Location, Location, Location!
Looking for the perfect spot to start your food or retail biz? Here's how to size up a neighborhood's potential.
Chances are, you've heard the term "location, location,location" more than a few times. But if you're in thethroes of creating a spectacular menu for your new restaurant orfinding wholesalers for your first retail store, it might not bethe first thing on your mind.
It's time to put location at the top of your to-do list. Ifyou're preparing to open a food or retail business with astorefront, putting your business in the proper location might bethe single most important thing you do at startup. Of course youneed a winning product, too, but how will anyone know about thatproduct unless you get them through the door?
"In the brick-and-mortar retail world, it's said thatthe three most important decisions [you'll make] are location,location and location," affirms Irene Dickey, a lecturer inmanagement and marketing at the University of Dayton's Schoolof Business in Dayton, Ohio. "Careful determination of newsites is critical for most retail and consumer servicebusinesses."
Check Your Demographics
Making these determinations can be as simple or as complex asyou make it. There are, for instance, sophisticated locationanalysis tools available that include traffic pattern information,demographic and lifestyle data, and competitive analyses. AddsDickey: "For a price, a retailer can ask such questions as,'If I'm looking to add a store to a particular market,what's the optimum level of traffic as it relates to thespecific targeted trade area? What is the overall type of traffic?Once consumers are in the store, is there any way to measure thetraffic patterns in the store?'"
"Do your due diligence," advises Michael Rodelle,director of real estate for the Papa Gino's Inc./D'AngeloSandwich Shops franchise, based in Dedham, Massachusetts. "Geta demographic overview of the area you're looking at--age,income, households, etc."
In addition, you should look at neighborhood traffic generators,such as other retailers that draw people to the area, industrial oroffice parks, schools, colleges and hospital complexes. You'llalso want to look at both highway and foot traffic. Carlos Silva,co-founder of Memphis Championship Barbecue in Las Vegas, learnedall about finding a good location when he and his three co-founders(Dick Hart, Mike Mills and Dan Volland) opened their firstrestaurant in 1994. "We opened our first business in themiddle of nowhere, and we had to work to get people to go toit," says Silva.
That's not to say it was a bad location--Silva says it fitin terms of the restaurant's theme. But it did require more ofan effort to establish a presence. With three other locations nowup and running, one of them inside a casino, the founders seem tohave found their groove. "What we've done in Vegas is goneto each corner of the city," says Silva, who says therestaurants' sales have grown 25 percent over last year's,with 60 percent growth projected for 2004. "You're able toget to a Memphis restaurant within 10 minutes."
Look Your Competitors in the Eye
Many experts agree, though, that the answer to where you shouldlocate is more straightforward than many entrepreneurs make it."Quite simply, the best place to be is as close to yourbiggest competitor as you can be," says Greg Kahn, founder andCEO of Kahn Research Group in Huntersville, North Carolina, and abehavioral research veteran who's done location research forArby's, Buffets Inc., Home Depot, Subway and other major andminor players. "Foot traffic is obviously important, butlanding the 'perfect' customer is far more crucial. Bybeing in close proximity to your competitors, you can benefit fromtheir marketing efforts."
In other words, your competitors chose their locations based onthe ideal demographics of a particular area, says Kahn. In manycases, they've also devoted large portions of their advertisingbudget toward driving traffic to their locations. "Why spendthe money when they've already [spent it] for you?" asksKahn. "It's that easy."
What's more, being located near your competition can be aboon to business, provided you're confident enough in yourproduct to outsell your competitors. "Competition isgood," concurs Blake Tartt III, president and CEO ofcommercial real estate firm New Regional Planning in Houston, knownfor his work on major malls and other commercial developments."It makes the retailer or the restaurant better--competitionbreeds more business, more traffic, and that's a positive. Ifmy clients are good, I tell them to go right up against thecompetition."
Of course, it's still a good idea to make your ownevaluations of a particular property, even if your competitors seemto be thriving in the area. Staying ahead of the game in thisregard will help your business grow should you decide, forinstance, that you later want to open another location.
Do You Need Professional Help?
But your job isn't done even when you think you've founda good spot for your business. Negotiating a lease that works foryou and your business is just as important as the location itself."It's very important that you have a good lawyer who cannegotiate your lease--that's another cost," says Tartt.Your attorney can help you look at things like the term of thelease, buildout allowance and the condition of the property.
He or she can also help you talk to the landlord so you ask theright questions. "Interview the landlord as hard as you lookfor the location," cautions Tartt. "You're marryingyour landlord. There are a lot of unscrupulous [ones] outthere--they tend to have a 'me' mentality."
Making use of a local real estate professional who understandsyour customers as well as you do is also a great idea. Depending onwhether you're opening a food business or a retail store,you'll want to discuss things like the type of merchandise yourtarget customers buy or the sort of food they like to eat. "Ibelieve that in every town, there is some real estate professionalwho knows his or her city backward and forward," says Tartt."The really with-it real estate person is studying all thosetrends, traffic patterns and demographics."
Having someone help you with your business plan before you evenbegin the location search can be invaluable as well.Entrepreneur.com has a guide to writing a business plan that offersinformation and resources to help you in this process, sothat's a good place to start. A business coach or business planconsultant can also help you through this process; ask around inyour network of colleagues for referrals, or check with your localSmall BusinessDevelopment Center for additional assistance.
"Know what your business plan [says] when you'relooking for a location," says Tartt. "Know what yourstrategic objectives are."
Being aware of all the location costs involved with startingyour business will do wonders for your ability to weather anystorms that might--and likely will--come your way. Underestimatingthe costs and the time involved with launching yourbusiness--especially when it comes to your location--is one of themost common startup mistakes, and one you can avoid if you planproperly. If you take into account everything from broker,attorney, engineering and architect fees to zoning and planninghearings, you can see that both the costs and the time to startupcan vary widely.
The best advice? "Talk to other people in thebusiness--learn from them what they've experienced, what thepitfalls are, what things to look out for," says Rodelle."You've gotta do your homework. You can protect yourselfand come out ahead."
- Is the facility located in an area zoned for your type ofbusiness?
- Is the facility large enough for your business? Does it offerroom for all the retail, office, storage or workroom space youneed?
- Does it meet your layout requirements?
- Does the building need any repairs?
- Do the existing utilities-lighting, heating and cooling-meetyour needs or will you have to do any rewiring or plumbing work? Isventilation adequate?
- Are the lease terms and rent favorable?
- Is the location convenient to where you live?
- Can you find a number of qualified employees in the area inwhich the facility is located?
- Do people you want for customers live nearby? Is the populationdensity of the area sufficient for your sales needs?
- Is the trade area heavily dependent on seasonal business?
- If you choose a location that's relatively remote from yourcustomer base, will you be able to afford the higher advertisingexpenses?
- Is the facility consistent with the image you'd like tomaintain?
- Is the facility located in a safe neighborhood with a low crimerate?
- Is exterior lighting in the area adequate to attract eveningshoppers and make them feel safe?
- Will crime insurance be prohibitively expensive?
- Are neighboring businesses likely to attract customers who willalso patronize your business?
- Are there any competitors located close to the facility? If so,can you compete with them successfully?
- Is the facility easily accessible to your potentialcustomers?
- Is parking space available and adequate?
- Is the area served by public transportation?
- Can suppliers make deliveries conveniently at thislocation?
- If your business expands in the future, will the facility beable to accommodate this growth?
Karen E. Spaeder is a freelance business writer in SouthernCalifornia.
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