This is the ninth installment of a multi-part series on how to plan, start and grow your pizzeria business
How to find a location for your pizzeria
There are two different routes you can go: hire a real estate broker, which is what I recommend, or you can do it yourself. When you hire a broker, chances are you’ll be able to jump on fresh leads before they even hit the market. Brokers have relationships with real estate agents, so they know what’s going to be up for sale before it’s listed in the public marketplace.
The DIY method is a little slower, and you might struggle more to find a quality location; however, you also have the opportunity to find some really good deals. Search sites like Craigslist and Loopnet to find the ideal location, then see if you can negotiate great terms.
No matter which method you choose, the first step is to make a list of criteria you’d like in the perfect location. For example, you need to consider:
- Dining area capacity
- Type of neighborhood
- Foot traffic
- Vehicle traffic
- Kitchen setup
- Proper ventilation system
- Walk-in refrigeration
- Air conditioning systems
- Available remodeling/renovation investment
You also have to do your research to learn more about any potential locations. For example:
- What has been here before?
- Did it succeed or fail? Why?
- Why are the owners selling?
- What renovations need to be completed before you move in? What will they cost?
- What is the overall condition of the property? The roof? Does it have a history of flooding? Is it up-to-code?
The more you know about the property’s history, the better-positioned you will be for negotiations. Keep in mind your location can play a major role in your success: a strip mall pizzeria won’t have the visibility as a pizzeria in a booming shopping center or along a busy “strip.” A building that’s ready-to-go won’t eat startup funds for renovations.
For many pizzerias, high-visibility is a priority. Don’t make the mistake of thinking customers will drive out of the way to eat at your “destination restaurant.” You also have to consider the type of pizzeria you’ll be opening: a carryout and/or delivery-only pizzeria doesn’t need much space, but a full-scale dining area does.
In addition, study the local topography to see if your delivery times will be affected. Market research might indicate plenty of target customers within a five-mile radius, but if a large lake is between you and those customers you’ll struggle to maintain good delivery times and profitability.
Finally, consider the market you’re serving: an upscale pizzeria might not work as well in a rural setting as it would in a major city. Make sure the bulk of your target market resides within five miles – or a five-minute drive – of your pizzeria in order to offer efficient service and enjoy a healthy customer base.
How to negotiate your lease
Once you’ve found the perfect location, it’s time to negotiate your lease. It’s a good idea to get your real estate broker involved, if you have one, and you should definitely consult your attorney before signing any lease.
A good way to start is to send the owner a Letter of Intent. This letter, prepared by your attorney, makes an offer to purchase or lease the space at your chosen price. Your offer can be contingent on the building meeting certain requirements. If the owner accepts your offer, it’s time to negotiate.
Always be on the lookout for opportunities to make the lease favorable, including:
- Price: Always suggest a lower price to get the lowest possible rent.
- Initial rent-free period: Get as many free months free in the beginning, which affords you the time you need to renovate, decorate, set up, and market your pizzeria. Typically, you can negotiate for anywhere between one to three months of free rent; though some landlords will be willing to offer more.
- Current/former lessees: If you can track these down and convince them to let you look at their lease, as well as ask them about working with the landlord, you can find some powerful bargaining chips.
- Renovations, or Tenant Improvements (TI): Identify what renovations need to be made, then determine who will complete them. Newer locations and mall locations might be more willing to handle the majority of renovations for you. Your landlord might also offer an allowance for you to direct renovations without their involvement. You can learn more about TI’s here.
- Annual increase: Will your rent increase each year? By how much?
- Location: Is it in a high-traffic area or a low- traffic area? Both can impact demand, and therefore, your negotiation leverage.
- Listing date: How long has the location been on the market? If it’s languished for months or even years, you have more negation leverage versus a hot new property everyone wants to get in.
- Deposit: Most landlords require a security deposit plus first and last month’s rent upfront, which could cost in excess of $4,000 (the security deposit alone could be anywhere from one to ten times the monthly rent).
- Length of lease: If you commit to more years upfront, you can negotiate better terms (but don’t do this unless you’re absolutely certain the location is perfect).
- Tripe net leases (rent plus taxes plus insurance): Find out if property taxes and insurance are covered in the lease. If not, find out how much they are and who is responsible for paying them.
- Utilities: It’s rare for utilities to be included as part of a business lease, but you never know unless you ask.
- Responsibilities: What happens if the roof links? Who pays for it? Many leases name landlords responsible for anything outside the building’s four walls, and you will be responsible for anything inside. Make sure responsibilities are crystal clear to avoid issues down the road.
Remember, everything is negotiable, but if you never ask you’ll never know if you could have gotten a better deal. After all, the worst they can do is say “no.”
Finally, a word to the wise: do not let excitement influence a poor decision. It’s OK to trust your gut instincts, but also make sure your analysis of the property, its foot traffic, neighborhood, and visibility corroborate your intuition.