Steve Starr

1 Problem, 3 Solutions: Site Selection

What is the current state of restaurant real estate, and what should restaurateurs consider when looking for locations this year?

We are experiencing enormous tectonic shifts in real estate right now with a number of contributing factors. During the recession, and for a few years after, retail/restaurant tenant space development effectively stopped until the existing supply was leased up. Now, we’re seeing development come back aggressively, but demand is outpacing the limited supply as competition for first-generation traditional restaurant spaces has become very high. This aggressive development cycle means that supply is just now catching up with demand and it will have positive impacts on the industry.

Another factor causing this shift is the enormous change in U.S. demographics and buying power. In 2020, Millennials will hold more than 50 percent of U.S. consumer buying power. In 2025, they will hold more than 75 percent. Their living preferences are very different from older generations, as they are much more urban- and semi-urban focused. They are also currently more focused on renting than owning single-family homes. Because of this, the fastest-growing cities right now are second-tier in size. Those cities are appealing to Millennials because they focused on growing their urban and semi-urban core areas, and offer more affordable living alternatives. (Click here for the 11 top cities Millennials are moving to.)

Given all of these changes, my top three considerations for restaurateurs are:

1. Know your target guest. Operators should do whatever they can to get to know their target customer and what motivates them. Where do they live? Where do they shop and how do they travel? And I don’t mean how consumers travel outside their home area: it’s how they move within their trade area that counts. Anchor stores are no longer good indicators of where consumers purchase their retail goods due to fierce competition and the proliferation of online shopping. Be willing to explore other non-traditional real estate options.  Invest in creating an accurate, data-driven real estate model. This is more complex than what your broker might typically provide. We work with a company that uses mobility data to track customer behavior. This means that any time someone leaves their house or office, and stops for more than 5 minutes, they are tracked and tied into customer segmentation analysis. Using mobility data and geographic information systems consultants can develop your ideal real estate model and evaluate potential sites against that ideal. This helps to mitigate the substantial and costly risks of “striking out” with a new location.
2. Understand the costs. Not every site is going to cost the same to develop, so you really have to do a detailed site investigation and determine your actual costs for a given site. Operators can no longer use the same generalities they used to because construction costs are increasing dramatically, and standard delivery conditions are changing. Additionally, regulations governing restaurant development can vary greatly based on individual municipalities. There are now different requirements for grease traps by city, and water quality and storm water management will continue to be a front-burner issue. For example, the EPA got involved with a county in the Atlanta Metro area because of poor water quality going back into the sewage system. For a 2,500-square-foot fast-casual restaurant concept they require a 3,000-gallon grease interceptor, when a 1,500-gallon interceptor used to be standard. On ground-up deals we’re now having to address water quality issues even on small sites that add significant costs relative to the real estate deal. (I’ll go into water quality issues in more detail next month.) Again, these are new issues that up until a couple of years ago, restaurant operators never had to deal with. And no one sees it. It’s a lot of money that has no effect on the guest experience. It’s also incredibly complex because there is no national standard. So, make sure you do a comprehensive investigation on any potential site.
3. Know your deal. There is no such thing as a standard lease or purchase agreement anymore. Since the recession, everyone has come up with different ways of packaging different “delivery conditions” and the lease work letters no longer contain standard definitions. The changing of two words can impact something that can cost hundreds of thousands of dollars and move it from the landlords to the tenant’s responsibility. Additionally, know the value of each of these work letter items and what they truly mean for you.

In general, there is more competition for customers, customer dollars and real estate. So, do your homework and invest in your homework and build it into your pro forma. Not every deal is going to work out, but knowing your deal and the costs associated with it will save a lot of time and money in the long run.

Featured in Restaurant Development + Design.

by Steve Starr

1 Problem, 3 Solutions: ROI & Design

How do you find a balance between impactful design and containing costs?

1. Look at both sides of the equation.

When developing a new restaurant, it’s important to keep in mind both sides of your return on investment or return on capital equation. Your target ROI should be equal to your budget divided by profit. In other words: Budget = ROI x EBIDTA (earnings before interest, depreciation, taxes and amortization). Since your target ROI can’t change, let’s focus on the relationship between budget and earnings.

It’s never a good approach to just keep lowering the budget. With increased competition and rising costs, you must focus on what truly impacts sales. These areas are where you should invest your money. If a design feature costs more but increases profit, then it makes sense to raise your budget accordingly. When done correctly, a small increase in budget can have a large impact on sales.

To do this, you need to determine what will increase frequency, drive guest spending, or create add-on sales. Cutting costs is a critical component, but it’s not the whole equation. Instead you should be intentional about spending money on things that will motivate guests.

2. When looking at lowering costs, always look everywhere.

Certain rules drive baseline costs, including health department regulations, codes and operational and food safety issues. In low to medium price-point establishments, these are going to dictate about 90 percent of your costs. As the regulations become more restrictive, adhering to them becomes more expensive. And these are things you simply can’t get around.

