This is the 4th step in 5 steps to getting success in a changing restaurant industry.
Define an exact trade area around each site to forecast revenue and make more effective marketing campaigns, and to show where you are underserving areas or where you are cannibalizing sales from another site.
Consumers are not willing to travel longer distances and you have to understand where your customers are located in your trade area. Trade area for your restaurant is a combination of the total number of people matching your customer profile, their behaviors, and their spending potential.
You can maximize your sales potential with Trade Area Analysis. A trade area for QSR (Quick Service Restaurant) is the area the geographic area (determined by the time or distance required for your restaurant customer to come to your restaurant) that contains 70 to 85 percent of your restaurant customers.
Data models can be created based on your best customer or your restaurant customer profiles.
With the help of these models you will be able to identify:
What is the amount of time your restaurant customers are willing to drive to get to your restaurant?
How do you reach new prospects to increase ROI?
What is the performance of your locations in your trade area?
What are the demographics behind the traffic?
At what times are people coming to your restaurant?
Where are your customers coming from?
What’s the distance of your competitors from your restaurant?
How many customers you have in a trade area?
What is the market potential of the trade area? And how much of the market potential is your restaurant capturing?
With the help of these models and customer profiles, you can identify your market opportunities. You might have to reevaluate your trade area and have focused on customers within a best drive-time of your restaurant location.
You might have to reduce the size of your restaurant if you find that some locations are not in the right area to attract your restaurant customers. On the other hand, you can increase the size and benefit from a smaller location.
Restaurants are mostly dependent on neighborhood residents if it is located in residential area and on working employee’s if the restaurant is located in business area. A trade area is a good mix of employees, residents, shoppers, and commuters. For this reason, the trade area for QSR is usually 1-2 miles or 5-7 minutes of distance your restaurant customer. Restaurants once used to have a 10-12 minutes’ trade area have shrunk to a 5-7 minutes’ trade area. Restaurant customers are no longer driving as far as they once did to eat out.
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Factors that Impact Trade Areas are your community’s population and its proximity to other competitors. Bigger the community’s population, bigger the trade area. Restaurateurs should analyze trade areas regularly to provide key metrics for improving marketing and sales performance. Adding new restaurants to your restaurant chain will cause the trade area of nearby restaurants to change. Cannibalization can occur if the restaurants are located too close to one another.
Benefits of Trade Area Analysis are:
To identify the gaps in the market of your existing restaurant, and make corrections by closing any existing restaurants, opening a new restaurant or moving a restaurant in the trade area.
To make better site selection decisions based on the existing trade areas to predict trade areas around potential locations.
To define a geographic area to analyze competitive restaurants, market potential, and market penetration.
Therefore, adequate trade area analysis of a site, a careful review of local demographic considerations as they relate to the type of restaurant and concept, together with a review of competing alternatives within the primary trade area of the restaurant are critical to a reliable appraisal of these properties.