CIRB News & Transactions
News 03/01/2003 : Restaurants and Institutions "Making an Entrance" Restaurants and Institutions Making an Entrance
Choosing new markets for expansion calls for research, solid planning and a bit of intuition
March 2003
By Allison Perlik, Senior Editor
Three stuffed fish reside in Kent Taylor’s office: one from the waters off Sarasota, Fla., one from Clearwater, Fla., and one from the Ohio River at Cincinnati. All three are markets in which the founder and president of Texas Roadhouse opened units in the mid-1990s with “too much haste and too little thinking.” All three restaurants failed and were closed.
The fish remind Taylor not only to avoid moving too quickly into new markets, but also to “say to staff that you pay attention to failures as well as successes.” The 140-unit, Louisville, Ky.-based chain has since successfully re-entered Cincinnati but has not returned to Sarasota or Clearwater.
Moving a brand into new markets is an endeavor not to be taken lightly. To ensure the greatest potential for successful expansion, a company first must establish a strong foundation for its brands, generate a clear vision for long-term growth and do the research and legwork necessary to make informed decisions.
A SOLID FOUNDATION
Denver-based Qdoba Mexican Grill—the aggressively expanding fresh Mexican concept recently purchased by San Diego-based Jack in the Box Inc.— opened its first store in 1995 and now has about 85 in 16 states. Todd Owen, Qdoba’s director of franchise development, cites three tasks companies should accomplish before entering a new market.
First, develop the brand and its positioning and determine whether the appeal is regional or national, he says.
Second, establish a system to replicate the home-market success. Fundamental operations issues such as distribution logistics, for example, must be addressed before the expansion. “People make the mistake of saying, ‘We’ll do the deal there now and figure out how to get product there later,’” Owen says.
Finally, ensure that solid departmental support such as marketing, technical, purchasing and field operations can be delivered.
Saturation of the home base often precedes expansion. Restaurant Development Group opened 10 Bar Louie locations in and around its Chicago headquarters before moving on to four additional states. Similarly, Irvine, Calif.-based Yard House Restaurants focused on Southern California before its January opening in Lakewood, Colo., while Pret A Manger is solidifying its presence in New York before spreading into other U. S. Markets.
GETTING THE GOODS
Where a business chooses to grow depends on a variety of factors, from area demographics to economic incentives. Restaurateurs rely on a host of resources to research these details, including internal departments, real estate developers and consultants, and site-selection applications and other computer-based programs. Even intuition plays a role.
“I’ve been in this business 27 years. I created the concept, so I know what it means to people. It comes down to gut instincts,” says Steele Platt, founder and CEO of Yard House.
Marty Kotis, president of the Council of International Restaurant Real Estate Brokers Ltd. (CIRB), advises restaurateurs to draw on local market resources. City planning departments, economic development groups, local appraisers and restaurant suppliers often can provide valuable inside information.
According to Kotis, who also heads his own Greensboro, N.C.-based real estate brokerage firm, restaurant companies should get answers for several questions when evaluating a potential market or site: How well are other local restaurants doing? What is the area’s daytime population? What are local traffic generators? Where is the new retail and residential growth? What infrastructure plans/issues might affect business?
“What you want is an area that has strong growth potential so your restaurant can do well today, but in 10 years it may be even better,” he says.
Kotis also advises restaurateurs to think beyond already available properties.
“You need to be more selective and figure out where you want to be, then contact every property owner in that submarket and look for sleeper sites,” he says. “Maybe the owner hadn’t thought about selling previously, but sometimes those turn out to be the best sites.”
CRITICAL CONCERNS
Often, companies don’t stray too far from home in their early forays. Scottsdale, Ariz.-based Cold Stone Creamery selected the first market outside its home state in part due to proximity.
“We knew Southern California was a key market, and it was the easiest transition because we’re in Arizona,” says John Wuycheck, director of franchise development for the chain, which has about 335 stores in more than 30 states. More than 420 additional units are on the way, he says.
Granite City Food & Brewery of St. Louis Park, Minn., selects new markets that are close enough to be served by its commissary brewery in Sioux Falls, S.D. With one unit each in Minnesota, South Dakota and North Dakota, the company plans to continue growing in regional clusters, says President and CEO Steve Wagenheim. Granite City likely will open another eight to 10 stores in the upper Midwest before moving to other regions, with three new stores planned for 2003 in nearby Des Moines, Iowa, and Omaha and Lincoln, Neb.
Another key feature of potential new markets is the ability for the brand to reach critical mass in a reasonable amount of time. Efficient use of advertising funds as well as other support systems often depends on having enough volume in each new market.
Joey’s Only USA, which recently purchased the U.S. development rights for the Calgary, Canada-based casual seafood chain, plans to accomplish this by better saturating existing markets and then growing concentrically. The concept now operates nine U.S. units in eight states.
Corpus Christi, Texas-based Whataburger, which currently spans eight Southern states, will use a different strategy to reach a similar goal. The nearly 600-unit chain will fill in markets along the interstate highway corridor between Texas and Florida, says Todd Coerver, group director of operations services.
Both companies expect to grow mainly through multi-unit franchising. “That will help us grow the brand name as quickly as possible,” says Joey’s Only USA CEO David Kristal.
MAKING A MATCH
Knowing what works in an already successful region also directs the search for new markets. Restaurateurs typically determine the demographic and psychographic makeup that best supports their business and seek to match that data in new locations.
Family-dining veteran Sizzler employs a computer-based program that pairs the chain’s specifications with sites across the country. The Sherman Oaks, Calif.-based company recently embarked on a new franchising push after a decade of limited development.
Cold Stone Creamery, also fueled by franchise growth, sends company representatives to visit potential sites “so franchisees can benefit from our trials and errors,” Wuycheck says.
Still, finding the right market is more than a matter of corresponding demographics. Qdoba’s Owen warns that companies must conduct deeper, individual economic analysis as well.
“What if real estate costs twice as much in a different market? What if there is a competitor so strong you can’t build market presence? Those are the more subjective things that you have to get into that market to see,” he says.
On the flip side, economic incentives can play a major role as well. Often real estate brokers and developers will approach restaurant companies offering competitive deals. Such was the case for Yard House’s Platt, whose selection of the Denver area stemmed in part from a developer deal he couldn’t pass up. Bar Louie also often attracts such proposals, says Liza Lathouris, director of marketing and public relations.
SPREADING THE WORD
The way a company introduces its brand to a new market can be crucial to success. Pre-opening marketing and public relations abilities often depend on a concept’s size and resources.
Whataburger’s fill-in expansion strategy allows the chain to minimize such costs because some local understanding of the brand often already exists, Coerver says.
“We’re borrowing from the equity of nearby, established markets as we branch out,” he says.
Coerver and his communications team also conduct media tours of new markets’ local television, radio and print outlets, a common strategy for building pre-opening buzz. Charity events are another popular method.
To ease into new markets and allow time for adjustment, Bar Louie typically begins with soft restaurant openings. Many of the concept’s new locations are built in so-called lifestyle centers that feature multiple food, shopping and entertainment venues, Lathouris says, which allows the company to benefit from larger-scale exposure as well.
On top of its standard PR, Sizzler often employs higher-profile, attention-grabbing events to promote new markets, says President and CEO Ken Cole. Depending on local demographics, the time of year and other factors, the company’s openings have featured everything from outdoor barbecues to men parachuting from airplanes.
“You only get one chance at first impressions,” says Bob Gammel, vice president of franchise development at Sizzler. “When you go into a new market you have to make sure you do it right.”
Copyright © 1997-2004 Reed Business Information. All rights reserved.
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