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What’s keeping chain restaurants out of New Jersey?

| May 11, 2012 | Business Formation |

Lots of people who love to eat and have steady incomes live in New Jersey. So why do chain restaurants tend to shy away from opening a new business here?

New Jersey ranks near the bottom among states with the most chain restaurants, defined as restaurants with at least 10 locations. The state boasts more than 20,300 restaurants and fewer than 25 percent are chains.

High costs appear to stifle chain expansion. Building a chain restaurant in New Jersey can be an expensive, uncertain venture. Construction costs, rent and taxes come have high price tags. Getting a license to serve alcohol in a restaurant can be up to a $1 million expense, depending on where a restaurant is located.

Chains must compete with New Jersey’s famous independent and family-owned restaurants. Many local restaurant owners have snapped up prime locations with the advantage of well-established customer familiarity and loyalty.

Chain restaurants also have expenses independent restaurants do not. The chain stores are often franchised, which requires the operator to pay royalties from sales to a franchisor before pocketing any profit. A franchisee might be locked into a deal to upgrade the restaurant on a regular basis, adding to the costs of operation and taking a bite out of success.

Before a chain enters the New Jersey market, it has to be able to meet and exceed the expenses of opening there, and factors like high business taxes and higher minimum wage requirements could be revenue breakers.

The customer base exists for other chain restaurants in the state, but some chain owners are inching toward a decision. The manager of a five-state diner chain is anxious to offer franchises for 30 diners in New Jersey. He says he will open when he knows those diners have a good chance to succeed.

Source: Asbury Park Press, “Chain restaurants battle to get a place at the table in NJ,” David P. Willis, May 1, 2012

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