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Top States for Full-Service Restaurant Growth

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Where should restaurant chains go to expand? Look at these states.
By Daniel P. Smith April 2012 Expansion

 

Restaurant expansion can be a risky, tricky business.

In many instances, large restaurant companies dig deep into analytics, spending extensive time, energy, and money on selecting the right areas in which to develop.

Along with the science, however, resides the art—gut instincts and real-world insights that can round out the picture.

When evaluating investments, Hooters of America CEO Terry Marks says his casual restaurant brand, which has more than 370 domestic locations spread across more than 40 states, looks to regions of the country well positioned for long-term growth in population and Disposable Personal Income (DPI). Equally important, however, is a state’s growth orientation.

“We are much more likely to be interested in opening new restaurants in states with policies that are supportive of business,” Marks says, a nod that the political and social climates, as well as the experience of current entrepreneurs, are just as important as the numbers.

With that in mind, Restaurant Management delivers the 10 states that present the greatest opportunities for full-service restaurant expansion.

This special report assembles data from a number of public and private agencies, including the U.S. Census, the U.S Department of Labor’s Bureau of Labor Statistics (BLS), the National Restaurant Association (NRA), the Small Business & Entrepreneurship Council (SBEC), and ProximityOne, a Virginia-based developer of demographic estimates and projections.

While some states are seemingly obvious choices, others are a touch more off the radar. A close look at each state’s profile, however, will reveal favorable metrics and real-world insights that justify its place on this elite list and highlight compelling characteristics that can spur restaurant expansion.

Listed alphabetically, Restaurant Management’s Top 10 are:

Arizona

Population: 6,392,017

Projected Population Gain by 2020: 17.7%

Number of Full-Service Restaurants: 3,479

Full-Service Restaurants per 100,000 Residents: 54.4

Arizona Restaurant Association: www.azrestaurant.org

Projected 2012 Growth in Restaurant Sales: 3.3%

Business Tax Index: 33.177

Unemployment: 9.0%

Median Household Income: $47,279


The Melting Pot claims four locations in Arizona, including one in Glendale.

Bolstered by weather and tourism, Arizona’s dining landscape has been blessed with consistent year-after-year sales growth, including an $800 million jump in 2010 sales alone, says Arizona Restaurant Association president and CEO Steve Chucri.

“Restaurants in this state are certainly pushing food out the door,” Chucri says.

Jeff Flancer, who owns Flancer’s in Gilbert, Arizona, identifies Arizona’s surging population numbers–the state is expected to add more than 1 million residents from 2010 to 2020–as the driving force behind the state’s 21st century restaurant growth.

New residents, Flancer says, “are looking for the same sort of great food establishments and convenient location of restaurants just like they had in their previous home states.” 

Both Flancer and Chucri tout Arizona’s opportunity, esp ecially as the state holds but 54.4 full-service restaurants per 100,000 residents, among the nation’s least-saturated states.

As an added bonus, the Arizona Restaurant Association sponsors Arizona Restaurant Week each May and September. Nearly 200 restaurants across the state participate in the multi-day event that showcases the state’s expanding restaurant landscape and promotes culinary tourism.

Colorado

Population: 5,029,196

Projected Population Gain by 2020: 18.7%

Number of Full-Service Restaurants: 4,236

Full-Service Restaurants per 100,000 Residents: 84.2

Colorado Restaurant Association: www.coloradorestaurant.com

Projected 2012 Growth in Restaurant Sales: 3.5%

Business Tax Index: 28.010

Unemployment: 7.9%

Median Household Income: $60,442

Buoyed by stable industries, including tourism, aerospace, telecommunications, and energy, Colorado has avoided wild swings in its economy and has, in fact, shown consistent annual growth in key metrics. Colorado is expected to add up to 1 million residents over the next decade, and the NRA predicts DPI to rise by 2.7 percent in 2012.

More than 300 days of annual sunshine doesn’t hurt either, says Colorado Restaurant Association CEO Pete Meersman.

