11. Evaluating Restaurant Opportunities

This section explores market opportunities for new restaurants in a downtown area.  It includes methods for analyzing attributes of a downtown location, local demand and the competitive supply of restaurants.  This information is analyzed to identify possible restaurant concepts that might be appropriate for the downtown area.

Market conditions in your area have a significant impact on what types of restaurants might make sense for your downtown.  This section will help you collect and analyze information as part of an abbreviated restaurant market analysis.  The analysis will help you understand the many market factors that determine the success of a dining concept. Parts of this section were adapted from: Conducting a Feasibility Study for a New Restaurant, National Restaurant Association, 1998.

To determine what concepts have the greatest potential, the following questions need to be answered:

• What types of traffic and dining demand could be captured in the downtown area?
• What do local demographics and lifestyle characteristics suggest about market demand?
• Who are the existing competitors and how successful are they?
• What dining concepts are missing from the downtown district and/or trade area?

Using your market analysis findings, you will draw conclusions regarding the viability of certain concepts.  However, because of the complexity of the restaurant industry, this analysis is not intended to be a complete market feasibility analysis.  Each restaurant concept identified in this analysis should undergo more detailed study that addresses covers served, menu pricing and financial pro forma development.

A flowchart describing the process is presented in Exhibit 11.1.  A sample press release to explain this part of the market analysis is presented in Appendix A.  A list of sample restaurant concepts is presented in Appendix B.  Blank forms for use in evaluating local restaurant opportunities in your community are provided in Appendix C.

Evaluating Restaurant Opportunities

Exhibit 11.1 - Evaluating Restaurant Opportunities Flowchart

Downtown Location Analysis

Location is a critical factor in restaurant planning.  The ability to capture sufficient customer volume from primary trade area residents, day-workers and tourists is essential in estimating restaurant feasibility. 

Traffic patterns can provide an important indicator of the level of exposure a new restaurant would receive at a specific downtown location.  Similarly, "demand generators" in the community need to be identified as they contribute to restaurant utilization levels.  Company offices and manufacturing firms, hospitals, colleges and retail stores typically generate a significant amount of restaurant business, often from nonresidents coming into the community.  Finally, market demand for a downtown restaurant may be positively impacted by future increases in downtown employment, expansion or new construction of commercial buildings, new residential housing, and street and transit improvements.

Exhibit provides 11.2 provides some sample considerations that could be included when assessing the suitability of a downtown location for new restaurant businesses.

Restaurant Demand

Residents of the primary trade area are an important market segment for existing and future dining operations in the downtown area.  While daytime workers and tourists are also important sectors, the resident population usually represents a sizable market whose dining consumer behavior can be fairly accurately estimated.

Local resident demand for restaurants in your primary trade area can be analyzed using demographic and consumer expenditure data, lifestyle cluster data, and local consumer attitude research findings. These data sources can help you estimate the attractiveness of the local market from a restaurateur's perspective.

Demographics and Consumer Expenditure Potential

Selected demographic data for the primary trade area (see section on Analyzing Customer Demographics and Lifestyles) can be analyzed and compared with other communities and the state to gauge the overall attractiveness of local restaurant demand.

The following U.S. dining out characteristics were summarized in an article by Robert Ebbin in Restaurants USA, August 2000.  These trends can be used as a first step in relating local demographic data to restaurant market potential.

• Household Income - Expenditures on food away from home rise dramatically for households with income before taxes of $30,000 or more. Households with an annual income of $70,000 spent an estimated $1,396 per capita on food away from home. In contrast, households with income before taxes between $15,000 - $19,999 spent an average of $570 per capita.
• Age - Households headed by persons between the ages of 45 and 54 spent the most per capita on food away from home ($967).  Adults between the ages of 35 and 54 have higher incomes resulting in more spending. However, adults between 35 and 44 are also in their prime years for raising kids; their larger household size reduced spending to $739 per capita. Spending decreased among households headed by people' age 65 and older to $702 per capita. Teens and young adults were most likely to consumer commercially prepared meals while senior citizens are least likely to do so.
• Household Size - One-person households posted the highest per-capita spending on food away from home of $1,232.  The per-capita spending by two-person households was  $1,034. Larger households allocated a smaller portion of their total food dollar on food away from home and, as a result, posted lower per-capita spending. Households with two or more persons allocated a $757 per capita on food away from home.
• Household Composition - This is one of the most important factors influencing restaurant spending. Households with only a husband and wife posted the highest per-capita spending on food away from home ($1,083). The addition of children increases household size and has a dampening effect on spending.  Households with the oldest child age 18 and older spent about 24 percent more per capita than households with the oldest child under the age of 6 ($837 versus $676).
• Number of Wage Earners - Because of their larger average household size, per-capita expenditures decline as the number of household earners rises. Employed persons living alone posted the highest per-capita expenditures ($1,576).  Among multiperson households, those with two earners recorded the highest per-capita spending ($832).
• Occupation - Persons employed in managerial and professional occupations posted the highest per-capita spending on food away from home ($1,112), followed by persons employed in technical, sales and clerical occupations ($945). Households headed by persons employed in blue-collar occupations spent less because of lower incomes and larger household sizes.

