Sizing up the competitive landscape of Lexington’s restaurant industry


“Perhaps you are like me when you drive around the greater Lexington area and marvel at the number of new restaurants being built. This never seems to end, and currently you can see examples at Hamburg Place, Brannon’s Crossing, the expanded Fayette Mall area and smaller niche developments like Greenleaf Plaza and the Townley Center development. However, the circumstances that create this are not accidental, and Lexington has for years been an attractive area for restaurant development.

The restaurant industry is a powerful economic force on a national, statewide and local level. Based on data researched, developed and provided by the National Restaurant Association and the Kentucky Restaurant Association (www.kyra.org), some important facts emerge:

1. There are approximately 6,255 eating and drinking places in Kentucky.

2. The estimated 2006 restaurant sales in Kentucky are $5.1 billion.

3. Estimated 2006 restaurant and foodservice employment in Kentucky is 173,800.

4. The “ripple effect” indicates that every $1 spent in restaurants generates an additional $1.23 in sales for other industries. Furthermore, each additional $1 million spent in eating and drinking establishments in Kentucky generates an additional 41.1 jobs in the state.

Against that backdrop, lets now zero in on the Lexington-Fayette metro area. For years, Restaurant Business magazine (www.restaurantbiz.com) and the market research firm Claritas (www.claritas.com) have periodically produced some interesting statistics and indices on market-level restaurant business and business potential. The Lexington-Fayette market has always ranked very high in restaurant sales per capita and in the RGI (restaurant growth index). There are several reasons for this, including the fact that Lexington is a regional shopping draw for much of Kentucky. The next time you are at Hamburg Place or Fayette Mall, just walk through some parking areas and notice the number of license plates that are not from Fayette County. Other factors include our positioning at the intersection of heavily traveled interstates and being the home of a state university.

Based on the last analysis by Claritas, Lexington-Fayette ranked 23rd in the country out of 362 markets in per-capita restaurant sales, making it among the elite in this category. This ranking is consistent with its rankings in previous years. The only other Kentucky market that is close is Bowling Green, with a ranking of 41st.

A related ranking is the RGI and Lexington-Fayette ranks 27th nationally in this index. The RGI ranks U.S. metro areas according to their growth potential and is a statistical prediction of where a new restaurant stands the best chance of succeeding. Or, said another way, it’s a supply and demand indicator, and the higher the score and ranking, the more likely the supply (restaurants) has not caught up with demand. Here is the exact calculation:

(Restaurant sales per capita in the market/restaurant sales per capita in the United States) x (restaurant sales per capita as a percent of income per capita in the market/restaurant sales per capita as percent of income per capita in the United States x 100 = RGI).

An RGI score of 100 is the average for the entire United States. The higher the score, the higher the potential for new restaurants, and the lower the score, the lower the potential. Lexington-Fayette’s most recent RGI score of 172 and 27th national ranking (out of 362) is impressive, with Bowling Green also ranking very high in the category.

What this means is that the Lexington area continues to have a healthy economic environment for restaurant development. However, that is obviously not a complete picture of the competitive landscape that exists and evolves. These are interesting times for the area’s restaurant business. There are so many things changing right now, making the competitive environment a wild set of moving parts. At the concept level, there are new chains moving into the area, such as Red Robin, Culver’s, and BD’s, which affects category choices. Then there are new local concepts like Smashing Tomatoes Pizza and the relocation of existing independents like Three Suns Bistro, moving from downtown Nicholasville to Brannon’s Crossing. On top of that, there are several changes to various trade areas that will effect competitive dynamics in ways that won’t be obvious for a while. One area in particular is the expansion around Fayette Mall, with numerous new restaurants opening, and just down the road inside the Jessamine County border, Brannon’s Crossing restaurants are now open, with more scheduled for the future.

In summary, the Lexington area is a healthy environment for restaurant development, yet at the same time the competitive set is increasing, trade area dynamics are changing, and even with a great location, a restaurateur still has to operate well to survive, much less thrive. However, for the consumer, the result is more choices both in location, concepts, and menu. That’s a good thing.

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