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A restaurant's nationwide expansion offers entrepreneurs in other industries lessons on how to determine the right place for their own businesses
From the time he was 12 and working after school in his family's Jamestown (N.Y.) restaurant, Tony Calamunci dreamed of expanding the business nationwide. "For me, it wasn't if, but when," Calamunci recalls.
But it took more than a quarter century for Calamunci and his brother John to realize their dream. Two years ago, when they established Johnny's Lunch Franchise, Tony was nearly 40 and working as a corporate attorney in Toledo. Why wait so long? "We wanted to do it right," he explains.
Transforming a small-town hot dog joint (the Calamuncis' grandfather Johnny Colera, a barber by trade, opened the restaurant in 1936) into a national franchise (BusinessWeek.com, 3/10/08) takes an extraordinary amount of planning and strategy. The brothers and their newly hired corporate team currently have five restaurants in operation, from the original Johnny's Lunch, which Tony's and John's parents still operate in Jamestown, to sites in Michigan and Ohio. The company plans to open 30 to 50 new restaurants by the end of 2008, and around 1,500 within the next five years.
Indexing Demand Potential
Tony's first step in the expansion plan was hiring professional management, including George Goulson, an executive with extensive experience in the quick-service food business. He also contracted with MapInfo, a location research consultancy that conducted in-depth interviews with more than 600 patrons of the original Johnny's Lunch and used the data to create a target customer profile.
Recognizing that their 98¢ hot dogs appealed most broadly to college students and lower- and middle-income families with children, the firm identified 4,500 possible locations nationally and then targeted intersections at the state, county, and market level, indexing them to demand potential, said John Orton, who originally worked for Pitney Bowes MapInfo (PBI) and is now vice-president in charge of real estate for Johnny's Lunch.
"We need density within the first-mile radius of our locations because our primary day part is the lunch period," Orton explains. Customers who drop in for hot dogs, hamburgers, milk shakes, fries, and onion rings are often on their lunch breaks and have limited time. Selecting appropriate locations is crucial for retail stores and restaurants, says Orton. "Many small startups will dive for the dartboard when selecting sites, and that's the worst thing they can do. The fifth, sixth, or seventh location could kill you," he says.
Working Back from Projected Revenues
Devon Wolfe, a managing director at MapInfo, advises entrepreneurs to think about all the factors driving their business before they choose a location. "Who's your customer? Who else is out there that you're competing with? What kind of budget do you have for marketing? What does your business plan say? You've got to do the homework and do the math."
It's best to start from your projected revenues, then determine how many customers you'd have to serve—and how much they'd have to spend on a daily or weekly basis—in order to achieve those revenues, Wolfe says. Talk to local grocery stores and other retailers near your potential location to find out what areas they draw from in terms of their customer base, he says.
Big Brands Make Good Neighbors
Picking appropriate neighborhood demographics is also crucial. A high-end steakhouse or pricey art gallery probably won't do well in a low-income community. Even when you've chosen the right demographic space, you have to examine your competition and your timing. For instance, a lunch restaurant won't thrive in a suburb where few people are around in the middle of the day.
Orton wants to put Johnny's Lunch franchises in strip malls with high visibility and national brands as co-tenants. "We can't be buried in a Wal-Mart (WMT) center," he says. "We need good visibility from a primary road, with good ingress, egress, and accessibility," Orton says. "If you're in a center with Leann's Nails, Joe's Tax Service, and Omar's Feed Supply, it creates a different perception in customers' minds than if you're next to Starbucks (SBUX), Panera (PNRA), and Chipotle (CMG). It's not that there aren't strong independents out there, but they are not typically top-of-mind for customers."
Ditch the Dartboard Approach
Even if you don't have the money to hire a location research firm, there is a wealth of demographic information online that smart entrepreneurs can uncover with some digging, Wolfe says. "Search using terms like 'business demographics.' There are a number of vendors that have indexes that will match up with your concept. For instance, if you're opening a hunting and fishing store, you can find out what areas have high concentrations of people who hunt and fish."
If you don't have much luck online, go straight to the source. "Town councils, planning agencies, city development offices, even other retailers who aren't your direct competitors should be able to give you relevant information about market demographics," Wolfe says. In other words, there's no excuse for falling back on the dartboard approach anymore.