In the previous episode (e2), Know Your Guests (KYG), I obsessed regarding the value of understanding Vibe —a collection of five components undergirding guests’ motivations in dining venue selection. To recap, Vibe comprises: food, service, ambiance, pricing, and location. These five aspects of restaurants and hotels conceptually fuse within our minds into a composite opinion, a way to think about Vibe is it’s how we each feel, which ends up being a little different for each of us —because human. Interestingly, once a bunch of individuals form their internal opinions, their Vibes combine forces into a wave of Cultural Contagion that influences others’ thinking. Cultural Contagion is how public opinion of most things form, in hospitality it transmits the buzz-of-delight that lifts the P&Ls of operators who know a thing or two about creating great Vibes. This episode zooms in on how location selection can be used for differentiation, and its relationships with the other four aspects of Vibe.
BTW and in the spirit of truths sharing: all of the words you read and pod-listen across all Good Evening Everyone episodes, this one included, are derived from impressions and thoughts in my head, nothing presented should not be construed representing policies, cultures, processes, circumstances, operators, individuals, teams, operating or shuttered venues, contractors. events, experiences, or anything else of or related to any of my present or past employers, clients, or places where I dine.
Hospitality operators place rather significant bets when selecting their locations —the street address and the space it hosts— for situating their new venue for the next +/- 10 years because they’re essentially cementing-in one of the five Vibe components that can make or break P&L.
A major objective in selecting a location is de-risking the bet. This is accomplished sometimes by aggressively negotiating cost per square foot for the lease, or purchase. Obviously lower lease costs can help achieve profitability goals. Less obviously to some, de-risking often times means paying more for a better location.
For great operators, selecting a location feels like moving chess pieces into strategic position. For less skilled operators, it’s an existential feeling; running out of moves, denial, and lots of hoping the opponent blinks.
There’s little stopping look-alike competitors from opening and winning away your guests by building a Vibe that proves more desirable to your in-common guest market segments. Being put on the defensive isn’t so wonderful. One of the objectives in selecting a location is to make it make it difficult for look-alikes to acquire your guests. Location’s powerful in this way —a Big Lever.
There’s only so many dinners one can consume in a week, and not all of those calories are served in hospitality venues, some of us enjoy BBQing and dining in the comfort of our homes with our families. Leaving the at-home eaters aside for the moment, the pool of potential guests in a segment is a limited quantity; one venue’s lost guest is another’s won guest.
Add up the quantities of seats available to be filled across all venues in an segment-populated areas nearby and compare that to the quantity of people nearby and also in the same market segments to get a feel for just how competitive the environment actually is.Another way to think about the competitive environment is look to see if every venue is filled to capacity and serving 2x (that’s good!) their number of seats each night, because if they’re not the message is there’s an insufficient quantity guests for satisfying all of the venues. Metrics, metrics, metrics.
Generally, a new venue’s greatest challenge is getting the on-premise eaters in their segment(s) to check out their Vibe, because this is the only way the potential regulars can decide if it sufficiently satisfies them to come back again. Guests who don’t return, by definition, don’t become regulars. Location’s a critical aspect of their incentive to switch, because it’s often the aspect of Vibe that can’t be easily replicated by look-alike opportunists.
Location’s a highly relevant consideration when it comes to deciding if it’s worth the trouble to make the switch. Location’s likely the toughest aspect of Vibe to clone. That said, it’s not uncommon for fast food operators to situate quite nearby each other and compete on their segments’ value perceptions —a burger, soda, a fries bundle bigger and cheaper than the operator across the road. Perceived value for fine casual dining’s a similar equation though it comprises different parameters, of which location carries significant weight.
Switching is a cost to eaters, even for fast food consumers —because habit. When we’re happy eating at Joe’s Place once per week his competitor Sam’s Place is going to have to feel like magic to get me to give up the personal relationship’s I likely have with the hostess, staff, and perhaps even the owner, Samantha. That’s a big ask, so —show me the magic.
I like think about location from the perspective of being a guest. Several factors come into play that are sometimes easy to overlook unless we carefully deliberate, think slowly and meticulously, about what’s really going instead of the typical cowboy-ish fast and loose jumping to conclusions. What about drive or walk time? What are the roadway congestion hours (pro-tip: it’s not always just business rush hours that are hellish)?. How easy and safe is parking, and cost. Are tow-away zones clearly marked, or do horror stories circulate amongst friends and colleagues re expensively reclaiming their vehicles after dinner from an impounder’s lot all the way out by the airport. Does an absence of pedestrians, or poorly lit areas, make walking from municipal parking to the venue feel unsafe? Is the venue’s concept out of alignment with the district? As you can image there’s many more questions one should ask.., you get the idea. Most people are unwilling travel long distances or experience uncertainty just for a pasta dish similar to one they could grab nearby, they expend effort and accept risk (both real costs) in exchange for a certain expected feeling —a Vibe— which incorporates location.
