Article

North Dakota oil boom spurs fast casual restaurant growth

Thanks at least in part to its energy sector, it makes sense for North Dakota to be on the radar for restaurant developers.

February 9, 2015 by Brenda Rick Smith — Editor, Networld Media Group

The National Restaurant Associations recent forecast for the states expecting the strongest gains in restaurant sales in 2015, one state stood out from the pack: North Dakota.

The other states listed — Arizona, Florida, Texas, Colorado — are fairly well populated and have strong tourist trade, but as the 48th state in the union in terms of population, North Dakota seems to be an outlier.

But thanks at least in part to its energy sector, it makes sense for North Dakota to be on the radar for restaurant developers.

Over the past decade, North Dakota has experienced an oil boom in the Bakken oil fields in the western part of the state.

According to the National Restaurant Association's Chief Economist Bruce Grindy — a native of Minot, North Dakota with family roots in Lignite, a small town in Bakken oil patch — North Dakota is poised for restaurant sales growth.

"With so many people moving into the state for the new jobs in the oil industry, North Dakota led the nation in population growth in each of the last three years," Grindy said. "During the last five years, North Dakota’s population jumped 11 percent, or nearly three times the 4-percent population gain registered on the national level."

More people means more mouths to feed, Grindy said.

"It also helps that pretty much anyone in North Dakota who wants a job has one," added Grindy, pointing out North Dakota's low 2.8-percent unemployment rate, "and a lot of the new oil industry jobs are high-paying jobs."

With those factors in mind, Grindy and the NRA are projecting restaurant sales growth of 4.8 percent in North Dakota this year.

Introducing fast casual

Many fast casual brands have begun planting their flags or expanding their presence in North Dakota, including Fuddruckers, Orange Leaf, Potbelly, PizzaRev and Uncle Maddio's.

Pizza Boy Fargo LLC opened its first Uncle Maddio's Pizza Joint in Minot in June 2014, and a second in Fargo in November.

Troy Mattern, who along with wife Jamie is the majority owner in Pizza Boy Fargo LLC, is eyeing Bismarck, Grand Forks or Fargo again as sites for a possible third location.

Energy sector growth played some part in the equation for deciding where to open, said Mattern, a North Dakota native. Minot was a prime location because members of Mattern's family/investment team live there, and could be involved in day-to-day operations. But Minot's proximity to the oil fields in the western part of the state played a role, too.

"I think in Minot, the oil boom has had a pretty big impact, especially for the summer," explained Mattern. "There's just so much traffic driven with the oil. The number of people that have come to the state, and the number of people that have come to the Minot area and just the traffic that goes through on any given day has just increased tremendously over the last five years."

That increased traffic means the need for restaurants has increased, Mattern said, and he felt sure a fast casual concept — still relatively new in the state — would perform well.

"Our goal was just to bring fast casual to North Dakota," he said. "That was more of our driving force."

Uncle Maddio's is the first fast casual pizza concept in North Dakota, according to Mattern, and the reception has so far been positive. The performance of the Minot location has exceeded expectations, and the Fargo store is also performing well.

For Uncle Maddio's CEO Matt Andrews, the North Dakota oil boom is a plus, but it wasn't the deciding factor in entering the market. Fargo is a great city, Andrews said, and along with Bismarck, Grand Forks and Minot has the right demographics for Uncle Maddios.

"We were going to North Dakota regardless," he said. "The oil boom has helped to accelerate growth, but the fundamentals were already there to grow."

Oil bust?

But the recent drop in oil prices could bring cause for concern. Oil dropped by around 40 percent in the second half of 2014. With oil prices falling off so sharply, whispers of production cuts and layoffs began.

"If oil prices stay low for an extended period of time, it is no longer cost effective to drill, which could eliminate a lot of jobs. And this would negatively impact the business environment for restaurants," cautioned Grindy.

So far, Mattern has seen little to no impact at his Minot location, which is just east of the oil fields, or at his Fargo location in the eastern part of the state.

And even if layoffs do come, Mattern sees his efforts and building relationships within the community carrying his Minot location through.

"The oil people and the oil community are big, but there's a lot of other resources that we can tap into in the community of Minot," he said, "and we want to be part of that anyway."

Still bullish

Even with challenges to the energy sector, Grindy seems to remain bullish on the restaurants sales prospects across the state.

"I don’t see this as a major concern for the overall North Dakota restaurant industry though. The oil patch is located in the western part of North Dakota, which is the less populated region of the state," he said. "The larger cities of Fargo, Grand Forks and Bismarck — while still indirectly benefitting from the oil industry growth — would not be hit as hard if there was a downturn. So while restaurants in the western part of the state would likely suffer, North Dakota's overall restaurant industry would likely continue to grow."

If there is a decline in the energy sector, that decline may even bring some easing of labor pressure, Andrews said. The average starting pay for a restaurant worker is $11 an hour, significantly higher than the $8 or $9 an hour paid in other parts of the country, he said.

For now, it may be oil producers who are in for some easing. Oil prices were back at $52.51 a barrel by the close of the market on Feb. 9, up from a low of $43.58 earlier this year.

image courtesy of the Boston Public Library via Flickr

About Brenda Rick Smith

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Brenda has more than 20 years of experience as a marketing and public relations professional. She invested most of her career telling the story of entrepreneurial non-profit organizations, particularly through social media.

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