sports
facility.

When considering a site for a new location,
restauranteurs must determine the market "segment" they
are after and attempt to locate in a place most
convenient to that segment. A pizzeria might be located
adjacent to or in some cases even on a college campus
because a major segment of the market is found in nearby
dormitories, fraternities, and sororities. A major sports
facility might attract a lively establishment with a
limited menu concept that caters to pre-game and
post-game merriment.

Locale.

Tentative selection of a particular neighborhood for a
restaurant site depends on considerations such as: median
income, ethnic make-up, site availability, competition,
existing businesses, and growth patterns. An area having
a relatively large Italian population most likely will
have several restaurants featuring Italian cuisine. A
particular Italian restaurant may cater to the affluent
customer who for the most part lives outside the "ethnic"
neighborhood. Therefore, the restaurant is located some
distance from its customers but is near staff and
specialty suppliers.

The intangible value of authenticity is highlighted when
an "Italian Ristorante" is located in an Italian
neighborhood. If this particular operation were to move
to an affluent suburb could it maintain its clientele?
This is an important consideration. One of the finest
restaurants in the country is located in a rundown,
depressed area of a large Midwestern city and as far
anyone can determine the owners have never considered a
move to the suburbs. Why should they? Business is so good
they turn away large numbers of customers every night.

For example, a prospective restauranteur is thinking of
building a specialty steak house variety, with "camp"
decor, limited menu, and alcohol. In this case the
restaurateur will require a middle class to upper-
middle-class neighborhood with a particular population
concentrated in the 21-35 age group with a median income
of $15,000. This is the restaurant's customer profile.
The Bureau of Census and the Department of Commerce
provide detailed data on neighborhood make-up.

Some are so exclusive or otherwise desirable that sites
are not available or are exorbitantly priced. If no site,
is available or existing sites are priced too high, there
is no alternative but to look elsewhere. The return on
investment must be acceptable to the prospective
restauranteur or he will be unable to meet his
obligations and make a profit. Again the type of
operation will necessarily determine just what is
feasible regarding site quality and cost. Other
businesses in a particular locate must considered. An
area with heavy industry might be ideal for a
quick-service bar and restaurant operation. Many
restaurants of this type might serve in conjunction with
factory shifts to take advantage of workers coming to and
going home from work. Truck stop restaurants are similar
in nature.

It is necessary to know the growth patterns of
neighborhoods to determine if a particular type of
restaurant will be in demand for the foreseeable future.
A big investment in a declining neighborhood might not be
recoverable whereas an operation "tailored" to the
neighborhood decline could be profitable provided the
investment was proportionate. Another phenomenon
occurring in many large cities is restoration projects of
entire neighborhoods. "Getting in on the ground floor" of
this type of project could provide long-range dividends.

Anytime an area has large scale construction and major
remodeling projects underway, or planned, that is
evidence that other prospective investors have faith in
the neighborhood's future. Municipal projects such as
convention center or sports complexes almost overnight
have changed blight downtown areas into thriving
neighborhoods.

Appropriate Zoning and Codes. Before purchasing or
leasing a site take the time to personally check with the
municipality's planning and zoning commission, the
mayor's office or whomever controls land use to insure
before hand that the prospective restaurant can be
opened.

There have been many cases where prospective
restauranteurs have purchased commercially zoned property
that they planned to convert to a food service facility
only to discover too late that local ordinance(s)
prohibit such use. An example of this type of restriction
that is quite common is a local ordinance that requires a
minimum number of off-street parking places for all
restaurants, regardless of size. Other ordinances specify
the number of parking places required, in arbitrary ratio
to seating capacity. Parking is just one example of the
many restrictions that prevent or seriously delay the
opening of a restaurant.

Sign codes, use permits, building and lot requirements,
curb breaks, and food and liquor licenses must be
explored before buying property or signing a lease. A
prospective restauranteur who delegates these inquiries
to anyone not totally trustworthy and thorough is placing
himself in a dangerous situation.

Competition.

A thorough analysis of the competition includes an
accurate count of all food service facilities in the
trade area. The dimensions of this area will vary
depending on the type of operation. A downtown cafeteria
might have a trade radius of 300 yards while a gourmet
restaurant might have a 50-mile radius.

