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Franchising Insight

The More the Merrier Is One Franchise Mantra

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Can cannibalization from competition outweigh the magnetic pull of a great location? Not usually, say franchisees located in Long Island's busy Westbury market.

Driving down Old Country Road in Westbury, a town on New York's Long Island, is like passing through a fast-food lover's paradise. You can sate practically any food craving-pizza, ice cream, hamburgers, Chinese, Italian, Greek, Mexican-in a very American way: with supersized portions served fast in super-casual restaurant chains.

On one particularly busy corner is the Mall at the Source, which has a food court of eight eateries, in addition to four restaurants with storefronts on the mall's exterior. The mall is flanked by a California Pizza Kitchen, an Olive Garden and a Ruby Tuesday on one side. Up the road, within sight are a Nathan's Famous, Pizza Hut, McDonald's and Taco Bell. Zip around the corner to Corporate Drive and you'll see a Chili's, Romano's Macaroni Grill and Cozymel's in a row, all sharing the same big parking lot.

Travel a little farther down Old Country Road and you'll find Starbucks, Boston Market, Burger King and Wendy's, along with other eateries, and the Roosevelt Field mall, which houses a 16-outlet food court and three restaurants.

In total, this one-mile stretch of road-which runs through the relatively affluent town of Westbury, as well as parts of Carle Place and Garden City-boasts more than 35 food joints that pack the sides of the road, which runs six lanes here. With two movie theaters nearby, several office buildings and a wildly popular Costco Warehouse, the area is a haven for franchises: a highly trafficked destination point where people come intent to spend money.

"The area has tremendous traffic flow," says Eric Levine, a restaurant consultant who opened a Cold Stone Creamery ice-cream franchise with a partner in October in the Source Mall. "You don't have to be a rocket scientist to notice."

Adds Tom Spero, a vice president for Wendy's International Inc.'s New York division, "You have the best of both worlds. You have a lot of businesses, so you have a very good lunch. You also have the mall, which is great for night and weekend business and during the holidays." Wendy's has a stand-alone company-owned store on Old Country Road, as well as a franchise outlet in Roosevelt Field.

Sticking Together

The idea of clustering franchises together is hardly a new strategy: For years, many fast-food franchises with small site-location budgets would simply follow the Golden Arches and locate near a McDonald's, known in the business as much for its sophisticated real-estate department as its hamburgers, restaurant operators and consultants say. They do it for obvious reasons: It creates a convenient destination point for consumers with a menu of diverse food choices.

"You can think of them as a big food court [on Old Country Road], but they are all outside. They essentially feed off one another," says Brady Foust, executive vice president of Proxix Solutions Inc., a consultancy with offices in Florida, Wisconsin, Colorado and Texas that helps retailers scout out locations. "The competition hurts to some extent," he adds, "but the cannibalization from competition is outweighed by the magnetic pull of that location."

Indeed, on many nights, suburbanites simply cruise from restaurant to restaurant on Old Country Road to see where the shortest wait is.

"Westbury was an obvious market to us because of all that commercial activity," says Rick Rosenfeld, co-chief executive officer of California Pizza Kitchen Inc., a casual-dining establishment that makes unconventional pies topped by everything from barbecue chicken to caramelized pear and gorgonzola. "In an ideal world, we'd be alone with tons of customers. But [realistically], we'd rather all be together, which creates a synergy for us, assuming we have a dense enough market like the Roosevelt Field area."

Mr. Rosenfeld says the synergy comes from the fact that "if one restaurant has a line, [customers can] go to the other. Or they say, 'Let's make up our mind when we get there.'"

That's not to say there aren't competitive pressures on the strip. Given the plethora of dining options, it takes more than strong name recognition for a restaurant to survive. With a rival right next door, it's even more important for an eatery to be fully staffed, clean and, above all, fast. Restaurants here know that if they fall just a small step behind, dozens of other restaurants are ready and eager to grab their customers.

"If you are not fast and someone else is faster, you will lose incremental sales as a result," says Carl Bachmann, who has owned the family-oriented Ruby Tuesday on the strip since 1998. The restaurant, which opened in 1995, generates some of the highest sales volumes of Mr. Bachmann's 10 Long Island locations.

