How fast casual restaurants pick new locations
"There's a lot of science and a little bit of art" involved in finding the perfect place, a Chipotle executive says.
Talia Berman is a New York City matchmaker — the kind that pairs real estate owners and restaurants. It’s a rainy day and we’re in Manhattan standing outside a sit-down pizza joint, which is one of her clients. There are a few reasons this is a great location.
“First of all, Park Avenue has done historically amazingly well for restaurants,” said Berman, chief of staff at hospitality advisory firm Friend of Chef.
There are plenty of notable spots around here, and it’s always good to be in good company. It’s also two blocks from the subway, one block from a university and Madison Square Park is a three-minute walk.
“Proximity to the park is always going to be a winner for any kind of dining,” she said.
That’s especially true when that park has a Shake Shack, like this one. Because apparently, Shake Shack is a restaurant others want to be around. Berman said the burger chain has cracked the code on scouting locations.
“Shake Shack is famous for looking at analytics to looking at things like traffic counts and median household incomes and building their cases for sites around that,” she said. “And then there are all these other brands that just follow them.”
Every growing restaurant has to have some kind of location strategy. And for a number of restaurant chains including Cava, Domino’s Pizza and Chick-fil-A, the business plan right now is all about expansion. And not only are they looking for new space, they’re looking for different ones because shifts in consumer behavior have changed what restaurant operators need from a space.
“Now is the time to grow, not shrink,” said Nick Setyan, a restaurant analyst at Wedbush Securities. “And especially since we didn’t grow a lot during COVID and so you have a lot of pent-up growth ahead of us.”
This is especially true for fast casual chains because with inflation, consumers have become very value sensitive. Fast casual is also where the money is. For instance, Setyan said a new Chipotle costs about $1 million to build and brings in nearly $3 million a year in sales.
“You already have your payback, you know, essentially in less than a year and a half,” he said.
Meanwhile, the payback for something that requires more space and labor, like the Cheesecake Factory, takes nearly five years, said Setyan.
Chipotle is looking to open up more than 300 locations this year. And it has a real estate team with more than 100 workers who hunt for potential sites.
“There’s a lot of science and a little bit of art,” said chief brand officer Chris Brandt.
Science like the number 50,000, which is how many residents a community needs for a Chipotle to succeed. And art like, “will drivers want a chicken al pastor burrito badly enough to make a left turn?”
Cars play a big role in this because Brandt says locations with a “Chipotlane” for online orders get more traffic. Nearly 40% of the company’s sales are digital, so adding the Chipotlane is worth it.
“It increases the cost a little bit, but the return far outweighs the cost,” said Brandt.
Chipotle pays a premium for standalone or corner properties because they can’t put a Chipotlane in the middle of a strip mall. It’s also hard for a Chipotle to succeed anywhere it’s hard to source ingredients.
“We would love to open up restaurants in Hawaii, but Hawaii is a very difficult supply chain for us,” said Brandt.
These are all things a restaurant has to think about in advance because one wrong move can ruin business. So can bad luck. Back at the pizza place in New York, Berman points across the street to an office building that used to house a big investment bank.
“And they’re no longer in the building,” she said. “There’s about 100 people in that building today.”
That’s demand for morning coffee, lunch salads and business dinners that dried up overnight.