Environmental Analysis: Making the Most of Your Restaurant’s Location


If you have a restaurant, you need to keep your eyes open at all times. Every few months, you should perform an environmental analysis or environmental scanning. An environmental analysis looks at the general and nearby conditions and evaluates the ways in which external forces and factors could influence the profitability of your business. The analysis should cover the macro environment – general conditions in the region, nation or world – as well as the local or micro environment.

Knowing Your Trading Area

If you have not already done so, the first thing you should do is learn all about your trading area, and to continue researching the local market every month or two. The trading area is the neighborhood from which your customers come. Get out a map and consider the following when drawing the boundaries of your trade area:

Since most customers will not eat out regularly at a place more than five miles from their home or work place, the trading area generally includes everything within 5 miles of your restaurant. However, customers will travel further for a nice sit-down dinner or a unique experience, so destination restaurants or full-service restaurants with an evening menu should extend their trading area to a 10 or even 15 mile radius.

Geographical Barriers.
Customers will have to travel farther and longer to get around a lake or a road block. When drawing boundaries for your trade area, consider the real distance traveled, and not just the distance as the crow flies.

Economic Barriers.
If the nearby radius has a wide economic range, you should only consider the trading area to include neighborhoods where your target economic class lives or works, or you should try to broaden your restaurant’s appeal.

Behavioral Barriers.
Consider the behaviors of your target market. For example, if your target market consists mostly of seniors or nearby employees who stop in for lunch, you should keep in mind when determining your trading area that these patrons are less willing to travel a far distance for their meals.

Analyzing the Micro Environment

The micro environment refers to the area surrounding your restaurant or business. Generally, you should pay special attention to anything within the trading area that you have established, but you will also want to research the entire city or region as you analyze the micro environment. Many factors, such as smoking bans or other changes in municipal or regional laws, can have an immediate impact on your business.

Explore the trading area.
Physically walk or drive around the entire trading area to gain first-hand knowledge of the marketplace. Look around and explore the cultural, economic and physical conditions of the area. Keep lists of any competition that does business in your trading area. You should have one list that includes all nearby competitors, and another that only keeps track of the direct competition, or restaurants that would attract similar customers and could potentially steal your business. You should also note any other companies or establishments whose workers might patronize your business.

Spy on the competition.
You should make sure to personally patronize every single restaurant within walking distance of your own, paying special attention to those that may be in direct competition with you. Do not tell them that you, too, run a restaurant. Instead, act like any other customer. Keep a tally of all their strengths and weaknesses so that you can later determine the best ways to compete. Also keep an eye out for any new restaurants that might be opening. Many local governments will also allow you to purchase a list of businesses applying for licenses. This is a great way to find out about new restaurants that will soon be opening in your area and competing with you. You can also look at a website like ReferenceUSA.com, which compiles information on businesses. » Learn More

Research the population.
There are a number of places where you can find demographics for your trading area. One of the best places to look is the Internet. The U.S. Census Bureau has its own website where you can search for demographics by region, state, city, zip code and even by individual blocks and neighborhoods. (Go to factfinder.census.gov.) Your local government should also have these numbers available. Call your local city hall and ask them for a printout of demographics in your area.

Identify threats.
Look for any legal, economic or cultural factors that may affect your business’s survival. For example, if you run an upscale restaurant in a neighborhood that is quickly going downhill, you should either move locations or change your restaurant’s concept and pricing for a new target audience. On the other hand, if you are running a cheap diner in an area that has recently been gentrified, consider altering your concept to meet the needs of your new, wealthier customer base.

Look for new opportunities.
Changes in the nearby environment can create opportunities as well as threats. For example, if a new factory or call center opens up nearby, you could try to attract the workers to your restaurant during lunch hour. If a new spa or theater opens in your area, you could partner with them to mutually attract customers. Any new business that opens up and is not in direct competition with you should be considered a potential marketing opportunity.

Examine your own location.

Take a look at the micro-micro environment: your building and lot. Consider the following:

Find out how many cars and pedestrians pass by your restaurant daily. If your area does not get enough traffic, it could be hard to attract new business. To combat the issue, you could try handing out fliers or posting on community bulletin boards.

Can people who are driving by see your restaurant from the road? If not, you could try clearing visual obstacles, like trees that are covering up your sign. You could also create a taller or bigger sign to catch their attention. Think of the McDonald’s golden arches. People can sometimes see that sign from miles away.

Your sign should be large and easy to read. Furthermore, it should clearly denote the concept of your restaurant. For example, if you own an Italian restaurant called “Bob’s,” a sign that says “Bob’s” probably is not attracting the right business. Instead, the sign should say something like “Bob’s Italian Bistro.”

If a potential patron impulsively decides to try out your restaurant, but they cannot find a parking place, they may just move on. One way to fight a bad parking situation would be to contract with a local lot and offer free valet parking. You could also look into building or extending a parking lot, if you own the property and there is enough space.

Analyze the Macro Environment

In addition to continuously scanning the trading area, it is essential that you also keep up to date on general trends in the food service industry and market. To learn about your macro environment, do the following:

Educate yourself.
Read the economic and business news. Subscribe to industry magazines and newsletters to keep up to date. These publications will alert you of any changes or news in the industry, such as new state laws, product recalls or any recent foodborne illness outbreaks.

Assess demographics.
In addition to a thorough examination of demographics in your trade area, you should also look at demographics for your entire region, state and country in order to get a sense of what the general public is like and what it wants.

Follow the trends.
Keep track of national or global food trends. In the past decade there has been an increased interest in food containing antioxidants, like dark chocolate, red wine, acaí berries and pomegranate. Perhaps yogurt is in style, or maybe young people are looking for unique martini flavors. You should look for these trends and incorporate them into your menu. For example, you could serve a salad with a yogurt sauce, or create a cake with a sweet pomegranate glaze.

Restaurants that are near large tourist attractions, like a museum or a tourist section of town, are likely to serve tourists and should especially keep a close eye on the macro environment and national and international trends, since their “trading area” generally encompasses the whole country or even the entire planet. » Learn More


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