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America’s Restaurant Revolution Changing Commercial Real Estate: CBRE Report

Meghann Martindale

HOUSTON – (By Dale King, Realty News Report) – Fundamental changes in the food-and-beverage industry – including the rapid growth of third-party, meal-delivery services, increasing use of in-store automation and the ongoing proliferation of fast-casual service concepts — are reshaping not only the U.S. restaurant business, but the real estate it occupies.

A new report from CBRE highlights eight trends – including the spread of small-format, “eatertainment” designs – and examines their impact on the food-and-beverage sector and its real estate.

“While restaurants are less vulnerable than other retail categories to e-commerce encroachment, they’re still going through dramatic changes driven by advancements in technology and changing customer tastes,” said Meghann Martindale, CBRE global head of retail research.

“Retail-center owners will need to invest a lot of thought into which type of restaurant concepts best fit their facilities and clientele as well as how to balance their center’s mix of food and beverage so that it doesn’t tip too far in any direction.”

Restaurants now account for 17% of U.S. retail sales, more than any other retail sector, and growth in dining-out has outpaced overall U.S. retail sales gains in recent years. This surge opens new avenues for improving the way eateries provide food to the consumer public, keep tabs on the cost and efficiency of labor and feed into the rage for fast-casual dining.

Here’s a look at some of the eight trends outlined in the report and their impact on retail real estate.

Delivery

Whether it’s spent on a Quarter-Pounder with Cheese meal from McDonald’s or a steak, French fries and a Bloomin’ Onion from Outback, revenue from delivery services for U.S. dining spots soared last year to $34 billion, says the report, up 13% from 2017. Third-party delivery services are claiming a growing share of the meal-delivery market, to an anticipated 70 percent in 2022 from 58 percent last year, according to one measure.

As a result, the restaurant industry is experimenting with strategies to mitigate the cost of these services, which sometimes are high enough to make certain meal deliveries unprofitable.

A possible solution? Enticing more customers to use restaurants’ in-house delivery apps, platforms and services. Another: Sharing more data about orders with third-party delivery services in exchange for revising the price of delivery more in the restaurant’s favor.

With delivery service use growing so 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.

The future could make use of robotics.

Lacee Jacobs

“I bet we see major office campuses copy the University of Houston delivery robots very soon,” said Lacee Jacobs, who leases retail and restaurant space for CBRE in the Houston area. “Employers are always looking for ways to add employee amenities, so a delivery service that does not increase staff makes a lot of sense.”

Landlords and developers are also starting to think through the needs of restaurant delivery service partnerships – how can they park, pick up and get in and out without interfering with the onsite customer experience, Jacobs said.

Tech in the kitchen

The 36-page CBRE document found that 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.

Many national chains have installed hardware such as kiosks, tablets and tableside ordering systems to automate the meal-ordering process for customers. “It is 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,” says the CBRE document.

Applying tech to food service has gained popularity, too. The report says more than eight in 10 restaurant operators agree that their use of technology provides a competitive advantage, and many are planning to increase their investment in tech during 2019.

The self-service kiosk is a popular device, says the report, and its acquisition is expected to drive the market to just over $30 billion by 2024. “Panera [Bread] and McDonald’s have successfully used kiosk ordering for several years. KFC plans to have kiosks in 5,000 restaurants by 2020 while sister chain Taco Bell plans to have every U.S. store outfitted with this technology by the end of 2019.”

This automation serves as a solution to rising labor costs and difficulty retaining quality employees while allowing operators to conveniently serve more customers.

It’s not just the front-of-houses that’s getting the tech makeover. “More than a third of fine-dining establishments and at least half of operators in all other restaurant categories said they would invest in back-office technology.  A key goal is to improve the employee experience to attract and retain workers amid a tight labor market and high turnover.”

Another objective is to better manage food inventory and manage costs.

Fast casual dining

The fast-casual format – better quality fare than fast food, relatively quick service and lower prices than full-service restaurants – has dominated restaurant expansion in recent years, the CBRE report says. Nearly four in five 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 and avoid loading up on too many.

‘Eatertainment’ enters the picture

Eatertainment concepts that combine food and beverage service with live and virtual sports have already 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.

“Topgolf, whose 55,000 SF large-format standard location features driving ranges, announced ‘Topgolf Lounge’ earlier this year. The smaller tech-driven prototype is about 7,800 SF and features a broad selection of virtual games, music, locally curated dishes and hand-crafted desserts and cocktails.”

Dave & Buster’s is trying a smaller-size concept, such as a 17,000 SF format it opened in smaller markets in Texas and Arkansas last year.  Punch Bowl Social is opening a 22,000 SF venue in downtown Austin’s Scarbrough Building this year.

Jazz Hamilton

“Not only are restaurants adapting to eating behaviors, but also grocers, movie theaters and breweries,” said Jazz Hamilton, first vice president at CBRE in Houston. Grocers are investing considerable amounts of money on delivery services and prepared meals within their stores as quick and healthy options for customers. Movie theaters are offering a wide variety of food options that go beyond popcorn and soda, plus breweries are offering enough delicious small bites that you simply pass up the entrees.”

“With the Houston population continuously rising and recently named as one of the 50 best cities in the US to start a restaurant, we will continue to see a large demand for dining places and be a destination for foodies.”

The CBRE report concluded that “despite economic headwinds, people will still want to eat out, and will adjust to budgetary reductions by moving down the ‘food chain’ of restaurants, from fine dining to full service to fast casual to fast food. The biggest beneficiary of this trend will be fast casual.”

Dec. 2, 2019 Realty News Report Copyright 2019

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