How do you properly target locally with anchor text?
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As long as it reads natural, just using cheesburgers will probably be enouth. assuming your site has the address on it.
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Well, all three!
Plus Chicago cheeseburgers, Chicago cheese burgers, best cheeseburgers in chicago and a whole bunch more

A variety of "location + keyword" anchor text is a must, getting links from other Chicago sites (both about Chicago and I want to say that sites hosted in Chicago, though I don't know how granular Google takes that and it's not a must), set up a business location in Google local and get reviews (protip: http://www.seomoz.org/blog/one-dead-simple-tactic-for-better-rankings-in-google-local)
Danny did the basics of local seo on this whiteboard Friday - http://www.seomoz.org/blog/the-basics-of-local-seo-whiteboard-friday
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I generally would try to mix them up - keeps your link profile looking more "natural". I would also focus on optimizing for local search (Google Places, etc.), if it's a local business. For many verticals, the Places results take up a LOT of real-estate on the results page.
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Are you talking on-page optimization? is there such thing as an off-site optimizing for local search?
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excellent tool!
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Thanks Barry, great information

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I recommend you reading this article: http://www.davidmihm.com/local-search-ranking-factors.shtml
This is the bible for me in terms of local search.
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Local search is a bit different than universal search and yes, you there are things you can do off-site to optimize the results. This Whiteboard Friday touched on the basics: http://www.seomoz.org/blog/the-basics-of-local-seo-whiteboard-friday.
You may also want to check out the list of Local Ranking Factors on David Mihm's site http://www.davidmihm.com/local-search-ranking-factors.shtml.
Hope this helps!