Sales at restaurants surpassed grocery sales in the U.S. for first time last year; San Francisco continues to lead the nation in consumer restaurant spending
San Francisco, CA – July 26, 2016 – With food-and-beverage outlets now among the fastest-growing categories in retail centers, a new CBRE Group, Inc., report identifies four emerging eatery formats poised for significant expansion: food trucks, food halls, celebrity-chef restaurants and “grocerants.”
The CBRE report highlights numerous data points that underscore the booming growth of restaurants, including that total U.S. restaurant sales surpassed grocery sales for the first time last year, according to government data, and that they have fared better since the recession than any other retail category. It also points out that, while millennials dine out more often, older generations spend more overall at restaurants. This implies more growth for restaurants as millennials age and earn more.
Those factors and others collectively suggest that this growth in spending at restaurants is more than a cyclical, post-recession recovery but instead a fundamental shift in American dining and spending habits.
“We know that the strength of the food-and-beverage category has led to many shopping center owners seeking restaurants as anchor tenants to draw in shoppers, whereas department stores and other retailers previously filled that role,” said David Orkin, Executive Vice President and Restaurant Practice Leader, CBRE. “What’s particularly interesting today is that retail center owners are not only focused on traditional, proven restaurant concepts, but they are more willing than ever to embrace a broader range of emerging and, in some cases, untested concepts like food trucks which don’t pay traditional rent. They are willing to take risks to compete.”
CBRE enlisted its restaurant experts, led by Mr. Orkin, to identify the up-and-coming restaurant formats likely to drive the category’s further expansion in retail property. These four categories offer many or all of the attributes that appeal to modern diners and shoppers: diversity, convenience, uniqueness, relative affordability and experiential focus.
- Food trucks: While food trucks don’t often pay traditional rent, they attract shoppers to a center and have served as incubators to develop restaurant concepts that later become brick-and-mortar tenants.
- Food halls: This urban retail format features a changing mix of local and often independent food-and-beverage outlets that collectively add to the center’s atmosphere and uniqueness.
- Celebrity-chef restaurants: While sometimes expensive and risky to establish in a center, restaurants helmed by well-known chefs can be significant, exclusive traffic generators for a property when they succeed.
- “Grocerants”: Grocery stores that also offer prepared foods and made-to-order meals provide a mix of freshness, convenience and affordability that prove attractive to shoppers and, by extension, property owners.
Though these formats are popular, cultivating them can be risky for property owners. Restaurants— especially new, independent restaurants—have a notoriously high failure rate. What’s more, most property owners must contribute substantial capital to outfit their space for restaurant use. One solution CBRE has seen property owners undertake is to forego immediate repayment of buildout costs or to keep base rents low in exchange for an ownership stake in the restaurant. In that approach, the property owner receives a share of that restaurant’s profit even after its initial investment is repaid, thus providing the property owner a return on its assumption of risk.
“There’s a move toward financial partnership rather than traditional tenant-landlord relationships,” said Melina Cordero, CBRE’s Head of Retail Research in the Americas. “That’s something that landlords are going to have to be open to if they are pursuing some of these categories. In many cases, the customer draw generated by these food-and-beverage categories and the atmosphere they foster make the investment worthwhile.”
San Francisco remains at the peak of U.S. restaurant spending, with an average consumer spend per capita of nearly $4,000 a year. The San Francisco area continues to attract new restaurants despite high rents due to the access it provides food-and-beverage outlets to high-income, high-spending populations.
“Retailers and owners are focused on experience and cultivating a sense of place to draw in consumers both to specific stores and into neighborhoods; food is all about experience,” said Laura Sagues, Vice President of CBRE’s San Francisco Urban Retail team. “Further, with San Francisco’s rents, labor costs and health surcharge, restaurants here are forced to develop innovative service models to save while delivering unique experiences to their customers.”
To download the report, click here.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
About Empire Square Group
Empire Square Group (www.empiresquaregroup.com) is a fast growing real estate private equity firm based in Manhattan, New York, NY. Our success has been driven by our hands-on approach to investment management and dedication to our close partner relationships. We identify unique investment opportunities and create value through active management and, where appropriate, repositioning and development. We nurture true long-term relationships with investors, both in the US and overseas. Empire Square currently manages more than $400 million in assets across the United States. Empire Square Group is run by Guy Nesdale and David Maltby.
AQARAT (Kuwait Real Estate Company K.P.S.C., www.aqarat.com.kw) is one of Kuwait’s leading real estate companies. The company was the first real estate company to be listed on the Kuwait Stock Exchange, and has a forty-year track record delivering value to its customers and stakeholders through integrity and innovation. The company pioneered a multitude of concepts in the local market which included Kuwait City’s first mixed-use urban development, the country’s first luxury seafront residential complex as well as its first public-private build-operate-transfer development with the Kuwaiti government. Today, AQARAT’s global footprint spans throughout the Middle East, Africa, Europe and the United States.