How to choose the right location for your second restaurant?

Expanding a successful business by opening a second store can be an excellent way to grow revenue and increase brand awareness. However, it also comes with a lot of risks, such as overspending, revenue loss, and brand dilution. If the second store does not perform as well as the first, the business can suffer significant losses. Therefore, choosing the right location for the second store is critical. In this article, we will discuss some key factors to consider when selecting a location for a second store.

Recently I heard a story from one of our clients as an example of a chain that failed after opening its second location. This coffee chain had a thriving coffee shop in the downtown area and decided to expand to a new location in the suburbs. However, the new store did not perform as well as expected, and the chain eventually went bankrupt. The reason for the failure was that the chain did not conduct proper research and analysis of the new location. Had they done so, they might have realized that the suburban area had less pedestrian traffic and lower demand for specialty coffee.

To avoid a similar fate, it is essential to study the success factors of the first store. Conduct market research to understand the local population and their needs. Consider factors such as the number of people who live and work in the area, the footfall, the type of businesses nearby, and the competition. The first store's success could be attributed to several factors, such as its location, the quality of the products, the service, or the marketing strategy. Analyze these factors and determine which ones can be replicated in the new location.

Scout the competition

Thoroughly scouting the competition is a crucial step in understanding the competitive landscape of your new location. I recommend starting by visiting your competitors' stores and buying their products to get an idea of their footfall and sales volume. Observe their customers and how they interact with the staff, products, and store layout. Take note of prices, promotions, and discounts offered.

Creating a map of competitors' locations and comparing their sales to those of similar chains in the area can help estimate potential demand and revenue for your new store. Look for gaps in the market that you can fill or ways to differentiate yourself from the competition. Checking online reviews of your competitors to see their strengths and weaknesses can also provide valuable insights for improving your products and services.

Another important aspect of scouting the competition is understanding how they convert footfall into sales. Analyzing their sales volume and foot traffic can help estimate their conversion rates and compare them to your own. This information can give you a better idea of how much revenue you can expect to generate in the new location.

Examining the sales volume of competitors can also help gauge the reasonableness of the rent for your new store. If your competitors are generating high revenue with similar foot traffic, the rent may be justified. Conversely, if your competitors are struggling to convert footfall into sales, the rent may be too high for the area.

Moreover, checking the orders of competitors in the new location can help calculate their conversion rates and inform decisions about potential demand and revenue for your new store. By understanding the competition and the local market, you can position your business for success and minimize risks in the new location.

Consider the rent and future operating costs of this exact location

When selecting a location, it is also vital to consider the rent and operating costs. Ideally, aim to find a location where the rent and other expenses are similar to those of the first store. This approach can help you minimize the risks to the new store's financial performance. However, it is crucial to balance the cost with the potential revenue. A location with lower rent might not generate enough revenue to cover the expenses and vice versa.

Do not risk - find a location with the same demographics

Moreover, the new location's demographics and characteristics should be similar to those of the first store's target audience. Consider factors such as age, gender, income, lifestyle, and preferences. If the new location's population is significantly different from the first store's audience, it might require a different marketing strategy, product mix, or service approach.

Shake Shack is an inspiration and a lesson to learn

Shake Shack's success story is one of the most inspiring examples of a business that expanded successfully by opening a second store. The burger chain started as a hot dog stands in New York City's Madison Square Park in 2001, with a mission to create a modern version of a roadside burger stand. The concept was an instant hit, and Shake Shack quickly gained a cult following.

Due to its popularity, Shake Shack opened a second location in 2004, on the Upper West Side of Manhattan. The decision to expand was driven by customer demand and the desire to grow the business. However, the team at Shake Shack knew that expanding too quickly could dilute the brand and compromise the quality of the food and service. Therefore, they took their time to research and analyze the new location and ensure that it met their standards.

One critical factor that contributed to Shake Shack's successful expansion was the careful selection of the second location. The Upper West Side was a neighborhood with a similar vibe and demographic as Madison Square Park. The team studied the area's foot traffic, the competition, the rent, and the demographics to ensure that it would be a viable market for its brand.

Another crucial factor was the consistency of the brand and the product. Shake Shack maintained the same high-quality standards for their food and service in the second location as they did in the first. This consistency helped to build trust and loyalty among their customers and attract new ones.

Shake Shack's successful expansion did not stop with the second location. Over the years, the brand has expanded to multiple locations worldwide, including London, Tokyo, and Dubai. Their expansion strategy has been a combination of company-owned and franchised locations, depending on the market and local regulations.

One lesson that businesses can learn from Shake Shack's success story is the importance of staying true to your brand values and maintaining consistency across all locations. While expansion can be a great opportunity for growth, it can also be a significant risk if done hastily or without proper research and analysis. Therefore, it is crucial to take the time to study the new location, understand the market, and ensure that it aligns with your brand's values and goals.

Is there any potential for growth?

Another essential factor to consider when selecting a location for a second store is the potential for growth. While a location may seem suitable at the moment, it is essential to think about how the area may change in the future. Factors such as new construction, changes in traffic patterns, and new businesses entering the market can all impact the potential growth of a location. A smart approach is to look for locations that have both present and future potential for success.

In addition to considering the location's potential for growth, it is also important to evaluate the level of competition in the area. While competition is inevitable, it is crucial to understand how much of a market share your business can capture in the new location. A market analysis can help you determine the level of competition in the area and the potential demand for your products or services. With this information, you can create a strategic plan to differentiate your business from the competition and capture the market share you need to succeed.

Know your customer!

Moreover, it is essential to have a solid understanding of the target audience in the new location. Market research can help you identify the demographics, interests, and behaviors of the population. This information can help you tailor your marketing strategy and product mix to appeal to the new audience. For example, if the new location has a large population of young professionals, offering healthy meal options and a vibrant social atmosphere may be more appealing than in a location with an older population.

Do the financial calculations! Obvious? Many entrepreneurs do not do that!

To further reduce the risk of opening a second store, it is recommended to conduct a thorough financial analysis. This analysis should consider factors such as the costs of opening and operating the new store, the potential revenue, and the return on investment. The financial analysis should also include an assessment of the potential risks and how to mitigate them. This analysis can help you make an informed decision about whether the new location is financially viable and if it aligns with your business goals.

Real-life examples can also provide valuable insights into the potential risks and rewards of opening a second store. For instance, the fashion retailer H&M initially struggled with its expansion into the Chinese market due to cultural differences and competition from local brands. H&M eventually adjusted its strategy and found success by offering localized products and marketing campaigns that resonated with the Chinese audience. This example highlights the importance of understanding the local market and adapting your business to meet its unique demands.

Second location in the same mall?

Another example is the Australian restaurant chain, The Pancake Parlour, which opened its second location in the same shopping center as the first. This move was risky as it could cannibalize sales from the first location. However, the chain was able to attract a new audience to the second location by offering different menu items and a unique dining experience. This example shows that expanding in a saturated market can be successful with careful planning and differentiation.

In conclusion, expanding a successful business by opening a second store is a complex process that requires careful research, analysis, and planning. By considering factors such as the location's potential for growth, level of competition, target audience, and financial viability, businesses can reduce the risks of failure and increase the chances of success.

Try to minimize risks in the second location and conduct a thorough study. It is important not to become complacent with your first success and to approach the next endeavor with careful consideration.

While these are my personal thoughts, it is always wise to seek expert advice before making any major decisions)