Restaurant Development & Design

FALL 2014

restaurant development + design is a user-driven resource for restaurant professionals charged with building new locations and remodeling existing units.

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2 4 • R E S T A U R A N T D E V E L O P M E N T + D E S I G N • F A L L 2 0 1 4 Consultant's Take bring to our clients simply don't align with their modeled, pre-identifed high-potential trade areas. Successful chains set these lower quality trade areas aside and only move deals forward that align with their pre-modeled and pre-targeted trade areas. • Forecast New-Site Sales and Cannibalization. New-site real estate models quantify on-the- ground variables, such as site po- sitioning, visibility, ingress/egress and parking, among others. This type of data is collected via a feld questionnaire that captures some 80 factors, each of which can raise or lower actual sales at a restau- rant site. The model then produces reports that forecast expected sales and impact, if any, on nearby existing units. Successful chains consistently screen new sites for model scores above system average and forecasted sales 10 percent above their unit-level requirements (to allow for model variance). • Power-Up an Integrated Development Review Process. Real estate models need to sit within an integrated development review process that also incorporates a detailed site review package, with input from each of the management team de- partments — NOT just real estate or fnance. Macro to Micro In short, real estate models provide the dispassionate, independent math needed to help chains move through their development process from the question of, "Which markets frst?" (macro view) to, "Which new site frst?" (micro view). This process completely fips the familiar broker-led develop- ment process. Traditionally, brokers start with the available deals in a market and then assemble data to convince their chains to approve those deals. Armed with their models, however, chains can seize the strategic initiative by directing their brokers to look for deals only in pre- modeled, pre-identifed markets and trade areas. As Greg Vojnovic, chief development offcer at Popeyes Louisiana Kitchen, puts it, "Our real estate model helps us screen for the best consumers, in the best markets, in the best trade areas, in the best sites, with projected new-unit pro formas that yield the best returns." Greg ought to know. Under his leadership, Popeyes increased its new restaurant annual sales from a baseline of about $1 million per unit in 2007 — prior to implementing a model-enabled, disciplined site-review process — to $1.6 million per unit in 2012. Backed by these results, Popeyes has reignited franchise growth, deliver- ing more than 360 new units over the past fve years. Working With Real Estate Models As important a tool as real estate models can be, their use is only fully leveraged when a chain sets clear deci- sion rules and then consistently follows them. For Popeyes, rules that deter- mine a successful new site include: • Is located in a prioritized DMA that has been targeted for development. • Is aligned with a pre-modeled and pre-identifed target trade area. • Has a modeled trade-area quality score (the net of a site's surrounding residential, retail and daytime base) above the current system average. • Has a modeled site quality score (the net of a site's many on-the- ground site variables) above the current system average. • Has a modeled sales estimate that is above the current system average. • Is supported by the conclusions of the real estate team's site visit and qualitative review. In short, the real estate review process at Popeyes incorporates both the art and the science of the deal. Or, as Greg puts it, "We don't just chase the math in the model. Great real estate is the right combination of art and science. The new restaurant has to pass muster with our heads and our hearts. While we sometimes make exceptions, in general, sites only move forward that we support with both our judgment and our real estate model. If something does not seem right with the model based on our instincts, we will go back and look at the algorithm to see if it is missing something in the market environment." Given Popeyes' industry-leading results, that is some pretty powerful art and science! +

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