Restaurants, bars and “eatertainment” concepts have emerged as coveted tenants for shopping centers as the retail industry adapts to e-commerce and store closures by various soft goods retailers. But the ongoing food-and-beverage renaissance can deliver mixed results for retail landlords who don’t choose their operators and merchandise offerings carefully.
The restaurant sector is notoriously risky, with a failure rate of around 80% for new concepts. The steep upfront costs of building and operating a restaurant can be debilitating for inexperienced operators, often resulting in failure within the first two years. A restaurant space can remain empty and stigmatized for extended periods while a replacement is found, especially if multiple concepts in that space have failed.
That said, the food-and-beverage category is a juggernaut in retail real estate these days, benefiting consumers, landlords and, in some cases, neighboring stores. Restaurants accounted for 17% of retail sales in the United States last year, making the sector the fastest-growing and largest in the retail universe. Excluding food courts, restaurants now occupy roughly 43 million sq. ft. in U.S. malls, up 18% from 2007, according to the International Council of Shopping Centers.
This growth has yielded some upside for neighboring retailers. Food-and-beverage brings shoppers to retail centers at times when traditional soft goods stores’ draw might be less, namely at lunchtime and in the evening. It also tends to increase shoppers’ dwell times. Although restaurant patrons sometimes crowd parking lots at busy times, inconveniencing other shoppers, the benefits outweigh the drawbacks for most retail landlords these days.
Here are some notable trends in food-and-beverage that we at CBRE are monitoring.
Eatertainment goes small. Eatertainment concepts like Dave & Buster’s, Punch Bowl Social, Round One Entertainment, and Topgolf have firmly established themselves in suburban markets. Suburban malls, lifestyle centers, and adjacent free-standing locations provide these concepts with the big boxes and ample parking that they require. Now some are testing smaller formats to crack urban markets. Earlier this year, Topgolf announced its roughly 7,700-sq.-ft. Topgolf Lounge that will offer virtual golf and virtual games in addition to food and drink. Dave & Buster’s and Punch Bowl Social, too, are experimenting with downsized formats to give them access to densely populated cities and hordes of new customers.
It’s a fast-casual world. Fast-casual reigns as the dominant restaurant format in the U.S., accounting for four of every five locations opened by top-500 chains in 2018. The format’s calling cards – better quality fare than fast food, relatively quick service, and lower prices than full-service restaurants – have resonated with today’s diners who are health-, time-, and price-conscious. While established fast-casual brands like Chipotle Mexican Grill continue to expand, we’ve also seen emerging and regional, farm-to-table operators open fast-casual outlets. Many retail landlords are happy to welcome these restaurants to replace departed retailers. Yet, amid this growth, there is need for caution.
Adding too many restaurants to a retail center can result in those eateries cannibalizing one another’s sales. Additionally, many fledgling F&B concepts struggle with the rising costs of operating a restaurant, including rent. U.S. retail rents have increased for 23 consecutive quarters. Ultimately, retail landlords must be careful and deliberate about which operators they bet on and how many they add to their centers.
Today’s special: ghost kitchens. As the meal-delivery sector expands, a few restaurant operators have established delivery-only kitchens, also called ghost kitchens. These locations allow operators to serve a heavy volume of delivery customers without requiring in-dining restaurant kitchens and resources, copying the decades-old approach of pizza-delivery operators. Aggregators like Kitchen United provide commercial kitchen space for multiple restaurateurs to produce meals solely for delivery customers. Ghost kitchens needn’t occupy prime retail space.
Food halls hit the ‘burbs. Food halls are rocking in urban markets, but their road to success in the suburbs will be rocky. Food halls need the continual, all-day flow of customer traffic often provided by downtown locations in larger cities. Some suburban malls are installing them in vacant space, and they can serve as a new form of anchor, but they need the 24/7 traffic of shoppers, office workers, nearby residents to be successful. They also require a carefully curated roster of unique and often artisanal eateries set inside an authentic environment to set them apart from mere food courts.
Meghann Martindale is CBRE’s global head of retail research.