For retail center owners, fighting the current headwinds of e-commerce competition and failing retail chains has meant including more dining and entertainment options in their properties.
Restaurants are giving landlords, investors and brokerage firms a lot to cheer about—most of the time, anyway. Despite choppy same-store sales coming in 2016, the current market environment might be just right for ramping up the line-up of restaurant tenants, according to some industry observers.
“The restaurant group is actually very healthy,” says Dan Weiskopf, an ETF strategist with Access ETF Solutions, which developed and licensed the Restaurant Leaders Index to USCF Restaurant Leaders ETF.
“The group does compete a bit against delivery services, particularly on the quick-serve side. As compared to the retail group, the restaurant group doesn’t have a lot of the same ‘Amazon’ issues.”
A recent survey by AlixPartners, a New York-based global business advisory firm, found that a solid majority of consumers polled in a study said they would maintain the number of times they dined out in the next 12 months as they had in the previous 12. Also, poll respondents reported that the average spending per meal over the last 12 months was $15.38, the highest reported amount in the survey’s nine-year history. Respondents in the study said they planned to spend even more per meal over the next 12 months, at $15.43.
Restaurants might be able to withstand the ‘Amazon effect,’ but macroeconomic and industry-specific conditions are presenting the sector with challenges of its own.
For one, Americans who patronize fast food and fast-casual establishments at least twice weekly are planning to make fewer restaurant visits in the next year, according to respondents to the AlixPartners study. Most of them (50 percent) want to save money, while others (44 percent) want to adapt healthier eating habits.
Despite these setbacks, the restaurant industry still offers plenty of opportunities to enhance shopping center appeal and deliver returns to retail property investors. Here are some of the best-performing chains.
Most brands in the quick-service restaurant segment of the Restaurant Leaders Index are leaning toward a franchising, or asset-light, business model, according to Weiskopf. Denver-based Chipotle is among the exceptions. For now, the company is working to overcome a food safety issue that tarnished its brand in 2016. Despite a decrease of 20.4 percent in its year-over-year comp restaurant sales for 2016, it opened 72 new restaurants in the fourth quarter and increased revenue by 3.7 percent, or $1 billion.
It has three of the major casual foods covered through the Taco Bell, KFC and Pizza Hut divisions. It was Taco Bell, however, that pulled off the company’s best system-wide sales increase in the fourth quarter of 2016, at 12.0 percent.
Based in Calabasas Hills, Calif., Cheesecake Factory was an early innovator in the upscale casual dining segment, and continues innovations through its menus. Comparable restaurant sales ticked up just 1.1 percent in the fourth quarter of 2016, but it was enough to maintain a seven-year record of positive performance.
Real estate prices aren’t likely to come down anytime soon, but Wendy’s is not scaling back its goal of adding 1,000 new restaurants by 2020. The Dublin, Ohio-based company is going the route of converting existing retail storefronts, banks and other restaurant concepts into spaces for its new restaurants.
The St. Louis, Mo.-based fast casual restaurant proclaims that it serves “clean food.” Let’s see if a rumored bidding war for the company results in a clean fight for a new owner. The company operates 2,036 bakery-cafes in 46 states and internationally. In early April Panera announced an agreement with JAB Holdings in which the latter would acquire it for about $7.5 billion. Weeks later, industry buzzed with media reports that 3G Capital, which owns the Burger King and Tim Horton brands, might put in a competing bid.
The Chicago-based fast-food juggernaut is rolling out a three-pillar growth plan aimed at getting former regular restaurant goers to pick up their old cravings again, turning casual diners into committed ones, and holding onto existing customers. The company is aiming to grow sales system-wide by 3.0 to 5.0 percent, and increase operating margins from the current high-20 percent range to the mid-40 percent range by 2019.
Based in the City That Never Sleeps, Shake Shack is not sleeping on its plan for success, either. Operating through more than 30 comparable “shacks,” or locations open at least 24 months, the company posted same-store sales of 4.2 percent at the end of fiscal 2016, and a 28.3 percent profit.
The Louisville, Ky.-based company increased its North American same-store sales by 3.5 percent for all of 2016, and by 3.8 percent for the fourth quarter. Most of the company’s 204 restaurant openings in 2016 were in foreign countries. But 53 were in North America.
It isn’t just coffee that lures Americans to the 60,000 locations of this almost ubiquitous brand: it serves ice cream too, through Baskin Robbins. The Canton, Mass.-based company increased its North American same-store sales by 3.5 percent in 2016, and is on its own mission to serve up cleaner foods by removing artificial colorings from U.S. menus by 2018—all while opening more stores.
With brands like the Olive Garden and LongHorn Steakhouse, Orlando, Fla.-based Darden Restaurants is the leader of the restaurant pack. As the industry grapples with labor costs, staffing issues and setbacks in same-store sales, Darden is looking to add to its collection of brands. It is now looking to acquire Cheddar’s Scratch Kitchen for $780 million.
Despite choppy same-store sales coming in 2016, the current market environment might be just right for ramping up the line-up of restaurant tenants, according to some industry observers.
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