Valley ranks No. 3 as hotspot for new restaurants - Brownsville Herald: Local News

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Valley ranks No. 3 as hotspot for new restaurants

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Posted: Sunday, December 30, 2018 1:33 pm

HARLINGEN — Most of the time, people just want to go out, relax, and enjoy a good meal.

But for executives in the high-stakes, quick-service restaurant market, it’s a dog-eat-dog world with millions of dollars at risk when it comes to crunching analytics to determine where to open new eateries.

The numbers used for these decisions are based on historical data which tracks consumer usage at food service outlets, restaurant density and correlations between traffic growth and population growth.

When the numerical dust cleared in the latest study on best places to expand, the Rio Grande Valley ranked No. 3 in the nation in the “2018 Growth 40 Breakdown” by QSR Magazine, an industry bellwether which tracks restaurant trends. Last year, the Valley ranked No. 12 among small markets

Here’s what one executive with a national chain had to say about us.

On the radar

Seth Larsen is chief relationship officer with fast-growing Cheba Hut, an Arizona-based company with 22 locations in seven mostly western states.

In addition to toasted subs, Cheba adds a liquor license to their locations, which, depending on your perspective, is a step up or down from the usual sub joint.

“We try to do a full liquor license,” he said in an interview. “What sets us apart is we’re not a bar and a sandwich shop — we’re a sandwich shop first, with a bar. Even at the highest-volume locations for alcohol, it’s still 20 percent or less than our sales. But it is a differentiator.”

Larsen’s company at present has no locations in Texas, but it isn’t for want of interest from potential customers.

“ It is a market we get significant interest out of,” he said, “probably more-so than any other market where we don’t have a location. Texas is definitely on the radar and South Texas is traditionally not a market we would be looking at but the economics down there work.”

The rankings

The Valley from Brownsville to McAllen is the area the NPD Group uses to research the annual “Growth 40” markets for QSR magazine.

Only Yuma-El Centro, Arizona, and Elmira, New York, are rated higher with NPD scoring those metro areas 32 and 29, while the Valley is rated 27. Fourth is Watertown, New York (25), and fifth is Erie, Pennsylvania (23).

These zones are called Designated Market Areas and each is scored on a number of factors, such as population growth and percentage of existing restaurants per capita.

In the Valley, the population rank nationally is 63, and by 2023, it will be No. 58, the study says. The current population of about 1.4 million people will grow by 5 percent in the next five years, ahead of Yuma-El Centro (4 percent) and Elmira (down 3 percent).

Yuma-el Centro has 71.9 fast-food or quick-service restaurants per 100,000 population, Elmira has 93.5, and in the Valley there are 83.9.

Economics work

One of the reasons the Valley’s restaurant outlook is so bright has a lot to do with competition, and given the growth of fast-casual and quick-service dining in the United States, there is a lot of it.

The primary markets are the big cities, like San Antonio, Houston or Dallas. What are known as secondary markets are slightly smaller metropolitan areas, and then there is what are called tertiary markets, which is where the Rio Grande Valley lines up.

“I know it just made the 40 emerging markets list in QSR magazine and we’re doing a little more research down there — you can’t discount that,” Larsen said of the Valley’s ranking. “There are nearly 1.5 million people down there, and its 30 miles to South Padre Island, 120-ish to Corpus Christi.

“It’s expensive doing business in premium markets like Austin,” Larsen added. “Of course, everyone wants to be in Austin. But leases are crazy expensive, and if you don’t come out swinging there, you’re dead in the water in less than a year.”

The rise of non-traditional markets like the Rio Grande Valley are of special interest to restaurant chains.

“These non-traditional markets are becoming more attractive, especially to fast-casual emerging brands,” Larsen said. “Just because the demographics are good, there’s a little more disposable income down there, the cost of living is a little bit less than some of the traditional markets that we would be looking at.

“Texas in general is business-ish friendly,” Larsen said. “Not like some of the other places, like California.”

Cheba Hut, founded in 1998, is continuing its strong growth with same-stores sales up about 20 percent in 2017-18, Larsen said. The company will have 25 locations by the end of January and a total of 30 by year’s end.

“As opposed to the Applebees of the world, and the T.G.I. Fridays and some of those other just tired brands,” he said, “customers are always looking for something a little bit different. And that’s the void we’re trying to fill.”

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