The optimization process and recommendations:

1. Create Optimal Indexes (modified query below): The recommended indexes are an integral part of this optimization effort and should be created before testing the execution duration of the optimized query.
2. Use UNION ALL instead of UNION (query line: 20): Always use UNION ALL unless you need to eliminate duplicate records. By using UNION ALL, you'll avoid the expensive distinct operation the database applies when using a UNION clause.

Optimal indexes for this query:

CREATE INDEX table1_idx_type_location_name ON table1 (type,location,name);

The optimized query:

SELECT
        table1.type,
        table1.location 
    FROM
        table1 
    WHERE
        table1.type = 'stores' 
        AND table1.location = 'NJ' 
        AND table1.name = 'XYZ' 
    UNION
    SELECT
        table1.type,
        table1.location 
    FROM
        table1 
    WHERE
        table1.type = 'restaurants' 
        AND table1.location = 'NY' 
    UNION
    SELECT
        table1.type,
        table1.location 
    FROM
        table1 
    WHERE
        table1.type = 'hotels' 
        AND table1.location = 'US'