“We have a healthy population that spends plenty of time outdoors [and] our restaurants are busy year-round,” Meersman says.

Mark Berzins, who runs 19 full-service units in the Denver metro area under the Little Pub company umbrella, says restaurateurs in Colorado, particularly of the independent variety, are bullish.

“People here are not pulling in their horns,” Berzins says. “Restaurant spaces are getting gobbled up, new restaurants are opening, and food spending has held up in spite of the economy.”

Sitting in between the coasts, Berzins adds, gives Colorado a culinary sophistication and invites the influences and experiences from other spots throughout the country to take root and attract diners in the Centennial State.

“When it comes to food, there’s a sense of adventure here,” Berzins says.

Florida

Population: 18,801,310

Projected Population Gain by 2020: 6.6%

Number of Full-Service Restaurants: 16,071

Full-Service Restaurants per 100,000 Residents: 85.5

Florida Restaurant & Lodging Association: www.frla.org

Projected 2012 Growth in Restaurant Sales: 3.9%

Business Tax Index: 23.320

Unemployment: 9.9%

Median Household Income: $44,243


Hooters has more than 50 locations in Florida including its first-ever outlet, which opened in Clearwater in 1983.

Florida has one eye-popping number no other state can match: 85 million. That’s the number of visitors Florida annually welcomes across its state lines.

“We’re the Sunshine State, and there’s a strong effort across the state to make sure people keep coming here,” says Carol Dover, Florida Restaurant and Lodging Association president and CEO.

Propelled by Florida’s nation-leading tourism numbers, restaurant spending is expected to jump 3.9 percent in 2012, a leap trailing only the 4.1 percent increases forecast in North Dakota and Texas. DPI is also projected to rise 3 percent, among the nation’s highest estimated increases.

With big cities, such as Orlando, Miami, and Tampa, teeming with residents, convention business, global tourism destinations, and “snowbird” residents, Florida has a number of the key elements that historically support the hospitality sector.

“Florida’s a dynamic state with a tremendous mix of entertainment, recreational attractions, beaches, and more,” Dover says.

Outside of some regulatory challenges that can quickly double the payroll line of Florida eateries, including the fact that Florida servers must be paid a cash wage of $4.65 per hour, a figure double that of the federal rate of $2.13, Dover says Florida is relatively a “pro-business state that wants to see its businesses thrive.”

Louisiana

Population: 4,533,372

Projected Population Gain by 2020: 10.0%

Number of Full-Service Restaurants: 2,930

Full-Service Restaurants per 100,000 Residents: 64.6

Louisiana Restaurant Association: www.lra.org

Projected 2012 Growth in Restaurant Sales: 3.3%

Business Tax Index: 34.674

Unemployment: 7.0%

Median Household Income: $39,443

Louisiana restaurateur Darryl Reginelli, who owns eight Reginelli’s Pizzerias spread from the New Orleans metro area to Baton Rouge, says restaurant operators are increasingly recognizing the allure of the Pelican State.

“Many restaurants are setting up shop here, expanding, and still in growth mode,” Reginelli says. “If you’re a quality operator, Louisiana’s a great place to seed and gain credibility in the industry.”

Louisiana Restaurant Association President and CEO Stan Harris says Louisiana features an attractive business climate with favorable operating costs and abundant local products, such as seafood, that become menu centerpieces and heighten the area’s culinary distinctiveness.

“Louisiana has a vibrant and long history of unique culinary offerings with a culture of hospitality that encourages industry expansion,” Harris says.

Toss in the NRA-estimated 3.3 percent increase in restaurant sales and it’s easy to see Louisiana’s appeal.

“We might not be the powerhouse of some other states because we’re not the wealthiest state, but folks here will spend on restaurants,” Reginelli says.

Though Reginelli says the northern end of the state can be quite conservative with its liquor laws, he says Louisiana is nevertheless “fairly easy to come in, open, and operate” a restaurant.

