Under Development - Evaluating Restaurant Sites

Spring 2011

Opening a restaurant is a challenging business. Some estimates put the first-year failure rate at 50 percent or more. If you think you have a promising site at your existing retail center or are considering restaurants at a yet-to-be-built complex, heed the words of Jo-El Quinlan, senior vice president, development, for LongHorn Steakhouse and vice president of real estate for Darden Real Estate, who spoke at NAIOP’s Development ‘10 Conference in Orlando last fall. 

Darden Restaurants, based in Orlando, may not be a household word, but you have likely eaten at one of its chains, including Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze or Seasons 52. The Capital Grille, Seasons 52 and Bahama Breeze are considered specialty concepts. The Olive Garden, Red Lobster and LongHorn Steak­house appeal to a broader segment of the public. Darden has sales of over $7 billion annually; has 1,800 restaurants; 180,000 employees; and serves 400 million meals annually.  

Jo-El Quinlan

Jo-El Quinlan

Where to Put a Restaurant

Quinlan explained that before Darden will commit to an area, it does exten­sive analysis. It has eight real estate directors strategically located around the country. They work hand in hand with the Orlando market development team.

She said that the company analyzes a site in four ways, including:

  • Trade area analysis;
  • Customer profile analysis;
  • Competition analysis; and
  • Site analysis.

Trade area analysis – Quinlan com­mented that this is the most impor­tant part of site research: “If you don’t get this right, nothing will be right.” In defining a trade area, the company looks at the number of “sister” units (its own restaurants), direct competi­tion, physical barriers, socioeconomic barriers and “distance decay.”

Obviously, this type of analysis is not as simple as plugging numbers into a spreadsheet. For example, socio-economic barriers are invisible barri­ers that people will not cross to get to a restaurant. Distance decay is also challenging to figure out.  

Red Lobster

“The further people are from your restaurant, the less likely they are to come to it,” she said. “A million-square-foot shopping center built on the fringe of a population will mean different things to us than a million- square-foot shopping center built in the middle of that population. In the restaurant business, we all like to believe that we are a destination, but at the end of the day, people are very busy and you need to be where they are going to be. You need to be convenient to them.”

In this trade area analysis, a dollar value is assigned to all of the people based on income, psychographic characteristics, and distance. Then the system estimates that it will only capture 60-80 percent of the total sales. “There is also something called ‘beyond sales’ that is figured in,” she said. “That is, the restaurant may be located right off of an interstate and that restaurant will capture a certain amount of sales from people pass­ing by. It could amount to 20 to 40 percent of the total sales potential.”

Besides looking at a trade area, Darden also looks at what density class the restaurant site is in because people act differently depending on the density class in which they live. These density classes, ranked 1 through 7, include: 1-super urban (8,000 + households per square mile); 2-urban (4,000-7,999); 3-light urban (2,000-3,999); 4-1st tier suburban (1,000-1,999); 5-2nd tier suburban (600-999); 6-exurban/small (100-599); and 7-rural (0-99).

She explained that people are will­ing to drive different distances to a restaurant depending on their density class. For example, people living in a super urban setting will drive only eight miles to get to an Olive Garden restaurant; people in a 2nd tier subur­ban location will travel 17-22 miles to dine at Olive Garden; and in the rural area they will travel 25-32 miles to eat at an Olive Garden restaurant.

“We also look at four principal contributors to sales performance,” asserted Quinlan. “There are nuanced differences between our brands (See Table 1). If you look at LongHorn, for example, it has the highest percent­age of customers from the daytime worker base—20 percent. But if you look at Olive Garden, it gets 13 percent from the worker base but 21 percent from shoppers. What we tell developers is that 50 percent of business comes from people who live nearby. They are not coming because they work nearby or because they shop at the mall. We bring a lot of traffic to a center that is not there because of shopping.”

Table 1

Four Principal Contributors to Unit Sales Performance



Olive Garden

Red Lobster


















The “Other” category in Table 1 is a key part of the equation but hard to quantify. “Other” could be the difference between an unsuccessful and a successful restaurant. “For us, ‘other’ could be the difference between meeting our return and exceeding our return.”

Customer profile analysis - “We are very customer-centric,” explained Quinlan. “We talk about guest poten­tial and how many guests we serve per week, not sales per restaurant.”

Who are the guests at Darden restaurants? Table 2 details the guests for the three biggest concepts.

“There are slight nuances in our brands regarding our customers,” said Quinlan. “With these three brands, however, the customers represent the majority of the United States. This is where most people in the U.S. fall, which for us is exactly where we want to be because we want our brands to be billion dollar businesses.”

Table 2

Customer Profile Demographic Analysis

Unit Density Class


Olive Garden

Red Lobster

Population Age




Married w/Spouse Present




Households 2-4 People





High School or Associate Degree

Some College or College Degree

High School or Associate Degree


White & Blue Collar

White Collar

Blue Collar

Median Household Income




Median Housing Value





Competition analysis – “Many times, I will look at a shopping center and all three of our big restau­rants will be there. Sometimes only two will be there but not the third. This is due to competition analysis. We look at ‘sister’ competition, which is how we impact ourselves, and direct competition. Then we need to be concerned about indirect competition,” noted Quinlan.

“When you open a new restaurant, it will impact an existing restaurant, but you have to look at how many new customers it will bring in,” she went on. “If the new restaurant just trans­fers customers from an old restaurant to a new one, you spent money but didn’t get a lot of new business. When placing a new restaurant, we look at things like degree of convenience versus destination orientation; place­ment and strength of direct competi­tion; and operational challenges when strong performing units require relief. That means that when we have a very high performing restaurant, we want to impact it with a new restaurant. While it is nice to say that we are always on a two-hour wait, that is not what our guests want.”

Longhorn Steakhouse

Site analysis – Quinlan said that with site analysis, Darden looks at: visibil­ity; signage; parking and site layout; co-tenants; size of center; type; “the drawing power;” center vitality; ingress/egress and accessibility; and traffic count/drive-by influence.

“These are site characteristics that everyone looks at,” she commented. “But there are a handful of site char­acteristics that can influence a deci­sion by plus or minus 20 percent.” These include:  

  • site location on the block (e.g., inline, corner, mid, pad, etc.)
  • left turn access into the parking lot
  • site location compared to nearby competition
  • visibility and signage from the fronting road
  • seating capacity
  • number of exclusive parking spaces
  • adjacent steak house competitors (LongHorn)

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