This is the first part of our series on buying a restaurant, where we share our buying a restaurant checklist and take you through what you need to know about each step in the process. Additional blogs in this series include Steps to Negotiating the Deal.
Buying a restaurant takes extensive planning and research. There are many factors to consider when opening a restaurant, from the initial concept to finally closing the deal on a property. Before you can start your restaurant, you need to find a location that fits your aesthetic and, more importantly, the customers who will dine at your establishment.
If you have a concept ready, your next step is to research competitors and your target market to determine if your concept will work. Once you have a better idea of the area’s market, the only thing left to do is start your real estate search.
How do you find a restaurant property for purchase or lease? Figuring out your restaurant site selection criteria, and finding a place that fits that criteria, can be tricky; but, with the help of a commercial real estate broker, you’ll be able to find a property that suits the needs of your business in no time.
Know Your Customers—Calculating Your Trade Area
Where will your restaurant be? Most people shop and eat close to home or the office. You should choose a location based on your target market. A trade area analysis shows the geographic locations of your sales. Your ideal trade area is where 75% to 90% of your business comes from.
Determining trade areas helps you see where your customer base lives and how far they will travel to reach your establishment. Additionally, a business location analysis will also be beneficial in this process, allowing you to find your ideal location with regards to your target market.
Every business has three types of customers.
- Primary. Your primary customers are those who make up the majority of your business.
- Secondary. Your secondary trade area makes up about 20% of your sales.
- Tertiary. The last trade area, often referred to as the “fringe,” makes up your remaining customers.
Let’s look at some examples of how trade areas play into location. Quick service and fast-food restaurants are based on convenience. For these restaurants, finding a location close to their customer base is a must. Customers from the nearby neighborhood may be a fast-food restaurant’s target. In a business district, people look for places to grab lunch or meet up with co-workers after hours. A restaurant’s primary customers in this area may be employees from surrounding businesses.
The Ring Method vs. Drive Time Calculations
A commercial broker can help you identify your target market and perform a trade area analysis using the ring method or a drive time calculation. Using the ring method, you will start with a map and outline everything with 1-mile, 3-mile and 5-mile proximities of the property in each direction. Each ring created represents each type of customer—primary, secondary and tertiary.
Other methods can also be used to identify trade areas. Instead of using mileage, you could calculate drive times. This method records drive times at different points during the day. Your customers may be close to a property on the map, but it may take longer than expected to arrive there. Depending on the routes available, drive time calculations can give you a better idea of how long it would take to get to you.
Regardless of the technique you choose, noting major roadways, highways, residential areas and commercial districts around a property helps you see how people will travel to your restaurant. Many consider trade areas cut off once they hit highways, rivers or other geological features. Additionally, popular retailers or entertainment sites help bring in traffic. You may want to choose a property near one of these businesses to access a larger customer base.
Types of Restaurant Properties
There are several types of restaurant properties. No matter where you go, every property has tenants or neighbors that can affect your business. Choosing a space near where your customers live or work, as well as near other complementary retailers, will set you up for success.
- Neighborhood centers include grocery stores, drug stores and other retailers that meet basic needs in the community. Neighborhood centers are 30,000 to 100,000 square feet total and may hold five to 20 stores, depending on the size of the space. Most neighborhood centers target customers within three miles.
- Strip centers are smaller retail properties that don’t have a large anchor tenant. These centers are usually home to smaller retailers, dry cleaners, salons and fast-food restaurants. As opposed to a shopping mall, strip centers have external storefronts with entrances that share sidewalks.
- Community centers include a wider range of tenants—grocery stores, drug stores, home improvement stores and discount stores like Dollar Tree or Save A Lot. Community centers are larger than neighborhood centers, and they range from 100,000 to 300,000 square feet total. Often, their trade areas are three to six miles out.