With that being said, approximately 10 percent of your budget is all you have to play with when it comes to making design decisions on things your guests will touch and feel, like furniture and finishes. Going from what’s absolutely necessary to operate effectively to a fully fleshed out design, you’re looking at a small percentage of your overall costs. So, what you’re really spending money on is durability, lower maintenance and lifecycle rather than design-related decisions. Therefore, the design decisions you can make that will affect the guest experience become more important and require more thought and expertise. However, in order to make a significant impact in your overall costs, you need to look everywhere. This includes kitchen equipment, IT choices, etc. You can’t limit your value engineering to simply furniture, finishes and design appearances, or you won’t be able to truly impact the cost side of the equation more than a few percentage points.

3. Reconcile your budget with your objectives at the beginning, not at the end.

It’s important to understand durability and how it affects the numbers. If you or your design professionals aren’t familiar with these things, it would be wise to meet with a contractor early and set targets for every area of your space. This way, you can reconcile your budget at the beginning so you’re designing within your means to meet your overall objectives.

It’s important to know your numbers and work with a design professional that understands what things cost. Break down your budget in as much detail as possible at the beginning. For example, if your objective is to create a store with a lifecycle of 10 years with limited maintenance, know that you’ll need durable kitchen flooring like quarry tile with an industrial epoxy grout and an anti-coupling membrane, which runs about $11-14 a square foot. You would not be able to go with a painted-on epoxy floor at $6 a square foot because it likely won’t last more than 3 years. If you go with the cheaper option upfront, 3 years down the road the restaurant would need to close for 2 to 3 days to redo the floor at the original $12 a square foot cost.

by Steve Starr

Is all that convenience crushing your customer experience?

Just like diners, restaurateurs and all humans are social creatures, with strong inborn biological and neurological needs to interact. In fact, "Braving the Wilderness" author, Brene Brown explained that loneliness is as powerful a force as hunger or thirst. Put simply, interaction is not just something we "want," but truly something we absolutely "need" and restaurateurs would do well to keep that top of mind.

But lately I’ve seen a shift in the manner that consumers and restaurants interact, based largely on the changing dynamic between how and when food is consumed and consumer demand. This shift is showing itself in the form of a polarization within the restaurant space based on two completely separate dining motivations. One is convenience and the other is social.

Convenience: The need for speed

When we look at the motivation of convenience, it largely stems from the increasing competition restaurants face from C-store offerings, food delivery services and the ever-more-accommodating grocery store around the block. And why shouldn’t these businesses vie for a piece of the restaurant pie? After all, they’ve learned by watching the restaurant industry that there’s a ton of pent-up consumer demand for quick and easy options when it comes to picking up and consuming food.

In turn, restaurants have responded to the increased competition by creating ever-more convenient options themselves, like the many manifestations now of take-out and delivery, along with all the other options that use technology to drive down transaction times to essentially zero.

Likewise, automated labor processes are here and growing in use, often under the belief that if a restaurant brand uses systems that involves less human labor at more convenience to guests, the overall customer experience improves. But, in all this rush to convenience, are we also sacrificing that other key dining motivator of human interaction?

Granted, today’s consumers are busier than ever and crave more convenient and affordable options to meet their dining needs. But in our quest to fulfill this call for convenience, are we missing out on the very reasons restaurants have become such an integral part of our society?

Making ... or missing the prime connection

Technology can’t take the place of human interaction, because while we may communicate through technology, we can only truly connect face-to-face. So, I believe that when restaurant operators minimize customer-staff interaction, they are also minimizing a prime opportunity to create a positive brand touchpoint.

That interaction can be as simple as joking around with restaurant staff, or just getting verbal confirmation that a special order was actually received and executed. After all, in most cases, people want to be seen, known and even valued in others’ lives. That’s why I believe that building in these “touchpoint” opportunities is still critical to the restaurant operator’s overall success.

On the flip side, if most restaurateurs choose to replace all their opportunities for customer interaction and connection with faster, more efficient technological tools, are those restaurateurs or the restaurant industry in general really gaining in the long run? I would suggest that we might be losing that key "brand experience" by increasingly exchanging opportunities for customer-staff interaction with customer-technology interfaces. Ultimately though, this is a decision  operators and owners must make for themselves, although the ripple effects of those decisions impact many more who work, socialize, eat and depend on their choices.

Featured in QSR web.

by Steve Starr

1 Problem, 3 Solutions: Restaurant Seating

When people are eating, they want to feel both protected and anchored. For example, sitting at a two-top table in the middle of a crowded dining room makes guests feel open and exposed — and less likely to have a positive experience or return. There are a few things you can do to create a functional and interesting seating layout.

