When considering expansion anywhere in the United States, restaurant operators have to weigh many factors into the decision. Growth in population and growth in restaurant sales are strong predictors of potential success, as are the overall business climate, economic vitality, and competitive nature of the market. Before a national restaurant chain, regional restaurant group, or independent entrepreneur commits to opening a new unit, there have to be quantifiable metrics that reinforce the viability of current market conditions, as well as suggest strong prospects for the future.
These 10 states boast a compelling mix of the elements restaurateurs expect to see and distinguish themselves from their 40 U.S. peers as being the best candidates for expansion.
Current U.S. Population: 316,128,839; population change, 2010–2013: 2.4%.
Projected population change 2010–2020: ProximityOne http://proximityone.com
U.S. population change 2010-2020: 9.5%
Number of full-service restaurants: The NPD Group/ReCount®, Fall 2013
Total in U.S.: 299,073.
Full-service restaurants per 100,000 residents: Compiled from population and full-service restaurant figures; the U.S. average is 94.60.
Projected 2014 restaurant sales: NRA, www.restaurant.org
Unemployment rate: Bureau of Labor Statistics, December 2013 www.bls.gov
Median household income: U.S. Census Bureau, 2008-2012, http://quickfacts.census.gov
U.S. average household income: $53,046.
Business Tax Score: Small Business & Entrepreneurship Council, Business Tax Index www.sbecouncil.org
The Small Business & Entrepreneurship Council’s Business Tax Index 2013 ranks states from best to worst in terms of the costs of their tax systems on entrepreneurship and small business. The 2013 edition combines 21 different tax measures into one tax score that allows the 50 states to be compared and ranked.
Sales opportunities drive many expansion decisions and no state claims a higher projected growth in restaurant sales than Arizona, which boasts an anticipated 4.9 percent uptick in year-over-year restaurant sales. That rise alone sparks interest in the state.
“Arizona has a long history of consumers dining out often and spending money when they do,” says Dan Stone, vice president of franchise development for Front Burner Brands, parent company for The Melting Pot restaurants.
Of course, Arizona has plenty of other positive factors wooing full-service restaurants into its borders, including the nation’s seventh-highest projected population growth, a per-capita restaurant figure among the lowest in the U.S., and an affordable labor pool. Toss in snowbirds trading their cold winter climates for the warm Southwestern air, a large contingent of retirees, and extensive tourism traffic thanks to national sites such as the Grand Canyon and annual events like Major League Baseball’s spring training camps—and Arizona generates even more fascination.
“Arizona’s climate and tourism attract so many people to visit or live …and, as a result, a restaurant can capitalize on the brand awareness it has in other parts of the country to drive traffic into its local units,” Stone says.
While eastern Colorado is a rather desolate spot and western Colorado is better known for its mountaintops than its people count, the Front Range cities that dot Interstate 25 and cut the state in half are a compelling mix of college towns, such as Boulder and Fort Collins, and thriving metropolitan markets, led by Denver and Colorado Springs. That diversity pulls many ambitious full-service concepts into The Centennial State’s borders.
According to The Melting Pot’s Stone, however, one of Colorado’s most alluring characteristics is its economic resilience.
“Despite the challenging economy, Colorado held stable and our stores in the state have seen consistent sales growth, which is the sign of a strong economy,” he says, noting that the most successful unit in the 140-unit fondue chain’s system resides in the Denver suburb of Littleton.
In addition to its surging population figures, Colorado also claims the nation’s fifth-highest projected growth in 2014 restaurant sales and a business tax rate that is the nation’s eighth-lowest. Colorado’s taxes on beer, wine, and spirits, meanwhile, stand among the lowest in the U.S.
Strong population growth and a median household income $7,000 above the national average drive Delaware’s prospects for full-service restaurants.
The Greene Turtle, which opened its first restaurant in Ocean City, Maryland, about two miles from the Delaware border in 1976, claims five units in Delaware—four of which boast revenues above the system average—and has signed agreements to build four additional restaurants within the state’s borders.
Greene Turtle vice president of franchise development Tom Penn calls Delaware an attractive and strategic stepping stone into the traditional Northeastern power markets.
“For my buck, Delaware’s the best place to begin growing your awareness in the Northeast because it has the income and business environment that allow restaurants to succeed and people in the region to get to know your brand,” he says.
Because Delaware has only three counties, the fewest of any U.S. state, Penn says restaurateurs will find an “unbureaucratic” business climate bolstered by supportive municipalities and banks—along with the added appeal of no state sales tax.
Though unemployment remains high in Nevada—coming in only slightly lower than Rhode Island, which leads the U.S. with a 9.1 percent unemployment rate—the state’s population continues to increase well above the national average. Toss in the state’s strong tourism business, particularly in key markets such as Las Vegas, Reno, and Lake Tahoe, as well as an abundant retiree base, and Nevada’s appeal multiplies.
Burger chain Johnny Rockets recently opened two new units in Nevada: one in Reno and another at the Mandalay Bay in Las Vegas. Chief development officer James Walker says Nevada will remain a prime growth target for the California-based chain.
“Traffic counts have rebounded and people are still heading to Nevada’s key markets because that’s where the fun is,” Walker says. “For fun-minded restaurants like us, it doesn’t hurt that Nevada is one of the nation’s top places that people go to play, and that makes it attractive to set up shop.”
It also doesn’t hurt that Nevada boasts a median household income above the national average, as well as the third-lowest business tax rate in the country.
Though North Carolina’s median household income dangles below the national average, the Tar Heel State’s rising population—soon expected to exceed 10 million bodies—and projected restaurant sales growth amid steady, but not overwhelming, competition, positions it well among its U.S. peers.