"It's a tough market because there is so much competition, but it's a very busy market," says Mr. Bachmann, 36 years old. You can succeed, he adds, "if you execute well. Execution and quality is key on Old Country Road."

Where the Action Is

Location, of course, is also important. For starters, that means being on Old Country Road. Not near it, but on it.

That's a lesson the local Fuddruckers has learned. The local franchisee recently closed earlier this year after a decade of operation on Merrick Avenue, just off Old Country Road. The location became less appealing than the more populous area around the corner on Old Country Road. "You can't pick up your real estate and move it," says Craig Ahrens, Fuddruckers Inc.'s chief operating officer.

Indeed, even being on the wrong side of the road can make a big difference, says Michael Seid, a franchise consultant based in West Hartford, Conn., and co-author of "Franchising for Dummies" with Wendy's founder Dave Thomas. "If your traffic is on the wrong side of the street, or there is no left turn and you can't make that left, people will go to your competitor on the right side," Mr. Seid says. Most of the major franchises can be found on the south side of Old Country Road, where the two malls and most of the parkway exits are located.

No Guarantees

But being in the bustle of Old Country Road doesn't guarantee success. The strip has had its fair share of failures, including the Rainforest Cafe and Brooklyn Diner, both of which were located in the Source Mall.

"Brooklyn Diner was a concept out of Manhattan, and the area was not ready for a higher-end property inside the mall," says Mr. Levine, who has done consulting work for Brooklyn Diner. "They had a sushi bar, and people weren't dropping that type of money at the mall for that type of food."

Michael Chin, vice president of operations for Brooklyn Diner, adds: "The chains with [a cheaper] price point had a little more of a fighting chance in that environment."

The mall's Rainforest Cafe, a jungle-themed restaurant with cascading waterfalls, simulated thunderstorms and a so-called retail village, also closed.

"They had a tourist-type of environment for a nontourist area," says Mr. Levine, the consultant. "The food didn't have lasting appeal, so you didn't have returning customers." People would go to the gift shop and buy a T-shirt after a $12 hamburger and "realize there was no need to go back there again."

Let Them Eat Cheesecake

But the failures are clearly the exception. On a recent brisk Saturday evening, it was easy to see why. The Cheesecake Factory in the Source Mall was clearly the hot spot. At around 7 p.m., the cavernous dual-level space had two lines-the main-level line was seven parties deep; the mall-entrance line upstairs was 11 parties long-and the wait was a stomach-growling 65 to 90 minutes. Those in line would have to wait 20 minutes before they could even secure a pager that allows patrons to move about freely in front of the restaurant until they're buzzed to retrieve their table.

Though Cheesecake-offering a varied menu that includes everything from heaping salads and burgers to miso salmon and pasta-took the prize for most packed, P.F. Chang's wasn't far behind. And the rest of the nearby restaurants, including the privately owned Ayhan's Shish-Kebab Restaurant were all full. In the parking lot next door, California Pizza Kitchen, Olive Garden and Ruby Tuesday were also reasonably full, as was Chili's and other restaurants along the nearby Corporate Drive.

There was a long line at Cold Stone Creamery on the same evening, where staffers mix ingredients like cookie dough and brownies into their signature ice cream on an icy-cold marble slab according to customers' preferences. Mr. Levine, the co-owner doubling as a consultant, is confident that the Cold Stone "interactive experience" will help differentiate his store, which he describes as the salad-bar version of an ice-cream parlor. He says he'll have a total of four Long Island locations open by the end of this year.

Mr. Levine estimates that about 10,000 people visit the Cheesecake Factory weekly; he hopes to captures some of that traffic. (Cheesecake declined to give a sales figure for its Westbury location, but says it's one of its busier spots. The nationwide average is about $11 million each in annual sales, the company says.)

People enjoy ice cream "as a limited luxury," Mr. Levine says, acknowledging the steep competition from Cheesecake's eponymous dessert. "We have to see if there is trickle down. The rents are very high, so we have to do the volume."

From StartupJournal.com
Copyright © 2004 Dow Jones & Company, Inc. All Rights Reserved

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