Locations often naturally appeal to certain market segments, in alignment with each’s value perceptions. For smart casual, fine dining, and high-end shopping Vibes we picture in our minds: Madison Avenue in NYC, Mayfair in London, Beverly Hills in Los Angeles. That said, there are also popular-today districts that tomorrow might become tomorrow’s nightmare if the segment’s tastes change, or new segments arrive and crowd-out those who feel the Vibe’s shifted in an undesirable direction.
Operators in the early years of their leases discovering their segment’s going to the opposite end of town because a the density of dining choices is greater there, or lounges and clubs there make it easier for guests to move on to their next stop without moving the car, or because their lease is in a district that’s become uncool for the segment. An example of this occurred in Miami FL as the Brickell and Design Districts developed, Coconut Grove’s downtown refreshed and reinvented, and guests of a certain calibre happily discovered they no longer had to drive the long slog to a current hot-spot across the increasingly traffic-congested causeway. Brickell, the Design District, and Coconut became the new great locations to dine —because operators created their unique great Vibes in locations that are less hassle (i.e., time; traffic headaches; cultural). San Francisco, São Paulo, and further cities also come to mind in this regard.
Regarding situation, a high-end fine dining venue might not garner the traction it requires to ever be financially feasible by locating in a strip mall on the outskirts of town between a liquor store and pawn shop. Such might signal to prospective guests that the venue’s operator isn’t sufficiently confident in their concept, their ability to execute, or the entire thing’s undercapitalized and doomed from the start. The hurdle to get individuals to just come try the venue for their first visit might be just too high. Just because a small handful of operators can successfully pull off this feat doesn’t mean one should anticipate cheap rent will make a restaurant financially viable, especially when the thinking is that the rent saving can be better spent on marketing.
Operators who do manage to achieve sufficient traction without all aspects of their Vibe fully aligning are rare. For example, opening a high-ticket restaurant in a strip mall can work when you hit just the right Vibe to become one of the in-group’s cult venues, or really are a natural fit for the local segment. When the venue’s smack in the middle of L.A. —it can look like magic.
All good locations are alike in their own way, talented development teams seek out ones having attributes leverageable for differentiating the Vibe they’re engineering from the incumbents’ already serving their future guests. We need all of our might to incentivize as many guests as possible to switch as quickly as possible for the metrics-metrics-metrics reasons we mentioned earlier in this episode. That delightful sound all operators enjoy hearing, the buzz, is what rapid switching sounds like —the first-timers boasting to everyone they know, and don’t, of their discovery. Boasting makes buzzing, so it’s important we make it easy for first-timers to show off what they smartly discovered before everyone else! Why? Being a contributor to a scene, an Original Gangster (OG), that creates a wave of Cultural Contagion creates Social Currency —because incentive.
Let’s look at a hypothetical example where a Vibe is engineered by leveraging location to optimize for creating a buzz that incentivizes guests to switch away from their regular Friday night dining spots to an unknown brand. An operator, it could be in any metropolitan city like New York, San Francisco, London, or Paris, plans to launch newly created brand ‘Oceano’, a stylish genre-specific smart-casual venue. The concept comprises Mediterranean-style fish dishes, fine ingredients, meticulous presentation, high level of service, where the average ticket per head is typically ranges between $125 and $200. Imagine a Vibe you’d find in along the Mediterranean coast, though in one of these bustling cities.
Oceano’s operator employs talented individuals, their teams aren’t huge and they’re well organized, and they’re on a mission: select a location for Oceano that can be highly leveraged for acquiring and retaining guests. The talent understands the risk-reward tradeoffs in selecting location and that creating buzz isn’t as easy as industry outsiders may think. Many venues serve delectable food, have good service and fair prices, provide perfectly comfortable seating, and so many of the preparations within cuisine genres are so similar that guests aren’t able to differentiate one Chicken Biriyani from another. Outsiders often overlook what makes restaurants sufficiently popular to just break even let alone turn 2x seats per evening —buzz.
Oceano’s team thinks several moves ahead. They’re aware their new location must create a difficult situation for a future competitor’s look-alike to acquire Oceano’s guests. This is a tough one. As guests we’ve all switched at one time or another in our lives to a new dining spot, for operators the equation’s pretty straight forward: the cost of acquiring and retaining a guest must be offset by the future profits generated by the guest. Future profits are a function of two things mostly: amount spent per visit, and number of visits.