Estimates of consumer spending for food away from home is available from the U.S. Bureau of Labor Statistics, Consumer Expenditure Surveys.  This data can be merged with demographic data to estimate dining-out expenditures for each household income category in your primary trade area.  Sample expenditure data for the Midwest is presented below:

In addition to region, consumer expenditure data can also be retrieved by age, occupation, housing tenure, type of area and race of reference person.

Consumer expenditure potential data is also available from private marketing data sources.  These services derive their estimates from models that merge data from demographic updates, Census of Trade data, and consumer expenditure surveys.  They typically provide an index (based on 100 = U.S. Average) that estimates the relationship between local and national household dining-out spending. See Section 7 on Analyzing Customer Demographics and Lifestyles for information on this data.

Lifestyle Analysis

Lifestyle segmentations systems such as ACORNT consumer classification data from CACIT Marketing systems can be used to learn about dining-out activity among household groups in the primary trade area. They can provide information on the frequency of dining-out as well as the types of operations frequented. See the section on Analyzing Customer Demographics and Lifestyles for information on this data.  Also see the GIS example later in this section.

Lifestyle data on day-workers, tourists and other non-residents can also be analyzed based on their places or origin.  These nonresident market segments are often critical in sustaining an acceptable level of volume in a restaurant operation.

The National Restaurant Association has identified five major groups of frequent diners. Using demographic information and lifestyle segmentation data, you can estimate what portion of your market may fall within these five, potentially important groups:

• Busy parents of children - often involved in after-school activities and sports and use drive-thru and carry-out restaurants.
• Older adults and empty nesters (down-scale) - eat on-premise at inexpensive sit-down restaurants, buffets and fast food eateries.
• People who are convenience driven and dislike cooking (with no young children) - use a variety of carry-out sources including restaurants and grocery stores.
• Young, urban professionals with no kids - dine at higher-priced restaurants
• Educated adults driven by taste and craving - eat at moderately-priced sit-down restaurants and use delivery.

Consumer Attitude Research

Consumer research through surveys and focus groups can help assess dining demand specific to your particular community.  Consumer segments that can be reached through local consumer research include residents, daytime population, and tourists and visitors.  These groups may have very different dining needs and preferences. 

Some of the questions useful in your evaluation of restaurant demand from these market segments are presented below.  See Section 8 for information on developing a consumer survey.

• How often do you dine out by meal period?
• How often do you dine out by type of restaurant?
• How often do you come downtown for dining or entertainment?
• What types of cuisine would you like to see downtown?

Once all of the demand data has been collected, it can be summarized in a concise form such as that presented in Exhibit 11.4

Restaurant Supply

All restaurants in the downtown area and major competitors elsewhere in the primary trade area should be identified and analyzed to assess what types of operations exist and how busy they are.  While you are particularly interested in the downtown mix of restaurants, it is important to include other prominent establishments that are popular in the community but exist elsewhere in the primary trade area.  Information about these establishments can be presented in a format such as the following:

Possible Restaurant Concepts for Downtown

A concept is a combination of ideas that forms the foundation for a particular type of restaurant operation.  Elements of a concept can include theme, menu, service style, hours of operation, price, entertainment and atmosphere.  A list of sample restaurant concepts is presented in Appendix B.

Using information collected (on the downtown location, demand and supply); the next step involves identifying potential restaurant concepts that fit downtown's character and the marketplace.

Certain dining concepts may emerge as being more suited to the area that others.  For example, the presence of downtown office workers may suggest opportunity for a deli-style sandwich shop focusing on weekday business.  The presence of a theater may suggest opportunity for fine dining operations or an espresso coffeehouse focusing on evening hours and weekends. 

The demand for each concept should be critically evaluated.  Is demand greater than the supply of restaurant seats now available?  Do the types of restaurants concepts considered for downtown have the capability to attract customers away from existing competition?  Do the types of restaurants concepts considered for downtown have the capability to encourage consumers in the primary trade area to dine out more frequently?

Concepts under consideration for the downtown area should be summarized in a manner similar to the table below.  Here the concept is described along with reasons why these concepts are compatible with local consumer demand.

