Wednesday, January 29th, 2020 January29th2020

Sell for More News: The food and beverage industry continues to evolve rapidly

Published on January 29th, 2020

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

 

The restaurant industry (and the real estate it occupies) is being reshaped by fundamental industry shifts. Let’s not forget, restaurants now account for 17% of all U.S. retail sales…more than any other retail sector.  Also, restaurant sales growth has outpaced overall U.S. retail sales growth in recent years.

It’s an important and exciting industry to follow.  Here are some of the trends to watch in 2020:

Delivery is the new drive-thru

Third-party delivery services are claiming a growing share of the meal-delivery market…with anticipated market share to grow to 70% by 2022 from a recent 58%.

The restaurant industry, in turn, is experimenting with strategies to mitigate the cost of these services, which sometimes are high enough to make certain meal deliveries unprofitable for restaurants.

With delivery service growing rapidly, restaurateurs and chains are designing their locations with separate areas (and sometimes separate entrances) for meal pickup so as not to inconvenience dine-in customers.

We often hear that consumers crave experiences, so many restaurateurs have gone above and beyond to create unique, elevated dining experiences that resonate with their customers.  Catering to consumers’ busy lifestyles by offering delivery services or curb-side pick-up spots are other simple ways in which restaurants can provide their customers with an elevated experience even when they aren’t dining in.

Technology becomes vital to profitability

More food-and-beverage establishments are embracing technology to streamline their front-of-house services and better manage their back-of-house operations, like inventory.

A recent National Restaurant Association survey found that more than half of restaurants plan to invest in more front-of-house tech, and many plan the same for their back-end work.

Many national chains have installed hardware such as kiosks, tablets and tableside ordering systems to automate their meal-ordering process for customers. It’s anticipated that this technology will help restaurants rein in their labor costs and perhaps reduce space dedicated to queueing customers waiting to make their orders.

Adding a tech component to the restaurant experience creates an opportunity to improve operations and focus more on customer interaction and their overall experience, while also managing labor and inventory costs.

Fast Casual format continues to dominate

The fast-casual format generally means better quality fare than fast food, relatively quick service and lower prices than full-service restaurants. Fast casual has dominated restaurant expansion in recent years.

Nearly 4 in 5 restaurants opened by top-500 chains last year were fast-casual eateries. The challenge for retail-center owners will be to select the right fast-casual operators for their center.

Eatertainment concepts go smaller

Eatertainment concepts that combine food & beverage service with live and virtual sports already have populated many suburban malls and freestanding locations. Now several operators are testing smaller-footprint concepts to crack urban markets to capitalize on the constant customer traffic generated by densely packed populations of residents and office workers. Topgolf, Dave & Buster’s and Punch Bowl Social are among those experimenting with smaller formats.

As densities increase and fewer large vacant retail spaces become available in premier retail centers, entertainment concepts are adapting to the spaces they find by downsizing their footprints and tailoring their concepts to meet the needs of the center’s clientele.

Ghost Kitchens

Delivery-only restaurants with no dining area, wait staff or traditional retail storefronts…known as virtual restaurants or ghost kitchens…will become a primary growth vehicle of the restaurant delivery platforms.

The emergence of ghost kitchens marks a shift in delivery-only restaurants locating and operating in industrial and secondary retail space for lower costs. This is leading to the reuse of underutilized real estate in shopping centers, sometimes carved out of repositioned anchor or big-box spaces, so long as the ghost kitchen is within quick-delivery range of a major consumer trade base.

Existing operators use ghost kitchens to accommodate high-volume takeout and delivery without impacting the dine-in restaurant experience during peak serving periods.

For entrepreneurs and startups short on capital, ghost kitchens offer an efficient and cost-effective way to try new brands and types of cuisine, while expanding overall sales in a delivery trade area. Leading investors and venture capital firms are betting on expansion in the burgeoning sector.

Cloud Kitchens

Expect to hear more about a new business model called “cloud kitchens” which are shared kitchen spaces made for delivery-only restaurants using online ordering. Cloud kitchens have big expansion plans and are attracting investor capital.

Kitchen United plans to open 400 cloud kitchen centers housing more than 5,000 individual ghost kitchens in high-demand locations within the next four years. These cloud kitchens integrate with major delivery brands like Uber Eats, Postmates, Eat24, DoorDash, Caviar and Grubhub. They also offer software and logistics support to get a ghost kitchen operating in days rather than months.

Lower Barriers to Entry

Whether a ghost kitchen for a single operator or an individual unit within a multi-operator cloud kitchen, this revolutionary delivery-only model is a cost-effective and space-saving expansion strategy that lowers labor, real estate and operating costs.

Ghost kitchens can open in as little as 200 sq. ft. of space, and they have a decided advantage of not having to dedicate space to seating or the overhead costs of running a full-service restaurant. A traditional restaurant can easily cost millions of dollars to build and open. Ghost kitchens can start up for as little as $20,000.

Fast food forced to evolve

Fast food continues evolving to meet changing consumer demand for healthy food options, technological conveniences and modern designs.

Fast-food restaurants must modernize their menus and store design to stay relevant. Providing healthier
menu options and redesigning portfolios to connect with consumers and communities are imperative to
recapture lost market share.

Although fast-food restaurants traditionally have been very prevalent in low-income neighborhoods, there is an evolution underway to make healthy food options more accessible in these communities.

People are increasingly turning to vegetable-based foods.  For example, McDonald’s has introduced Healthy Kids Meals.  Burger King has placed a plant-based burger on its menus across the US.

Fast-food sales grew at an annual rate of 4.1% over the past six years. While fast-food sales are the largest nominal amount of all restaurant categories, their growth rate is much slower than that of the fast-casual segment. And fast-food sales are projected to slow further.

And fast-food chains have also partnered with third-party delivery services, since 72% of their customers
eat off-premises.

Unit growth of the fast-food segment has been sluggish. For the top 20 fast-food restaurants, units were up by just 1.4% since 2015. Stores of industry bellwether McDonald’s fell 2.4% over the same period, while other established players grew locations significantly…Chick-fl-A by 22%, Dominos by 13%, Dunkin by 12%, Starbucks by 12% and Taco Bell by 7.6%.

 


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About Beau Beach, MBA CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com