Less Square Footage More Profitable for Restaurants

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Restaurants Find Less Is More (Profitable) When it Comes to Square Footage. Heated Competition for In-Line Endcap Mall Space Helping To Fuel Restaurant Downsizing.

When it comes to burgers, bigger is better. But when it comes to burger joints, some believe it’s better not to be too big. Take MOOYAH Burgers, Fries and Shakes chain with a signature build-it-yourself, double-beef patty sandwich that is adding locations across the country. Bill Spae, CEO/president of MOOYAH says ‘big’ box is not necessarily the ‘best’ box to operate within.
MOOYAH has created two restaurant models: one for larger Tier 1 and 2 markets with higher incomes and density, and one for smaller Tier 3 markets. Its newest location in Frisco, TX, is opening in a few days.

“The largest we will build is 2,500 square feet, down about 300 feet from past units,” Spae said. “Our sweet spot for Tier 1 and 2 restaurants is 2,200-2,300 square feet. The smaller model is between 1,800 and 2,000 feet depending on the layout and availability to have usable outdoor seating.”

“While the economy is slightly better, same store sales are still challenged,” Spae said. “The smaller footprint provides an overall reduction in rental cost and construction cost but also reduces energy use, so your overall cost of entry is reduced. Couple that with higher efficiency and I really do not see a reason to return to a larger footprint.”

Spae is not alone. The more sales a restaurant can put through an eatery, the better able it is to spread the lease cost across the board. And with more restaurants thinking the same way, landlords are able to pit more and more potential tenants against each other to compete for the best available spots. That, in turn, is fueling a concentrated rise in rents, particularly endcap locations.

Rather than discourage restaurants from expanding, that rent dynamic is entrenching the ‘less-is-more’ thinking among casual and fast casual restaurant owners.

“The quick serve and fast casual restaurant category is still on fire,” said Garrett Colburn, senior vice president and market leader of SRS Real Estate Partners in Newport Beach, CA. “The fast casual segment has filled up rapidly with all the new burger and sandwich concepts rolling out, as well as a handful of more recent pizza concepts fighting for those 2,500-square-foot endcap spaces. At some point this segment will be oversaturated, but for now the consumer still seems to be hungry for fast casual dining with a reasonable price point.”

Even though rents for such restaurant space have been ticking up lately, it still makes more sense for most such eateries to right-size and pay a little more per square foot than it does to be stuck in a box that’s not right for their business model, Colburn said.

His counterpart in New York, David M. Hochberg, Esq., senior vice president of SRS, says the same thing is happening in the Big Apple.

“I think retailers will continue to seek smaller space to operate, so long as the cost of operations continue to escalate,” Hochberg said. “No one wants to pay more rent.”

“Downsizing cuts not only their expenses but staffing overhead as well,” said Jason Ryals, principal | Northeast Florida of Colliers International in Jacksonville, FL.

In fact, Ryals said, “Downsizing is also occurring in the fast food industry. Land prices for the best locations have skyrocketed and we are seeing a lot of fast food restaurants cutting the size of their building and parking requirements so they can afford the best land parcels.”

“The fast food companies have realized that the drive thru window is their main revenue source so they have less seating and parking and can fit on much smaller parcels. 10 years ago fast food users typically needed an acre to build their 3,300-square-foot building on. Now we are seeing them fit on 0.6 acres with a 2,300-square-foot prototype,” Ryals said.

Source: CoStar Mark Heschmeyer June 12, 2013
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