Maryland

Population: 5,773,552

Projected Population Gain by 2020: 6.4%

Number of Full-Service Restaurants: 3,083

Full-Service Restaurants per 100,000 Residents: 53.4

Restaurant Association of Maryland: www.marylandrestaurants.com

Projected 2012 Growth in Restaurant Sales: 3.7%

Business Tax Index: 40.052

Unemployment: 6.6%

Median Household Income: $64,025


Dan Stone, vice president of franchise development for Front Burner Brands, the restaurant management company for The Melting Pot Restaurants, says the brand’s four Maryland-based Melting Pot locations continue to thrive given a stable economic climate and a growing state population.

Dan Stone, vice president of franchise development for Front Burner Brands, the restaurant management company for The Melting Pot Restaurants, says the nation’s economic downturn has not impacted his company’s four Maryland-based Melting Pot locations as it has Melting Pot eateries in other spots across the nation.

“Our Maryland locations continue to perform well,” Stone says, adding: “The housing markets in Maryland remain robust, and the state continues to grow in population … at a time when many state’s populations are, or are projected to be, flat or retracting.”

Indeed, Maryland, often overlooked among other Northeast powerhouses of greater size and repute, boasts a number of compelling characteristics supporting restaurant growth. The population is growing, unemployment is low, sales are projected to grow 3.7 percent in 2012, and there exists an increasing sense of community that binds businesses to one another and to residents.

“We have an ever-growing connection to other businesses in the area [and] have seen tremendous outreach from the medical and biotechnology community … that have helped to work with us as a local business to create unique experiences for our guests,” says Stacy Baird, general manager of the Chop House restaurant in Annapolis.

Minnesota

Population: 5,303,925

Projected Population Gain by 2020: 7.2%

Number of Full-Service Restaurants: 3,427

Full-Service Restaurants per 100,000 Residents: 64.6

Minnesota Restaurant Association: www.hospitalitymn.com

Projected 2012 Growth in Restaurant Sales: 3.1%

Business Tax Index: 54.543

Unemployment: 5.7%

Median Household Income: $52,554

Stephanie Shimp of the Blue Plate Restaurant Co., which oversees seven restaurant concepts in the Twin Cities area and looks to expand further in the coming years, calls Minnesota a “great place to do business.”

“Our guests are highly educated, civically involved, and extremely loyal … [and] rejoice in supporting independents like us,” Shimp says, adding that the workforce is plentiful and the work ethic strong, two elements that support restaurant expansion.

Shimp further identifies a booming arts-and-culture scene, thriving foodie culture, exploding craft beer movement, and regular farmer’s market enclaves as reasons for restaurant operators to be optimistic about Minnesota.

“We still look to the coasts and Chicago for inspiration, but we are not ‘behind’ like we were 10-12 years ago,” Shimp says.

Despite the nation’s highest tax index, a high concentration of Fortune 500 companies combined with a sharp entrepreneurial spirit allowed Minnesota to weather the recession better than most. The state’s low 5.7 percent unemployment rate serves as testament to that reality and Minnesota’s overall stability.

Oklahoma

Population: 3,751,351

Projected Population Gain by 2020: 10.9%

Number of Full-Service Restaurants: 2,582

Full-Service Restaurants per 100,000 Residents: 68.8

Oklahoma Restaurant Association: www.okrestaurants.com

Projected 2012 Growth in Restaurant Sales: 3.4%

Business Tax Index: 32.209

Unemployment: 6.3%

Median Household Income: $43,400

Just north of Texas and northwest of Louisiana, two other list-making states, sits Oklahoma, a state rarely considered a culinary hotbed, but unquestionably possessing favorable characteristics for restaurant expansion.

With population expected to grow another 11 percent by 2020, Oklahoma has an influx of residents at the ready, a modest competitive landscape, and stable financial metrics that make it worth a look.