The location team first considers situating within a spectacularly high-vaulted-ceilinged space in a downtown office building, where lunch service for office workers would augment dinner revenue. They realized after some slow and deliberate thinking the vast majority of office workers in the building, and nearby buildings, consume less expensive fare at their lunch breaks —because paid hourly. It would be a mistake to lock into a lease where dinner would have to cover the lease and further fixed expenses, particularly when most guests in their market segment have can easily choose very good Mediterranean cuisine elsewhere.
Oceano’s local competitive analysis identified several competitor restaurants and others dishing up adjacent and exotic genres too. The team decided they needed to becoming pseudo-regulars at each for a while to come up with buzz-worthy ideas for Oceano. They wanted to identify the maybe not-so-obvious aspects of the competitor locations they could lever both positively and negatively to incentivize potential guests to sample-and-switch —the tango of champions— at Oceano.
They observed that the monied-elites and an adjacent segment affectionately called HENRYs (High Earning but Not Rich Yet segment) by marketers, enjoy taking their cocktails and dinners al fresco when such is an option. Heh, money like the outdoors! Even more interestingly, the locations team observed these venues with outdoor seating were for the most part the only ones that during the week that had expensive cars passing the valet station, whereas it was more so on Friday and Saturday nights the restaurant row valets had many as well.
What they concluded is there simply were not enough monied-elites and HENRYs on week nights for venues only offering indoor dinging, however on weekends it appeared more people dined out so the better of the indoor venues did well. Their valuable insight informed not only regarding the perceived value of al fresco dining, it also gave them food for thought re the quantity of potential guests during for weeknight dining, these helping them improve their spreadsheets for determining Guest Acquisition Cost (GAC) and how long they’re need to retain guests to offset this cost.
Oceano’s an example of teams done correctly. They understand KYG so well they went straight to the heart of the matter, the aspect of the Vibe —location— with the power to incentivize guests to switch. With this, they could picture pro-forma a rang of Vibes Oceano could leverage to create a wave of organic buzz. This is a hypothetical case study has bee fun to write thus far, so let’s now introduce one of Oceano’s hypothetical competitors, ‘Pez’, a venue serving almost identical cuisine with quite similar service, atmosphere, and pricing
Pez is one of the ‘it spots’ for the guest segments Oceano seeks to pull. During their stints as pseudo-regulars around town Oceano’s team pegged Pez a one of the venues who’d become a yawn because their guests would convince themselves to switch. Pez is situated smack in the middle of the city’s luxe restaurant row, their average ticket was well in excess of $125 per head, and rents are high. Its windows along the sidewalk have attractive thin sheer curtains that provide glimpses of up-market decor and patrons —signaling to passersby a value they could perceive as upscale. But no al fresco dining option, and there’s no physical way Pez could add any.
For the most part a venue’s marketing budget can’t overcome a location’s competitive disadvantage. Marketing wasn’t an issue for Pez in the past, that is before Oceano arrived on the scene. It’s a deadly combination when guests are switching away and costs increase. When maneuverability becomes constrained while profitability’s declining and the buzz is elsewhere, attracting first-time guests isn’t so easy.
With eight years remaining on their lease Pez’s situation’s not enviable. They answer the challenge by instinctively tightening their belts. Portions become smaller, pushing their alarmed guests, unwittingly, faster into Oceano’s waiting arms. Pez’s best talent heading for the doors sensing management’s dismissive arm waiving may not be that dissimilar to how Blackberry’s management waved when Apple introduced the iPhone— without realizing yet they were actually rehearsing for waving goodby to their customers as they switched.
It went this way for Pez and the others because Oceano’s team spotted a sharp edge it knew would slay —seven floors above street level atop floors of offices atop ground floor retail in an area that’s definitely not anything like Restaurant Row. Oceano’s architects designed and built-out the rooftop so spectacularly it was easy for first-time guests to become buzz generators who in turn built the cultural wave.
The moral of this hypothetical can be summed up as —always cultivate teams who know better than your competition what guests value highly, and develop further teams for bundling it up whatever it is they value as product. From an organizational perspective, it’s almost always an innovative and disciplined operations directors who creates and enables teams like Oceano’s. It’s a team dynamic that enables low GAC, high happiness scores, and retention.
The organization, not any particular brilliant individual, enables the discernment of location insights that ultimately provide competitive edge. In retrospect a decision like creating a private lush oasis atop an office building in the middle of a city congested with traffic is obvious, appreciating the work that went into arriving at the complete roadmap for achieving such a paradise is less so —facilitating the talent who’ve joined and entrusted us to help them achieve their professional goals is always our best option.