Wild Wing Café CEO Edna Morris calls North Carolina a welcoming place that’s crazy about its sports and its communities, two things that mesh with Wild Wing Café’s business model. Even more, the state possesses a diverse economic base cutting across various industries, including education, manufacturing, banking, technology, health care, and the arts, as well as growing metro areas, led by Raleigh-Durham and Charlotte, and intriguing secondary markets, such as Asheville and Wilmington.
Wild Wing Café currently has eight units in North Carolina, a number Morris says could triple in the years ahead given the state’s growth factors and a friendly business climate spearheaded by local lawmakers eager to create jobs as an antidote to the state’s high unemployment, which hit 10.5 percent at the depths of the recession.
“We’re a company that’s expanding, and North Carolina is one of our most desirable areas for growth,” Morris says.
While North Dakota might not be the sexiest state in the union, there’s no denying its rapid growth and surging economy.
Though North Dakota’s population sits under 750,000, the upper Midwestern state is adding residents—and adding them as fast as any state not named Utah. For residents, the draw is clear: strong career opportunities, specifically in the energy sector, and a low cost of living—realities that have created rich opportunity for restaurants like Quaker Steak & Lube, which currently has one unit in Fargo and continues to explore opportunities in Bismarck, the epicenter of the state’s energy boom.
“The pie is smaller in North Dakota, so that’s a concern, but its population growth, economics, and cost of entry are among the best you’ll find anywhere in the U.S.,” says Zeb Hastings, Quaker Steak & Lube vice president of franchise development. “That makes it a good place to be.”
Of particular importance, North Dakota claims the nation’s lowest unemployment rate, a positive sign as jobs spur consumer spending. Additionally, the state boasts the nation’s second-highest projected growth in 2014 restaurant sales.
The saying goes that everything’s bigger in Texas. Evidently, that mantra holds for the state’s full-service restaurant prospects as well.
The Lone Star State, already holding more than 26 million residents, owns the nation’s fifth-highest projected population increase. In Houston, Dallas, and Austin, meanwhile, Texas claims some of the nation’s fastest-growing individual markets, while secondary markets such as El Paso, Waco, and Corpus Christi also enjoy expanding population figures and swelling attention.
An abundance of bodies, however, isn’t the only big-figure stat worth watching. Texas also claims the nation’s lowest business tax rate—including some of the nation’s slimmest taxes on wine and spirits, the country’s third-highest restaurant sales growth rate, and a per capita restaurant rate among the lowest in the union.
“Texas hits on just about everything you’d want to see from a population, economic, and business front,” says Quaker Steak & Lube’s Hastings, whose company, already with three stores in Texas, is developing the Houston area and looking to penetrate San Antonio and Austin in the near future.
Two key figures drive Utah’s appeal for full-service restaurateurs: First, Utah has the nation’s highest projected population growth rate. Second, the Beehive State has the fewest number of full-service restaurants per capita in the country. Where there are folks to feed—folks with household incomes well above the national average—and slim competition, that’s a positive sign for entrepreneurial restaurateurs.
“When you have a low rate of restaurants, that’s fantastic because it allows your stores to build frequency,” says Johnny Rockets’ Walker, whose company has three restaurants in the Salt Lake City area and is exploring development in up-and-coming spots like Provo and Park City.
“And one of the other great things about the Utah markets is that access to real estate is a much easier play, which helps when you’re trying to grow the brand,” Walker adds.
While Utah’s historically stringent liquor laws limited development interest from many full-service concepts, the winds of change continue swirling. Legislators continue to discuss the removal of the “Zion curtains,” which shield drink-making from the public view, as well as a more flexible stance that permits restaurant customers to order alcoholic drinks without having food. Such shifts would certainly heighten interest in a state already brimming with many other favorable metrics.
With the nation’s tenth-highest projected population growth rate, a number far outdistancing many of its East Coast peers, and a median household income among the nation’s highest, Virginia has the people and the income to support full-service restaurants. Those characteristics continue attracting the interest of development folks like The Greene Turtle’s Penn.
“The costs [of entry and doing business] in some of Virginia’s markets are no doubt higher, but if you can get the stores built and operating, then it’s worth it because of the revenue potential stores can generate,” says Penn, whose concept has seven units in Virginia as well as two more on the horizon.
While Quaker Steak & Lube’s Hastings acknowledges that restaurateurs in Virginia’s northern edge, specifically the Washington suburbs, face expensive real estate and hefty competition for the customer’s dollar, he says markets in other areas of the state—like Richmond, Hampton, and Virginia Beach—provide favorable demographics and lower costs of entry that make them worth investigating.
“The D.C. area gets a lot of attention, but Virginia has plenty more going for it,” Hastings says.
With robust population growth and a strong economy in key markets throughout the state, including a number of counties that experienced no recession on economic output, Washington captures plenty of interest from full-service concepts seeking entry into a state that embraces culinary adventure. Indeed, few states can rival the foodie culture that exists in Washington, a place long known for enthusiastically embracing food and wine.
“And when you can pair high-quality food and wine with an equally high-quality experience, you can hit a home run with people in Washington who appreciate when a restaurant combines all of those facets,” The Melting Pot’s Stone says.
It bears noting, however, that although Washington possesses the nation’s fifth-lowest business tax rate, full-service restaurants face some concerns, including the nation’s highest taxes on spirits and a minimum wage of $9.32 per hour, the highest rate among the 50 states.
“Labor is perhaps the most unappealing part of doing business [in Washington], as the costs do make profitability more challenging,” Stone admits.