Dining out is part of the American communal experience. Nationwide, roughly 88% of consumers have eaten at a quick-service restaurant in the past month, while 79% of consumers have visited a sit-down restaurant. However, when it comes to restaurant patronage and growth, not all parts of the country are created equal. The 2014 Restaurant Growth Index (RGI)—compiled for Restaurant Business by Nielsen—breaks down growth by market and shows that growth in the industry is primarily driven by two factors: tourism and consumer desire for gathering places.
Consumers loosen their purse strings and indulge in restaurant dining while on vacation. A great meal at a memorable restaurant is an experience, and a great vacation amplifies the dining experience. In tourist-focused areas like Nevada and Hawaii, the top two states for restaurant growth in 2014, tourist diners present huge opportunity, as the number of tourists visiting each month often significantly exceeds the resident population. And as the economy continues to strengthen and consumer confidence rises to pre-recession levels, more and more consumers feel comfortable spending their discretionary income on vacations. According to the second-quarter 2014 Nielsen Global Consumer Confidence report, 31% of consumers reported spending their discretionary income on vacations in Q2 2014, up from 22% in Q2 2014.
In a recent report, Nielsen noted an increasing consumer desire for gathering spaces within their communities, places that serve as a counter-balance to ever-increasing digital engagement. This desire for authentic physical gathering spaces extends from shopping centers to restaurants. Restaurants aren’t just places to eat, but they’re places to meet friends, celebrate special occasions and often serve as local landmarks. This is particularly true in smaller markets where alternative community gathering spaces and entertainment options are few and far between.
Best and Worst Markets for Restaurant Growth
Looking at the markets with the highest RGI, the influence of tourism and community on restaurant growth is evident. The “aloha” spirit attracts roughly 203,000 visitors per month to Maui and roughly 24,000 visitors each month to Kauai. And within the continental U.S., Las Vegas is no longer just a destination for gambling, magic shows and bachelor parties. An average of 3.5 million visitors per month indulge in the glitz and glamour of Vegas’ restaurants, many spearheaded by celebrity chefs like Gordon Ramsey and Giada de Laurentiis.
But it’s not just the hip travel destinations that attract big business. Findlay, Ohio, occupies the No. 4 growth spot has experienced economic growth in recent years and is home to the headquarters of Marathon Petroleum and the Cooper Tire & Rubber Co. And Sevierville, Tenn., is famous for more than being Dolly Parton’s hometown. Sevierville, which boasts a population of just over 16,000, offers an array of outlet malls and antique shops, along with Smoky Mountain National Park, for residents and tourists. In addition to national chain restaurants, many local restaurants in Sevierville offer authentic mountain cooking, giving diners a unique experience—they also drive more than $4,000 in restaurant sales per capita.
In contrast, the markets at the bottom of the list tend to be sparely populated, which means they don’t have the draw of tourism or big business to drive restaurant growth.
Where the Opportunity Is
|Market (Core-Based Statistical Area)||Rank||Market (Core-Based Statistical Area)|
|1||Kahului-Wailuku-Lahaina, Hawaii||1||Los Alamos, N.M.|
|2||Las Vegas-Henderson-Paradise, Nev.||2||Sunbury, Penn.|
|3||Kapaa, Hawaii||3||Boone, Iowa|
|4||Findlay, Ohio||4||North Vernon, Ind.|
|5||Sevierville, Tenn.||5||Malvern, Ariz.|
How We Ranked the Markets
The RGI ranks both metropolitan (core urban area population of 50,000 or more) and micropolitan (urban core of at least 10,000 but less than 50,000) areas. Each area consists of one or more counties encompassing the core urban area while integrating adjacent counties that have a high degree of social and economic similarities.
The RGI is designed to assist restaurants screen markets and find attractive areas for expansion and growth. These market rankings represent underserved areas that signal strong restaurant sales relative to the national average.
Here’s what the RGI formula looks like:
The RGI uses restaurant sales collected by the U.S. Census of Retail Trade and per capita income reported by the U.S. Census Bureau and updated by Nielsen. Restaurant location data comes by way of Nielsen through Infogroup. Sales figures conflate visitors and residents of each market. So, smaller markets that are tourist destinations with high transience and heavy thru traffic tend to index high. Market size should be considered in addition to market rank (at all levels of geography: state, CBSA, ZIP) in assessing opportunities for future restaurants.
For a complete ranking of the 2014 Restaurant Growth Index, please click here.