Savvy entrepreneurs in the food and beverage industry are finding success by being ‘differentiators’ in product offerings and branding.
From fast casual to fine dining, Americans’ appetite for more restaurant options is growing.
The Bureau of Labor Statistics (BLS) reports that the U.S. saw 15,145 additional eating and drinking establishments open during the 12-month period that ended Sept. 30, 2017, the latest data available as of press time. This represents an increase of 2.5 percent from the year before.
In addition, The National Restaurant Association reports that the industry also added 1.6 million jobs in 2017, raising total employment in the sector to roughly 16.7 million workers — more than 10 percent of the American labor force.
Population growth and overall economic bullishness have contributed to restaurant expansions. But as is often the case with retail, a shift in consumer preferences has the biggest driver of growth.
In December 2017, the United States Dept. of Agriculture (USDA) issued a report stating that millennials are increasingly spending less of their food budgets on groceries and more on sit- down, takeout and pre-cooked meals.
It’s worth noting that according to The Wall Street Journal, Americans made 433 million fewer lunch visits to restaurants in 2017 than the year before. But the latest data from the USDA shows that, overall, American families now spend approximately 50 percent of their food bud- gets eating out. During the 1970s, that figure was closer to 25 percent.
This shift in consumer preferences has enabled restaurants, which are inherently resistant to e-commerce, to surpass grocery stores in annual retail sales for the first time in modern history.
Global business publication Quartz first captured this trend in 2015 and 2016, when it found that Americans spent approximately $2.4 billion more at eating and drinking establishments than they did at grocery stores.
The entrance of home-delivered meal kit concepts — HelloFresh, Blue Apron, Green Chef — into the market has also heightened the competition and crowded out some established restaurant players. A number of national chains axed stores in 2016 and 2017, including Subway (909 locations), Applebee’s (99 locations) and Ruby Tuesday (95 locations).
Taken together, these trends would seem to indicate a basic preference for original, quality food backed by a clear vision of the brand and offerings.
“The most successful restaurant concepts right now understand who they are,” says Paul Vernon, head of the retail division at brokerage firm Henry S. Miller. “There are so many concepts out there, but the good ones communicate their concepts well through the design, restaurant name and menu. Beyond that it really just comes down to providing quality food and service.”
Jason Baker, principal at Houston- based tenant rep rm Baker Katz, concurs with Vernon. However, he also believes in the power of data analysis as a driver of restaurant growth.
“The brands that are rising above the rest know their di erentiators and market them well,” says Baker. “They take a data-driven approach and do extensive market research to fully understand who they and their customers are, and tailor their busi- nesses to the correct audience.”
This piece highlights four restaurant concepts that have found success and which are rapidly expanding their real estate footprint.
LemonShark Poké (Dallas)
Poké is a cuisine that centers around rice bowls or salads topped with raw marinated sh, vegetables and sauces. Influenced by Hawaiian and Japanese culinary traditions, the concept offers a variety of healthy ingredient combinations at modest price points.
Restaurants that serve poké are proliferating in the fast casual space — the segment of restaurants that features food, price points and speed of service that are somewhere in between fast food and casual dining. Within this space, poké concepts are typically branded as Hawaiian restaurants.
Food blog eater.com reports that the number of Hawaiian restaurants in the United States essentially doubled from 342 to 679 between 2014 and 2016. At that rate, poké-serving restaurants are on pace to exceed more than 1,000 locations by 2020.
One of the fastest-growing concepts is Lemonshark Poké, which currently operates about 80 stores in Texas, California, New York, Arizona and Florida. As part of a deal with Florida-based JAE Restaurant Group to roll out 100 stores in five years, the company will soon be opening four restaurants through- out the Dallas area in Plano, Highland Park, Carrollton and Cedar Hill.
Though its spaces are relatively small — anywhere from 1,600 to 2,500 square feet — Lemonshark is an expensive poké franchise to buy into because so much money goes into store build-outs, according to the head of the company. Co-founder and president Tobi Miller says that in his experience, launching a store that is part of a poké franchise typically costs between $250,000 and $300,000. Opening a Lemonshark restaurant will cost anywhere from $350,000 to $400,000.
“Landlords have definitely grown suspicious of the quick-and-dirty poké concept,” says Miller. “They know the concept is hot, so they’ll lease a tiny spot to a tenant who puts $10,000 into painting fish icons on the walls. But we’ll come in and put $200 per square foot into the build-out.”
Miller adds that as the franchise has grown, landlords have shown a willingness to provide more tenant allowances. And when customers enter a store, they can immediately tell how much work has gone into its design, he says.
Investing in the atmosphere and ambiance of the restaurant drives more weekend and nighttime business, says Miller. In addition, the concept works to differentiate itself by offering beer and saké at every location, including self-serve beer taps (which aren’t yet legal in Texas). Lemonshark also invests in research and development of its sauces and offers creative forms of poké, such as a burrito.
Miller also points out that the concept doesn’t require tons of heavy cooking equipment. This makes it possible for the company to open stores in food court settings with footprints as small as 500 square feet. With operating costs reduced, Lemonshark lands the one-two punch of healthy food at affordable prices, which is really what it’s all about, according to Miller.
“Ultimately, we think we’re providing people with a great substitute for sushi at a lower price and in a nice environment,” he says.