According to the NRA, Oklahoma’s projected 3.7 percent growth in DPI trails only the growth in North Dakota and Wyoming, a sign of the booming prospects in the Sooner State. An expected 3.4 percent jump in 2012 restaurant sales also foretells Oklahoma’s promise.

Furthermore, the state’s 6.3 percent unemployment rate is among the nation’s lowest, spurred in large part by slim unemployment numbers in the state’s two largest cities, Oklahoma City and Tulsa.

“More people employed and a low cost of living mean more discretionary disposable income in Oklahoma, [thereby] allowing more people to eat out. This obviously leads to more growth in restaurant spending and makes for a good environment for eating out,” says Oklahoma Restaurant Association President and CEO Jim Hopper.

South Carolina

Population: 4,625,364

Projected Population Gain by 2020: 14.5%

Number of Full-Service Restaurants: 3,308

Full-Service Restaurants per 100,000 Residents: 71.5

South Carolina Hospitality Association: www.schospitality.org

Projected 2012 Growth in Restaurant Sales: 3.6%

Business Tax Index: 29.712

Unemployment: 9.6%

Median Household Income: $41,709

Though often residing in the shadow of its hard-charging northern counterpart, South Carolina claims a number of compelling traits that push it into the upper echelon and make it a desired spot for restaurant growth.

According to the NRA, South Carolina restaurant sales are expected to grow 3.6 percent in 2012, among the nation’s top projected increases. A 14.5 percent rise in population from 2010 to 2020, meanwhile, places South Carolina in the nation’s top 10 for that metric as well.

Yet the numbers alone don’t share the full story.

Born in the Carolinas, Brixx Wood Fired Pizza claims a pair of outlets in South Carolina. Brixx Franchise Systems President Neil Newcomb cites year-round tourism, a moderate climate that promotes outdoor dining, and an upstart culinary scene, including a growing presence of craft breweries, as additional reasons for full-service operators to be bullish on South Carolina.

“Over the past 20 years, the Sun Belt states have experienced a tremendous influx of new residents, particularly those from the Northeast looking to enjoy the weather and lower costs of living," Newcomb says.

Texas

Population: 25,145,561

Projected Population Gain by 2020: 19.8%

Number of Full-Service Restaurants: 15,086

Full-Service Restaurants per 100,000 Residents: 60.0

Texas Restaurant Association: www.restaurantville.com

Projected 2012 Growth in Restaurant Sales: 4.1%

Business Tax Index: 12.126

Unemployment: 7.4%

Median Household Income: $47,464

Plenty of buzz surrounds the Lone Star State, which leads the nation in a few notable metrics, including a projected 4.1 percent growth in 2012 restaurant sales and an expected jump of 17 percent in foodservice employment within the next decade.

In spite of rapid residential growth throughout the state, Texans are—somewhat surprisingly—not inundated with restaurants. At 60 full-service restaurants for every 100,000 residents, Texas has fewer eateries per capita than all but nine other states.

Texas Restaurant Association CEO Richie Jackson says Texas claims a strong economy, a stronger workforce, and a pro-business mindset that supports business development. Texas, in fact, holds the runner-up spot to South Dakota in the SBEC’s 2011 Business Tax Index.

“Our business-friendly regulatory environment allows entrepreneurs … to prosper and grow their businesses,” Jackson says.

Add in favorable land costs, a stable housing environment, and projections that Texas will top 30 million residents by 2020, and it’s clear why Texas and restaurant growth go hand-in-hand.

“Businesses go where the rooftops are, and we have a lot of rooftops in Texas,” says Ricardo Molina, who operates three Molina’s Cantinas eateries in the Houston area.

Utah

Population: 2,763,885

Projected Population Gain by 2020: 22.3%

Number of Full-Service Restaurants: 1,372

Full-Service Restaurants per 100,000 Residents: 49.6

Utah Restaurant Association: www.utahdineout.com

Projected 2012 Growth in Restaurant Sales: 3.6%

Business Tax Index: 34.533

Unemployment: 5.8%

Median Household Income: $56,787

At 22.3 percent, no state is projected to see a higher rate of population growth by 2020 than Utah.