- Power centers focus on large tenants over smaller retailers. These properties lease to anchor tenants that take up 70% to 90% of the available retail space. Power centers include Home Depots, Targets and the like. These spaces are anywhere from 250,000 to 600,000 square feet total, with individual tenants using 30,000 to 200,000 square feet each.
- Mixed-use centers have space for restaurants on the ground floor with apartment living above. In large cities or downtown areas, restaurants, small retailers and office spaces are often mixed-use.
- Out parcels are spaces set aside from a large retail property for individual tenants. They are often filled by fast-food restaurants or banks. For example, a shopping mall may have a restaurant on its property in a separate space. The two share a parking lot and customer base but don’t share a building.
- Free-standing refers to a singular building that’s not connected to other retailers. Many dine-in and fast-food restaurants are free-standing buildings.
Common Configurations in Shopping Centers
Most shopping centers are either U-shaped, L-shaped or straight lines. The location of your restaurant within these configurations affects the amount of traffic you receive and how visible your storefront is to passersby.
- End-cap. Shopping centers have two end-cap spaces, which are the spaces on either end. Of all the spaces within a shopping center, end-cap restaurants have the best visibility—especially from the road.
- Inline. Restaurants found between anchor tenants or end-caps are known as inline tenants. The majority of spaces available are inline spaces.
- Elbow. The elbow of a shopping center is the space in the corner of an L-shaped property. These spaces have dramatically less visibility and are considered the least appealing options.
- Pad. A pad property is a free-standing property within the shopping center. Typically, these spaces are closer to the street and inside the shopping center’s parking lot.
In addition to visibility, accessibility affects if customers visit your restaurant. Is the parking lot easy to navigate? Is it hard to turn your car into the property? Medians and no left-turn roadways affect how people arrive and exit the property. All of these factors should play a role in your restaurant location strategy, as customers are more likely to visit another establishment if it’s too difficult to get to yours.
Should You Work With Commercial Real Estate Brokers?
While you could spend hours scouring the internet for prime real estate, partnering with a commercial real estate broker makes your location hunt more effective and efficient. Restaurant brokers often work on behalf of the seller or landlord, and are paid a percentage of the sale. As a buyer, why should you lean on the expertise of a restaurant property broker?
- Get data you don’t have. Commercial brokers have access to data and specific demographic information about the restaurant market in their area. They will help you perform a business location analysis and identify your trade areas.
- Find trusted professionals. Brokers have an extensive network. Are you buying land and need an architect? Do you want to remodel the property you’re purchasing? Commercial brokers will refer you to the best lawyers, architects, contractors or other industry professionals.
- Ensure you don’t miss legalities. On your own, you may not be aware of the federal, state and city regulations regarding real estate properties. Plus, as a restaurant, you need to consider health department requirements. When you work with a restaurant broker, they will guide you through the necessary regulations and make sure you’re informed every step of the way.
- Assist with lease agreements. Commercial brokers are the in-between parties in a real estate negotiation. They facilitate the process of buying a restaurant and help the buyer and seller come to an agreement on lease terms.
- Save your time. If time is money, you don’t want to waste it looking for properties that may not fit the bill. Commercial real estate brokers help you find restaurant spaces by doing all the heavy lifting for you. Then, they deliver their best prospects to you and your team.
- Services are often at no cost. In many cases, working with a commercial broker won’t cost you anything as the buyer. If you’re looking for restaurant real estate, brokers will share information with you in hopes of completing a sale or rental agreement. Some brokers may charge a service fee for their time.
Have you found your restaurant? Read the next blog in our how to buy a restaurant series: Steps to Negotiating the Deal.
Commercial One Brokers Can Help
Do you have questions about buying a restaurant? Are you looking for restaurant properties in Branson, MO? We’re here to help you find the perfect location!
Contact Rich Crowell at Commercial One Brokers. Rich specializes in restaurant properties, possessing thorough knowledge of restaurant sales and leasing after spending years in the industry.
Reach out to Rich to learn more about what’s available for purchase and lease in the Branson, MO area.