Denver-based breakfast restaurant Snooze began doing business in Colorado in 2006 and entered Texas via Houston in July 2016. The concept, which revolves around chef-driven takes on classic breakfast items, now operates four locations in the Houston area with two more slated to open in 2019.
Snooze also has two locations in Austin, one in San Antonio and four opening in the Dallas-Fort Worth (DFW) area over the next 12 months. The company is also active in California and Arizona.
The average footprint at a Snooze eatery is about 4,000 square feet. Finding spaces with patio seating is integral to the company’s site selection process, which differs a bit from that of the traditional retail-center restaurant. Snooze CEO David Birzon notes that his concept doesn’t look too heavily at whom the co-tenants are or what the hot shopping center is when making a site selection call.
“We tend to avoid retail-heavy properties unless we have street visibility,” says Birzon. “These centers don’t typically activate until 10 or 11 a.m. But when landlords see the volume of traffic we generate, they stop worrying about having a tenant that ‘goes dark’ at 3:30 in the afternoon.”
Birzon adds that landlords have warmed to breakfast concepts like Snooze, which pitches itself as “an a.m. anchor,” because the parking the restaurant requires doesn’t conflict directly with other tenants. This holds particularly true for parking spaces allotted to other restaurant users.
Other breakfast chains like The Toasted Yolk Café and Another Broken Egg are also expanding in Texas. But Birzon sees chef-driven, independent eateries as his main competition, in part because he believes Snooze represents experiential dining.
“We have a high-energy concept and consider ourselves innovators in our space,” he says. “Our food is responsibly sourced. We have breakfast-themed versions of classic cocktails, champagne and even kambucha (a type of fermented tea) on tap at some locations. We’ve been successful in combining food, people and ambiance.”
Snooze’s soon-to-open restaurants in Houston will be located in Katy on the city’s west side and in the Galleria area. The company’s DFW-area locations will include one in Addison, one in the Walnut Hill neighborhood on the city’s north side and one in Fort Worth.
P. Terry’s (Austin)
P. Terry’s, a burger chain that started in Austin nearly 13 years ago, now operates 14 locations throughout the state capital. In addition to opening two new burger joints in the next year — one in Georgetown and one in San Marcos — P. Terry’s has recently spun o a new concept, Taco Ranch.
P. Terry’s features both sit-down and drive-thru-only restaurants, which average about 2,400 and 900 square feet, respectively. The company’s new taco concept features a drive-thru and uses the same food suppliers and in-house preparations of its parent chain.
The first drive-thru Taco Ranch opened in late January. Another location has already been planned in downtown Austin near the University of Texas, with a target opening date of sometime this summer.
“We’re an upscale fast food restaurant, and we don’t shy away from the ‘fast food’ part of that label,” says owner and founder Patrick Terry. “We sell quality food at a price that is affordable for most people, and we’ve earned the trust of Austin through that. We make up for it with volume.”
Terry adds some numbers to put his business model into perspective. A double burger (roughly 6 ounces of meat), fries and a drink costs about $7.40 at P. Terry’s. That same combination would cost about twice as much at ShakeShack, and roughly the same amount of money at McDonald’s, but customers would receive food of lesser quality at the fast food giant, he says.
The company’s emphasis on expanding its revenue stream through volume, not price point, echoes the model of fast food businesses, but with a higher level of quality. According to Terry, that kind of differentiation is critical when operating in a market as competitive as Austin.
“If you’re going to run a restaurant in Austin, you’d better bring your A game,” he says. “Every concept imaginable is here right now. And if they’re not here, they’re on their way. So if you don’t differentiate yourself right out of the gate, you’re going to get lost very quickly.”
Bakery Lorraine (SA)
Co-founded by two pastry chefs who previously worked for Bouchon Bakery in Napa Valley, Bakery Lorraine first came to San Antonio in 2010. The company opened a stand at a weekend farmers market before graduating to a food truck. The founders then opened a brick-and- mortar store adjacent to The Pearl, a mixed-use destination located at the site of a former brewery in northern San Antonio.
Ten years ago, San Antonio just wasn’t much of a market for food and drink,” says co-owner Charlie Biedenharn. “You just couldn’t introduce many viable concepts. But then we saw major investment in the urban core, which brought in a lot of young people, and we knew the time was right to introduce our concept.”
After operating near The Pearl for a year, Bakery Lorraine moved into the 22-acre development, leasing space for both the bakery and a commissary. The company opened another bakery at the San Antonio Medical Center shortly thereafter, and in February, it opened a bakery within The Rim, another shopping and entertainment destination on the northwest side of town.
The company recently expanded into Austin, taking space at The Domain, and operates a kiosk-like store at The DoSeum, San Antonio’s museum for children. Each of its spaces measures somewhere between 2,300 and 3,300 square feet, save the museum location.
According to Biedenharn, the company’s commitment to top-notch ingredients and artisanal baking practices has fueled its growth.
“Ultimately our success comes down to quality and technique,” he says. “There’s a trend element to this epicurean taste in food, and it comes down to people wanting to have knowledge of what they’re eating. Our menu options are accessible and comprehensible, and not price-prohibitive for most people.”
While Bakery Lorraine would consider entering other markets in other states if the timing and real estate were right, at present the company is focusing its expansion efforts on Austin and San Antonio.
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