In the late 1990s, Rajesh Sharma started a small Chinese eatery in the middle-class neighbourhood of Patparganj in East Delhi. A regular customer suggested to Sharma that he should open a branch in South Delhi’s Chittaranjan Park. Customers in South Delhi were better off and had more buying power; the difference between South and East Delhi was starker 20 years back.
Sharma followed his customer’s advice and opened a branch in Chittarajan Park, and the rest is history. As disposable incomes rose with the economy, the restaurant grew and now commands a loyal customer base. ‘‘Location is the key factor in the restaurant business; you can assign almost a 70% weight to this factor. Food is also important and customers won’t compromise on it. Location helps draw customers. You have to be in a place of high footfalls.’’
Location is the key factor in the restaurant business; you can assign almost a 70% weight to this factor
- Rajesh Sharma
No wonder, high streets such as Mumbai’s Linking Road or Delhi’s Connaught Place or shopping malls are a natural choice for restaurants; so, are residential markets or commercial business districts. According to one estimate, almost 60 percent of restaurants in Delhi NCR, Mumbai and Bangalore are located in a high-street. Some streets evolve over time into high streets. Location can make or break a restaurant. A bad location is often a key reason why restaurants go out of business. Sharma knows this well. He had started two other branches, one in West Delhi where an amusement park was to come up and one in a South Delhi market popular with bargain hunters. Both had to be shut down in a few years as they were losing money. Lease costs can be a big drag; entrepreneurs also need to check for exit clauses.
Hit by the pandemic, three restaurants announced plans to shut shop in Delhi’s Khan Market as they could no longer afford the high rentals. According to Cushman and Wakefield’s annual report, Khan Market was the 20th most expensive shopping streets in 2019, with annual rents averaging $243 – or about Rs 18,500 at current exchange rates – per sq. foot. Thus, even a small 100 sq. foot space would cost more than Rs 1.5 lakh per month. Location has always and will still continue to play a significant role in the success of a restaurant, says Anuj Puri, Chairman, ANAROCK Property Consultants. ‘‘However, with COVID-19 leading to complete shutdown of malls, it is recommended that those looking to open more than one restaurant must diversify their portfolio and consider both high-street as well as malls. They must not stick to a particular format and especially not remain confined to just having presence in malls,’’ says Puri.
Define your customer to define your restaurant location
More than location, it’s important to first define your customers whom you are targeting, says Rajendra Kumar Yadav, associate vice-president, food services at consultancy Technopak. ‘‘The moment I define the target group, my cuisine gets defined, the format gets defined, where these people frequently visit gets decided, then you know which locations you could be present in,’’ says Yadav. This is how one should go about opening a restaurant. Of course, there are a few thumb rules for picking up a location. One, the place should be easily accessible, safe and secure (see Location checklist).
Two, there are enough footfalls to sustain a restaurant. Three, the rentals should not be more than 6-10 percent of revenues; higher rentals can be considered for a location with higher footfalls such as DLF Cyber Hub. The entrepreneur should understand the development plan of the area. Take Radisson Hotel, in Delhi’s Mahipalpur area, located at the start of the Jaipur Highway – it is a great example of things going wrong. When the hotel started in early 2000, it was doing well. But when a flyover came up, it lost out, and nobody now talks about it anymore, says an expert. Entrepreneurs also need to do a neighbourhood analysis and find the right competition – a new fine-dining restaurant on a street which has two QSRs may not work. The target group and the format will drive your choice of location. For instance, Delhi University’s North Campus may not be a good location for an exotic Chinese restaurant. Similarly, a customer in a fine-dining restaurant is not just looking at food, but also at the service and the ambience. You have to see how well travelled is the clientele you are targeting.
Not all restaurants have followed the good-location-rule. Olive Bar & Kitchen, for instance, has evolved from niche, non-traditional locations; and not from high footfall areas. Its restaurant in Delhi is in Mehrauli near Qutub Minar while the Mumbai one is at Mahalaxmi Race Course, both unlikely locations for a restaurant. Its clientele is happy to go to a place where they can enjoy their meals at peace. Similarly, pizza chain Domino’s business proposition is not around location, as it is delivery-led. So, in big metros where real estate costs are high, it often operates out of cheaper, nondescript locations. But location and high footfalls are important for a quick service restaurant (QSR) like KFC or McDonald’s. So, you will find them on high streets, CBDs or commercial business districts or malls such as Delhi’s Select City or Epicura. If a location becomes prominent, consumers look at the options available, and QSRs would be the first choice for them, as they are more affordable. So, how should a new entrepreneur go about deciding the location for a restaurant?
‘‘It depends on how deep are his pockets, and who are you targeting; where my target visits,’’ says Technopak’s Yadav. If you want to sell Kathi rolls, you have to be at a place which people frequent. ‘‘It’s your business model, based on what you are offering and whom you are targeting, determines if location is crucial for you,’’ adds Yadav. Take Ber Sarai, a small neighbourhood located between Jawaharlal Nehru University and IIT Delhi in South Delhi. It may not be a good location for casual dining place Farzi Cafe but may work for McDonalds. If your format demands footfalls, and you want consumers to walk in, then you have to be in areas with high footfalls, and you should be visible. Take Connaught Place, for example. If your outlet is located in the inner or the outer circle, you have good visibility. But if your outlet is located in the middle circle, where footfalls are lower and the chances of success goes down. For formats like casual or fine-dining, experience matters more than visibility.
So, for casual-dining chain Barbeque Nation, location has not been important; wherever they were, they were sure of footfalls. They had stayed away from malls as premium real estate was out of question. But as they expand, they are looking at malls. Similarly, Pizza Express earlier used mixed-use retail locations, but now looking at malls. As you grow, you can tweak your location strategy. Both these chains are looking at slightly smaller outlets for malls. You can also tweak your format and location strategy, based on geography. Domino’s, for instance, tries to avoid sit downs in bigger metros its outlets are at best 6-to-10-seaters. The same brand, when it goes to smaller cities, even Tier-I cities, the dining space increases because the clientele demands so as people in these cities and towns look out for occasions to go out.
As you grow, you can tweak your location strategy. Both these chains are looking at slightly smaller outlets for malls.
Restaurant Location Checklist
Target group: Define your customers and the segment you would like to cater to, and see if they frequent the location you have selected.
Visibility: A location with high footfall or car traffic can drive walk-ins. A good signage can serve as free advertising, reminding people they need to drop by
Parking & Accessibility: If people have to walk a fair distance to get into your restaurant, they may consider going to another place that is more convenient
Lease cost: Rentals should be 6-10% of gross revenues; you won’t mind paying more if a location such as Gurugram’s Cyber Hub commands higher footfalls.
Development: Entrepreneurs should closely study the development plan of the area, and see if it is favourable. A new flyover on the road can kill business
Neighbourhood: Study how frequently your target customers visit the area, how other restaurants are doing, what’s the nature & mix of competition
Compliance: Some roads & floors have restrictions; see if restaurants are permitted on the road; the location meets fire safety, food licence norms.
Our team looks at a number of elements when selecting a location for a brand-new restaurant such as, area population, existing stores in the area and proximity to Retail parks/Shopping centers. Looking at all of that information the team will then put forward a proposal for a new restaurant.