Sample Summary of Possible Downtown Restaurant Concepts

GIS and Restaurant Analysis

Demographic and lifestyle segmentation data can be used in numerous ways to examine the restaurant market (see Section 7 for a more detailed discussion of these data types).  For example, lifestyle data about downtown residents can be used to understand their dining-out preferences.

Lifestyle segmentation systems are available through a number of private data firms.  Some of these systems offer useful information on restaurants and dining-out.  One system developed by CACIT is called ACORNT  (A Classification of Residential Neighborhoods).  This system divides the U.S. into 43 different consumer categories.  For each category, consumer information is provided that describes resident buying behavior in detailed.

GIS can be used to analyze the location of different consumer groups relative to downtown. The map in Exhibit 11.7 presents the customer categories surrounding the downtown area of La Crosse, Wisconsin.  The downtown area with its high concentration of eating-places (see cluster of red triangles on left side of map) is located within walking distances of neighborhoods classified as "Twentysomethings" (dark blue) and "College Campuses" (olive green).

Exhibit 11.7 - Location of Consumer Segments Using GIS

CACI provides descriptive and numerical data about these categories.  Some of the information relevant to a restaurant analysis is presented below:

• Twentysomethings - Residents in these neighborhoods are just completing college or starting their first, postgraduate jobs.  Still unsettled, most are single, mobile, and city dwellers living in apartments.  Twentysomethings' lifestyle reflects age and environment--young, active, and urban.  They frequent art museums, zoos, movies, bars and nightclubs and live theaters.  They also read books and participate in public activities.  They have high purchasing potential for foreign food, take-out meals (including Mexican, deli, and supermarket meals) and fast-food delivery.
• College Campuses - Residents in these neighborhoods typically live in dormitories and student housing located around universities. Aside from college expenses, most of their budget goes to an active and busy social life.  This market is top-ranked for leisure activities such as cooking for fun, nightclub/bars, dancing, photography, and playing card and board games. They have high purchasing potential for foreign food, take-out meals (including Chinese, deli, and supermarket meals) and fast-food delivery (especially pizza).

Based on these descriptions, a new restaurant in downtown La Crosse that wants to appeal to the nearby and surrounding neighborhoods should understand that youthfulness of local residents.  Nearby residents are looking for active and exciting dining experiences.  Ethnic food, fast food, and delivery are some of the characteristics of their dining choices.

Surrounding neighborhood residents may not be the only consumers important to an existing or prospective dining establishment.  The GIS lifestyle analysis can be extended to examine the consumer behaviors of the daytime (worker) population as well as tourists and visitors.  An analysis of all key consumer groups should be conducted to identify potential restaurant concepts for downtown.

Appendix A - Sample Press Release - (pending completion)

For Immediate Release
(Enter Date)

Contact: (Enter name and phone number of primary contact)
(Enter name and phone number of secondary contact)

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MARKET STUDY EXAMINES DOWNTOWN RESTAURANT OPPORTUNITIES

(Enter city) --(Enter main street organization)'s economic restructuring committee completed an evaluation of restaurant opportunities as one part of a broader market analysis.  The evaluation studied market data to determine what types of new eateries make the most sense for the downtown area. 

Study group volunteers used data from earlier parts of their market analysis to measure local consumer characteristics and attitudes as they relate to dining out.   Data collected locally from a recent consumer survey was used in tandem with demographic and lifestyle data about the community.  The dining behaviors of local consumers can be described as __________.

Market demand was analyzed in relation to the supply of restaurants in the downtown and in the broader trade area. The committee identified various dining concepts that appear to have strong consumer demand, but limited or no existing competition in the downtown area.   After considering the unique aspects of a downtown location, ___ different restaurant concepts were identified as having the greatest market potential for downtown.  These include ______.

The evaluation of restaurant opportunities will provide the (Enter main street organization) 's economic restructuring committee with data and analysis to support business expansion and recruitment opportunities.  This analysis will be updated and modified on an as-needed basis as new restaurant opportunities are identified.  The assessment is only one part of the downtown market analysis.  The study group plans on completing similar in-depth examinations of retail business, entertainment, residential, office and lodging sectors of the downtown economy.

Interested parties may volunteer for the downtown market analysis team by calling (Enter name of committee chair) (Enter phone number) .  For more information on the downtown market analysis or on (Enter Main Street Organization) , contact (Enter Main Street Manager Name) , at (Enter phone number) .

Appendix B - Sample Restaurant Categories

Appendix C: Restaurant Opportunities Evaluation Form

Downtown Location Analysis

Summary of Trade Area Demand

Summary of Supply

Summary of Possible Restaurant Concepts for Downtown