A number of successful chain restaurants choose their sites based on lifestyle in order to target consumers who are more likely to eat healthy. Read the interesting article below recently found in Chain Leader magazine.
Restaurant-chain operators have discovered that highly educated, affluent diners are eating healthfully, so they're trying to locate where these diners live.
By David Farkas, Senior Editor -- Chain Leader, 9/1/2009
The more customers are aware of the nutritional value of food they eat, the more likely they are going to be customers of Fresh City, says CEO Larry Reinstein.
In 1986, Fresh Choice founders Martin Culver and Brad Wells tapped a culinary well that has yet to run dry by betting that well-educated consumers would become loyal guests if they perceived the offerings as healthful. If these people had an above average income and lived in close proximity to each other, all the better.
“Fresh Choice was one of the early ones to identify that market,” recalls former Montgomery Securities investment banker Al Baldocchi, who remembers affluent-looking females piling into the salad buffet restaurants in Sunnyvale and Palo Alto, two of the brainiest and wealthiest cities in northern California.
By the time Baldocchi took the then-22-unit company public in 1992, raising $13 million in the process, annual revenues had jumped 57 percent and net income had climbed $1.3 million.
But that was then, Baldocchi declares. Today, he insists, you can find chains with healthful menus just about anywhere in the country. “It may have started in sophisticated urban centers, but the market has broadened from there,” he says.
Yet chain leaders interviewed about growth strategy say education, income and population density remain important site-selection factors. Their concepts, all of which boast good-for-you menu items, do well when in markets filled with consumers who care about their health.
McAlister’s site-selection criteria includes a screen for “health seekers,” a category that includes consumers looking for healthful ingredients and menu items.
The Educated Consumer
“We find that the better-educated the consumer is, the more apt they are to be our kind of guest because we are asking them to pay a little more than in a QSR,” declares Larry Reinstein, CEO of Fresh City, a Needham, Mass.-based restaurant chain that operates and franchises 16 fast-casual eateries that emphasize fresh, nutritious foods.
Reinstein has found such customers in Herndon, Va., outside Washington, D.C., and plans to open more Fresh City units there. “Washington, D.C., will be strong for us,” he says.
As a similar chain has already discovered. “Our best customer is a younger person who is eco-conscious and likes healthy food,” offers Nathaniel Ru, a partner in a salad and yogurt venture called Sweetgreen. The partners, recent Georgetown University graduates, have so far opened two fast-casual restaurants in Washington, D.C., and one in Bethesda, Md., since 2007. They plan to open at least one next year, possibly in nearby northern Virginia.
The menu at the eco-friendly concept, based in the District, typically features locally grown, organic vegetables, and the restaurants themselves incorporate repurposed building materials.
“Our loyal customers understand the concept and why they are there,” Ru adds, referring to its low-calorie menu that emphasizes quality, freshness and nutrition.
The District of Columbia ranks in the top 10 of the “Healthiest Cities in America” and “Most Energetic Cities” surveys. According to Bestplaces.net, which published the lists in 2005 and 2007, respectively, Washington, D.C., scored high in general good health and boasts many fitness facilities and outdoor shops. The Web site also shows that as of 2006, 49 percent of Bethesda, Md.'s 1.1 million residents have at least a bachelor's degree; of Washington, D.C.'s 4 million people, it's 39 percent.
Scottsdale, Ariz.-based Kona Grill does well when highly educated people live or work nearby. CEO Mark Bartholomey lists Troy, Mich.; Tulsa, Okla.; and Kansas City, Kan., as good markets for the upscale-casual concept, which offers vegan, wheat-free and healthful-dining menus.
Good markets, that is, as long as the chain identifies a site among educated customers. “There seems to be a food quality-slash-education crossover, though we have no data to prove that,” Bartholomey adds.
He hopes to have a better picture soon. Bartholomey recently retained a site-selection firm to help refine Kona Grill's site-picking process, which has relied on “raw” demographic data like income and education levels. That led to mistakes in a couple of cases.
“We could find incredibly intelligent people who want to eat healthy, but they could have too high of an income and are looking for a different caliber of food than ours,” he says. The chain has opened “one or two” restaurants in such areas.
“When you look at demographic reports from a real estate perspective, they're not typically going to list 'health-minded consumer,'” acknowledges CEO Jeff Levine of Miami-based Salad Creations, a 53-unit fast-casual chain. Ideally, he says, he'd like to know that “28 percent of the population in this area is healthy-minded and makes better eating choices and shops at Whole Foods.”
Salad Creations CEO Jeff Levine, who believes people in the West are more interested in personal health than elsewhere, says outposts in Wyoming and South Dakota are doing well as a result.
Drilling down that far into personal habits isn't possible without commissioning an expensive custom survey. Yet Former Applebee's marketing executive Bill McClave, a principal at Birchwood Resultants, claims “lifestyle segmentation” data, which includes information from U.S. Census Bureau block groups, does come close. A block group is roughly 1,500 households that shared information about education, employment, housing and transportation in the last census.
“More than half of the fast-casual and upscale-casual-dining chains are chasing educated, middle-class and up, white-collar-employed consumers,” McClave estimates. Using modeling techniques, he adds, chains can find “disproportionate concentrations” of people that like quality food and like their concept.
McAlister's Deli CEO Phil Friedman notes he has discovered one such concentration through the segmentation process. “One big segment for us is 'health seekers,'” he says. “They are looking for taste and variety, but they are also looking at specific ingredients.”
The Ridgeland, Miss.-based salad and sandwich chain of 292 units in the Southeast includes health-seeker preferences in its site-modeling criteria, which is updated annually. “The trend toward looking for healthier options is incorporated in our site screens because we are always looking for sites where we can be more successful,” Friedman says.
Friedman hesitates to describe an ideal McAlister's Deli location, though he will say restaurants that open in affluent suburbs with “good residential and business” do well. Throw in a hospital or a university, and it's icing on the cake. “The infrastructures of both historically have worked well for us, and that relates a bit to education and income,” he says.
Levine, on the other hand, isn't shy at all about where he'd like to see a Salad Creations go. “On Lincoln Rd. [in South Beach]. Oh my, it has our name written all over it,” he exclaims. “Everybody there looks like they just walked out of a magazine cover.”
Trouble is, rents on the popular pedestrian mall run $300 per square foot, he adds, making it tough to convince a franchisee to sign a lease.
So far, the Levine has had to settle for more prosaic outposts like Greenville, S.C., which proved to be a bust. “It was a smaller town without the population density of white-collar, educated consumers that we need,” he explains.
The recently opened Salad Creations in Billings, Mont., and Great Falls, S.D., however, are doing fine. “I attribute that to an outdoorsy population that likes to eat better,” Levine says.
Levine, who also wants to open units in Denver, is on to something. Eight of the top 10 most energetic cities are in Western states. Three of those states—Colorado, Hawaii and California—have the fewest obese residents, according to the Centers for Disease Control.
None of this has seemed to help Fresh Choice, which had fallen on hard times by the end of the '90s, largely the result of overexpansion. Today, the Newark, Calif.-based chain operates 34 restaurants (down from 53 in 1995).
Still, says CEO Sandy Boyd, who bought the chain 18 months ago: “The irony is, you drive down the Peninsula [from San Francisco] and see four or five of our stores and Whole Foods across the street. We were there first.”
Boyd is adding locally grown, organic vegetables to Fresh Choice to attract the Whole Foods customer. “I am trying to get them back,” he says. “That is the one customer we really need.”
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