That’s good news for the state’s restaurateurs, especially since so many residents place a premium on family time that propels restaurant spending, Utah Restaurant Association President and CEO Melva Sine says. Meanwhile, a surge in the Gen Y demographic, so many of them eager for new experiences, has further energized the state’s culinary scene.

“We are seeing an increase in all cuisines in Utah,” Sine says.

Sine cites recent national rankings as the Best Managed State and Best Place to Do Business as proof of Utah’s pro-business environment. The state motto, in fact, is one word: “Industry.”

“Utah has a balanced budget and a governor who wants to reduce many of the regulations that prevent business growth,” Sine says.

In spite of the state’s challenging liquor laws, Utah restaurateur Hersh Ipaktchian, who owns nine Iggy’s Sports Grill eateries in Utah, including eight in the Salt Lake City area, sees positives for operators who understand the regulatory environment.

“So long as you don’t rely on the same liquor sales formula that takes place in other parts of the country, you’ll be fine,” Ipaktchian says.

Slim populations but compelling numbers

Three states—Wyoming, Alaska, and North Dakota—claim numbers as robust as any on our list. So why didn’t they make the cut?

All three Western states are large in area, but not in population, thereby making aggressive restaurant expansion a challenge.

Even so, a quick spotlight on each state certainly bears mentioning and investigation from entrepreneurial restaurateurs.

Alaska

Population: 710,231

Projected Population Gain by 2020: 12.8%

Number of Full-Service Restaurants: 469

Full-Service Restaurants per 100,000 Residents: 66.0

Projected 2012 Growth in Restaurant Sales: 3.5%

Projected Growth in DPI in 2012: 3.1%

Business Tax Index: 25.238

Unemployment: 7.4%

Median Household Income: $58,198

Alaska Cabaret, Hotel, Restaurant & Retailers Association: www.alaskacharr.com

North Dakota

Population: 672,591

Projected Population Gain by 2020: 7.5%

Number of Full-Service Restaurants: 512

Restaurants per 100,000 Residents: 76.1

Projected Growth in Restaurant Sales (2011-12): 4.1%

Projected Growth in DPI in 2012: 5.2%

Business Tax Index: 38.328

Unemployment: 3.3%

Median Household Income: $51,380

North Dakota Hospitality Association: www.ndhospitality.com

Wyoming

Population: 563,626

Projected Population Gain by 2020: 20.1%

Number of Full-Service Restaurants: 529

Restaurants per 100,000 Residents: 93.9

Projected 2012 Growth in Restaurant Sales: 3.7%

Projected Growth in DPI in 2012: 4.9%

Business Tax Index: 16.850

Unemployment: 5.6%

Median Household Income: $52,359

Wyoming Lodging and Restaurant Association: www.wlra.org

Editorial Notes

Population: from the 2010 U.S. Census

Projected Population (2020): from ProximityOne, a Virginia-based developer or demographic estimates and projections

Number of Full-Service Restaurants: from U.S. Department of Labor, Bureau of Labor Statistics, 2010

Restaurants per 100,000 Residents: from the 2010 U.S. Census and U.S. Department of Labor, Bureau of Labor Statistics, 2010

Unemployment: from U.S. Department of Labor, Bureau of Labor Statistics, 2010, December 2011, seasonally adjusted

Median Income: from U.S. Census, 2010

Projected Growth in Restaurant Sales (2011 to 2012): from National Restaurant Association

Business Tax Index: from the Small Business & Entrepreneurship Council’s “Business Tax Index 2011,” ranks the states from best to worst in terms of the costs of their tax systems on entrepreneurship and small business. The index pulls together 18 tax measures and combines those into one tax score that allows the 50 states and District of Columbia to be compared and ranked.