Once the exact size of the trading area is established, a
survey must be made of existing and planned food service
facilities that fall within its boundaries. A good survey
will encompass all food service facilities, including
factory commissaries, hospitals, schools, etc., not just
those that are open to the public. The survey should also
place the various facilities into categories, specify
what kind of food each features, determine the number of
seats in each outlet, note the level of service provided,
and specify whether or not alcoholic beverages are
available.

Personal visits and sharp observation will enable the
prospective restaurateur to estimate his competitors
check average and gross sales. During the busy serving
periods, an observant individual can glean enough
information to make reliable estimates of check averages
and the number of covers served per day. Armed with these
two figures, a reasonable estimate of gross less can
calculated. If food cost and labor cost estimates are
fairly reliable then a profit margin can be surmised.

There are neighborhoods that are saturated with
restaurants yet practically all of them seem to fare
well. On the other hand, there are areas that are marked
with one restaurant failure after another. When selecting
a new site make sure the competition has been thoroughly
considered.

Specific Lot Characteristics.

Until now we have been discussing the environment of the
site and not the real property itself. It is important to
be able to visualize that a specific lot is unique, one
of a kind and that it would not be the same anywhere
else. (Realtors call is "fixity of location.") Unlike
other forms of property a restaurant cannot be moved once
it is built-, therefore it is important that
restaurateurs select the very best (most feasible) site
available.

Specific precautions must be taken whether a site will be
purchased or leased. If the site is acquired by purchase
it is imperative that the sellers) be able to provide a
clear title. Anything less than unrestricted, fee simple
title (clear title) is normally unacceptable. Never sign
a lease until all stipulations are read and understood by
the principals and their counsel. Many attorneys
specialize in real estate sales and leasing and can
provide invaluable services to a prospective
restaurateur. Getting a restaurant open is a tremendous
task; the last thing needed is a legal dispute.

Often real estate is sold with loosely defined
dimensions. It is not uncommon to see a statement that
reads "2 3/4 acres more or less." Always find out exactly
what you are getting for your money. Considering the high
cost of commercial sites, a professional survey might
well be a wise and proper investment.

Square footage figures have such a bearing on the
situation that knowing exact dimensions is necessary.
Minimum building size, parking lot size, driveway width,
sidewalk width, green belt size, and easement width are
factors that require an exact knowledge of the lot's
dimensions. It is advisable to accompany the architect or
surveyor and personally walk the boundaries. Pay
attention to grade/natural drainage, soil conditions,
existing landscaping, and other features. Often the
expense of preparing a lot for construction is
underestimated. Get sound professional advice including a
soil analysis if there is any doubt about a site's
suitability.

Traffic Arteries.

The old saying, "you can't get there from here," comes to
mind when discussing a restaurant's location in relation
to streets and highways. Before limited access highways
and trafficways were common the only concern was traffic
count when picking a typical restaurant site. Now, with
interstate highways, inter-belts, outer-belts, outer
roads, local traffic access roads, one-way streets,
restricted curb breaks, and so forth; it is mandatory
that ease of access be a major consideration.

Normally, patrons will not go out of their way to seek
out a restaurant, especially if a competitor provides
them with a more convenient alternative. Fast food
operations need ample traffic passing by their door, easy
and safe means of getting in and out. and well-lighted
streets. A gourmet restaurant on the other hand might
actually fare better if it is "off the beaten path," away
from noon lights and noise. Consider the "nature" of the
particular type of restaurant and then choose a
compatible lot. Usually building sites that are not on
major arteries can be purchased for much less money than
those that are. Money saved on the lot can buy more
quality in the building.

Utilities and Municipal Services.

The monopolistic nature of utilities and municipal
services in practically every instance rules out
"shopping" for such services. However, some services such
as fire and police protection will vary immensely from
community to community and sometimes even from
neighborhood to neighborhood, A restaurateur has a
responsibility to his patrons to assure them that they
are not exposed to possible danger. A clean, safe
building and a well-lighted parking lot, or even valet
parking, are examples of responsible management. Other
energy sources such as solar heating and cooling are on
the horizon and should be considered now as an
alternative to fossil fuels.