1. When planning your dining room, opportunity exists to foster that sense of protection and anchoring through a variety of experiences. Smaller tables should be located next to something with substantial mass — like a wall, column, window or booth back — to create a feeling of safety. Two-tops should rarely be accessed by two aisles, so people feel protected on one side. Larger tables have a certain amount of perceived weight, so this isn’t a concern. Additionally, the use of soft or fixed seating like booths allow guests to feel protected and enclosed by providing a defined space.
2. You can create a sense of order in the layout by intentionally designing zones. Grouping similar table types will utilize anchoring, and the creation of zones ensures a variety of seating styles and options throughout the space. Tables spread out chaotically can upset a guest’s sense of protection. Instead, use groupings to create sections that are apparent to the diners. You can also use ceiling elements of varying heights over certain areas to reinforce the zones. Lowering the ceiling uses scale to create a feeling of protection, while raising the ceiling can define a space through its open nature.
3. Finally, a great restaurateur understands the connection between what the kitchen can produce and how the restaurant is seated by the hostess. While some may focus on the number of seats, an experienced operator will prioritize the number of tables and the size of each party. Determine the minimum number of tables needed based on the average ticket to reach your revenue goals during peak hours. Based on the average size of your parties, this will have a large influence on the number and type of tables organized in your dining space. The timing should all revolve around your knowledge of what your kitchen can produce and how it plays into your dining space. Understanding how to maximize your restaurant will influence how you design your floor plan.

Featured on Restaurant Development + Design.

by Steve Starr

Creating touchpoints to connect with consumers

Alexander Shporer, project manager

Connecting consumers with your brand is vital in today's retail world. With so many options and channels competing for attention, retailers need to create a distinct shopping experience where guests can see, touch and connect with your products. This will capture guests' attention and keep them in your stores.

The ability to develop a multi-sensory environment will build brand loyalty and decrease price sensitivity, resulting in devoted consumers who are willing to spend more on products they love.

There is no one-size-fits-all solution to creating memorable touchpoints in your store. However, each approach should be tailored to your specific product and clientele. Here are three factors to keep in mind:

Technology

Some companies have been moving toward tech-only stores with minimal human interactions. However, this should not be the ultimate goal for all categories, especially if it is difficult for a typical customer to wrap their mind around your product. For example, jewelry store customers rely heavily on employee expertise to help guide a journey through the selection and purchase process. This interaction is welcomed in an industry that features unusual terminology and a high price point. Moving to complete automation is not always necessary (or the right thing to do!) in this type of retail environment. It may be convenient, but it doesn't allow you to build brand loyalty and it's often not an effective way to capture guests' attention.

Instead of eliminating personal interactions — try offering your space as an oasis from the outside world. In REEDS Jewelers, the company diverged from the typical mall retail jewelry experience and introduced a thoughtful storefront that clearly separated the interior from the rest of the mall. This helped set the stage for consumer/associate interaction in a distinct environment with controlled sound, light and movement. Even if you want to utilize technology in the background for seamless transactions, allow your customer to disconnect from their busy lives and instead develop a personal connection with your brand.

Merchandising

Merchandising, whether small incase elements or large tabletop displays, should be used to create unique experiences that differentiate your brand. Creating a memory touch point based on past shared experiences forms a strong connection between the product and consumer. For example, high end fashion is highly curated and often displayed in cases or custom shelving, providing ample opportunities for merchandising within the units. Using a hand figurine in a tall jewelry case to display a ring and bracelets together can have a strong impact and capture your guests' attention. In most cases, space is limited and you cannot afford to use floor or casework space to create a display. However, walls and overhead shelves are highly visible areas that are often underutilized. For example, a shelf with a rainbow of leg forms was created in HUE, a women's apparel manufacture that allows women to express themselves through brightly colored leggings. The use of a long shelf to display these leg forms created a unique way to capture shoppers' attention.

Telling your brand's story can strengthen the connection with customers — and it can be done in a multitude of ways. Best of all, it doesn't need to be complicated. Figure out what works best for you and your products in the space. The displays should be placed near related products or at major intersections in your store to help direct sales.

Graphics

Graphics can be used for a wide range of purposes in the store. You can tell your brand story through environmental graphics, or you can create cues for your employees, to ensure they highlight specific product benefits and features. These can be beneficial tools to connect with customers, as long as they are intentional, integrated into the space, and changed throughout the year. Additionally, you can incorporate photographs of merchandising, which provides more flexibility when setting up your store. With Pandora, opportunities were created to display graphics that change out throughout the year for holidays, promotions, and seasons. These help show off the products in a unique way, limiting the need for each store to merchandise on their own.  Graphics can also be used in unique settings. Don't solely rely on televisions or wall posters to display advertisements. For example, the back wall in Pandora was designed as a large magnetic graphic that can easily be changed.

Standing independently, these three factors are often not strong enough to create true hands-on touch points. Instead, make sure that they work together to facilitate a unique customer experience. Allow your guests to see your full product line through their journey without feeling forced into it. Using technology, merchandising and graphics, you can elevate your products, as well as your sales goals.

Featured in Retail Customer Experience.

by Steve Starr