FINANCIAL MANAGEMENT: That perfect location

Sept. 30, 2004

The most worn out maxim about real estate — "location, location, location" — is undoubtedly the truest. Whether your customers drive or walk to your store, convenience and visibility arguably are as important to them as your pizza.

The handful of real experts interviewed by PizzaMarketplace struggled to come up with more than a few examples of great pizzerias operating in lackluster locations. All said that if those operators would have invested in better locations in the beginning, their businesses would have been busier sooner and more profitable overall.

But where is that crucial balance struck between renting or buying a place one can afford versus spending more money to operate in an expensive "A" location? The answer isn't simple, but it's attainable, experts say. A lot of legwork and homework, it appears, is necessary for finding locations that address both investment and return evenly.

Businesses draw business

Kotis Properties president Marty Kotis said many pizza business should locate near retail traffic generators such as other businesses, because that's where people spend most of their time each day.

"You want to look at three things: where people work, where people live and where people shop," said Kotis, whose company is in Greensboro, N.C. Kotis also is the president of Council of

What's Important

Finding a good site takes often-tedious legwork and homework.

Business neighbors of great sites generate strong traffic, which maximizes exposure to your business.

Going cheap on a site in order to save money might cost more in the end. Better — i.e. higher priced — sites  generate greater volume, which likely will offset the higher rent cost.

International Restaurant Real Estate Brokers. "You want to watch how those people go from one place to another, and watch those patterns develop."

Since the bulk of pizza sales are done at night, Kotis said pizzerias that do a lot of takeout want to be on the side of the road most used by people returning home from work. Their parking lots are easy to get into and out of, and their signage is highly visible.

Requirements change somewhat if the pizzeria is a dine-in spot, he said.

"If my pizzeria's an upper-end place, I'd want to be closer to where people live, because they might not come back out, say to a busy downtown area, where other people eat," he said. "They like to stay near home if possible."

If your place is a destination spot, try to find a location near other businesses or activities that might be part of a full night on the town, such as a movie theater. Afterwards, customers likely would walk to or from the theater to your place.

But even if a shop is located in a busy neighborhood, it still might be invisible to passersby, said Wayne Bridgeford, vice president of the retail real estate group at Houston-based Grubb & Ellis.

"Shopping centers are great spots, but the least-desirable location in a shopping center is in the elbow," he said. "I'd call that the absolutely worst possible position to be in because there's no visibility."

A little copycatting can help, too, Kotis said; look at where your competitors are located, especially chain operations, and consider moving in nearby. Chances are those companies' real estate divisions have studied the area and made a well-informed decision about that site and its potential customers.

Be careful about setting up shop too closely, however, as a strong operator's presence may ultimately overwhelm yours, especially if his store has been there a while.

"You need to figure out what sort of market share you can get if you've got a bunch of competitors nearby," Kotis said. "If the site's on a street with 50 other pizzerias, you've got to wonder how you're going to get your slice of the pie."

Boring, but valuable

Great restaurant operators, said Kotis, know a lot about what goes on outside their real estate before they move inside. Such people spend hours on end across the street from a prospective site counting cars driving by, coming in and out of its parking lot and the number of people walking through its doors.

"A good broker can help you with some of that, but a lot of it is gut feel and simple research," said Bridgeford. "Food guys who sit at an intersection and watch traffic patterns know they want a place that's in the way of the traffic."

Once the traffic at a prospective site is measured, it's recommended that operators survey traffic at nearby sites. If it's another foodservice shop, calculate what percentage of those people driving by stop for food. And don't forget, if it's a pizzeria, pay attention to number of trips made in and out by delivery drivers.

While a lot of traffic is good, it sometimes can be a headache if the flow from road to lot and back (formally called ingress and egress) isn't smooth. A parking lot might be easy to enter with a right-hand turn, but leaving might require a pass through a stop light. Not only might that annoy customers, it could hurt delivery times if the light is a long one, Bridgeford added. However, if the operation is a dine-in pizzeria, it may not matter since customers aren't usually in a hurry.

What will matter more to a dine-in pizza operator is parking space. So does the site have enough slots available for customers during peak hours? If not, are nearby lots available for sharing with other businesses that won't suffer from your overflow? (Be sure you ask the landlord about the potential site's space allotment, and then ask permission from nearby businesses to use their empty spaces for overflow if necessary.)

And don't forget about spots for delivery drivers. Ideally you'd put them as near to the front door as possible, though operations with a low number of deliveries sometimes can have drivers park behind the restaurant and come in and out through the kitchen.

Since customers are already out of their cars, foot traffic to a potential site is a different matter. Ingress and egress are just about non issues in this scenario, but the quality of neighboring businesses is highly important. Would your shop be near a movie theater inside a shopping center, or is late-night shopping available there? Are there other restaurants in the center whose overflow crowds might stop in at your place?

And exactly who's coming to that center? Teens and young adults who want pizza by the slice, or middle-agers looking for more sophisticated offerings?

In Kotis' view, strong foot traffic is just about always a bonus. "We've found a lot of restaurants want to be in clusters with other retailers, because when people go shopping, they tend to eat where they're shopping. That way they don't have to drive elsewhere."
Peter Cooperstein, president of seven-unit Amici's East Coast Pizzeria, said his concept thrives in shopping centers. Neighboring businesses of his wood-fired pizza chain, based in San Mateo, Calif., tend to be retailers of higher-end clothing and restaurateurs serving above-average fare.

"Other restaurants are going to draw people to the center, especially if they're upscale Chinese or good sushi," Cooperstein said. "A good retailer, like a Nordstrom, will bring tons of people in."

Cheaper isn't always better

Bridgeford said the biggest mistake an operator can make in his site selection is to choose it based on low price alone. While a lot of good real estate is available for the taking in most towns and cities, only a small percentage of that is good restaurant real estate, he said. Unfortunately for operators, those properties come at a premium, but price shouldn't always scare them away.

"I've seen it happen where a guy takes a less expensive location thinking it's going to save him some money, but in the end, he's given up a lot of potential volume," Bridgeford said. "I know of several examples of pizza guys who have a good reputation, but they've taken secondary locations to save money, and therefore their stores do not perform like they should. They could have done much better by taking a better location."

Kotis said operators have told him before, " 'I've got great food, so they'll find me anywhere.' But that's just someone's ego coming out. It may be true that his food is good, but people might never know it because his place isn't top of mind."

That "build it and they will come" mentality is short sighted in an advertising- and marketing-savvy world where customers base some dining decisions on convenience, Kotis said.

"They end up investing a lot of time and effort in that site, when they could have picked one that's better -- though more expensive -- and done more sales volume," he said. "In most cases, you can make up the cost difference if you pick a really good site."

Topics: Financial Management , Operations Management

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