Visibility.

In most cases food and beverage cannot be sold unless the
patron comes to the property. If the customer cannot
readily see the restaurant then the chance of selling him
anything is very small. A good restaurant site has
visibility. Of primary concern is a restaurant's ability
to attract attention to itself with pleasing
architecture, good lighting and landscaping, and an
appropriate sign. Normally, visibility to passing
automobile or bus traffic is the major con m. However,
for some types of operations, high visibility is also
needed to attract pedestrian traffic.

The restaurant sign must be an integral part of the
restaurant's total marketing strategy. It must reflect
the type and quality of the restaurant. The sign must be
"in step" with the operation and communicate an image
that the restauranteur desires. It is useless to spend
money for a sign that is obstructed by a building, tree,
or other sign.

Cost Data.

After the culling process has reduced the prospective
sites to a few, a value decision must be made. Each site
that is still an acceptable alternative has been priced
by its owner. Cost per square foot and cost per front lo
are then computed. Tax and site improvement cost are
determined on a per-square-foot basis as well.

Comparables.

When what seems to the best site is selected it should be
appraised by an expert. The local real estate board can
provide the names of appraisers who are members of the
Appraisal Institute or similar organization. Part of the
appraisal in addition to placing a dollar value on the
site will be a determination of the "highest and best
use." It might be that the property is best suited for
something else. On other hand, it might be exactly what
you though it would be---a fine restaurant site.

Conclusion

The site selection criteria can tailored or modified to
fit most restaurant types. Specific criteria may play a
larger role in one endeavor or have little or no
importance in another. If nothing else a list such as the
one outlined above should reveal the almost endless
number of factors that should be considered in selecting
a restaurant site.

For Further Information

The following publications provide additional information
that my be helpful in site selection. They are available
from your nearest Small Business Administration office:
http://www.sbaonline.sba.gov/regions/states/

- "Business Plan for Small Retailers" SMA 150
- "Checklist for Going into Business" SMA 71
- "Knowing Your Image" SMA 124
- "Locating or Relocating Your Business"SMA 201
- "Retailing" SBB 10
- Sales Potential and Market Shares" SMA 112
- "Using Census Data to Select a Store Site" SMA 154
- "Using Traffic Study to Select a Retail Site" SMA 152

Sources of Federal Statistical Data

Most of these sources may be purchased from the U.S.
Government Printing Office, Washington, DC 20402 or are
available for use at the United States Department of
Commerce Field Offices and many libraries. Other sources
of statistical data for developers and researchers
include state agencies, planning boards, Chambers of
Commerce, universities, financial institutions, real
estate boards, and so forth.

Population, Income and Housing
- United States Census of Population and Housing
- Area Trends in Employment and Unemployment
- Employment and Earning Statistics for States and Areas
- Statistics of Income - Individual Income Tax

Wholesale and Retail Trade
- Census of Business: Wholesale Trade
- Census of Business: Retail Trade
* Area Statistics
* Major Retail Centers
* Retail Merchandise Line Sales
- Current Retail Trade
* Weekly Retail Sales
* Advance Monthly Retail Sales
-Monthly Department Store Sales in Selected Areas

Manufacturing
- Census of Manufacturers
- Annual Survey of Manufactures

Construction
- Current Construction Reports
* Housing Starts
* Sales of New One-Family Homes
* Value of New Construction
* Housing Authorized by Building Permits and Public
Contracts

Services
- Census of Business: Selected Services
- Census of Business: Hotels, Motor Hotels and Motels
- National Travel, Census of Transportation

General Business Data

Statistics of Income - United States Business Tax

Returns
- Survey of Current Business
- United States Industrial Outlook

General Statistical Data
- Statistical Abstract of the United States
- Pocket Data Book - U.S.A.

Directories of Statistical Data
- Federal Statistical Director
- Director of Non-Federal Statistics for States and Local
Areas
- Guide to Census Bureau Data Files and Special
Tabulations
- Measuring Markets - A Guide to the Use of Federal and
State Statistical Data

Regulations

The following agencies can help you determine the local
regulations that apply to your business
- Zoning Boards
- Town or City Clerk
- Public Health Department
- Water and Light Departments
- Fire Department

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