How Restaurant Operators Can Leverage Real Estate
To fuel growth. Careful planning is essential for successful expansion. Real estate strategy plays a critical role in the increasingly competitive restaurant industry, where success is often dictated by location and customer experience. For restaurant operators, leveraging real estate strategy effectively to meet your brand growth and unit sales goals is pivotal and can be the difference between thriving and merely surviving. Here’s how restaurant developers and operators can harness the power of real estate to fuel growth. Location, Location, Location. Site selection is critical in setting your restaurant up for success. Choosing the right location can drive customer traffic, increase brand visibility, and enhance your ability to fuel future growth. When selecting a location, you should consider factors such as:
- Customer Insights—the area’s population should align with your brand and target market
- Traffic Patterns—high traffic areas, such as shopping districts or nearby offices, can drive spontaneous visits from potential customers
- Site Accessibility—easy in and out, ample parking, nearby public transportation, a step-free entrance or wheelchair ramp can increase convenience for customers
- Anchors and Co-Tenants—market analysis of consumer behavior in the area is key; being near complementary businesses can be beneficial, as can being nearby restaurants that serve different fare but attract the same customer lifestyle habits
When selecting a site, I always say to exercise discipline by always being in active search mode, knowing your sweet spot, and grinding out the details and data on each site. The market is competitive, and inventory is limited, but it’s important to ensure that the site you’re considering fits your brand; don’t try to fit it into a site. Just because something is cheaper or seemingly ready to go, doesn’t mean it’s the right fit for your restaurant and you’ll likely be setting yourself up for lower performance right from the start. If you’re part of a franchise system, many franchisors offer site selection support and have resources and a dedicated team to help you choose the best site for your restaurant.
What Restaurateurs Need To Know About SBA Loans
SBA loans empower entrepreneurs through the lending process. Restaurant owners launch with a lot of optimism but rarely with enough capital. And the reason is almost always the same: business plan projections were based on what they want to have happen vs what will realistically happen. Too many restaurateurs are convinced their establishments will be filled from day one. They won’t. Even when there’s excitement surrounding the opening, sustaining momentum, and building a customer following takes time. Meanwhile, for serious owners, they must find a way to overcome a shortfall of cash. Very often, SBA loans are a good way to proceed because they are designed to empower entrepreneurs through the lending process. Here are three ways that SBA loans are different from bank loans and how this type of lending can make a difference in your launch and growth. First, it’s important to note that the SBA doesn’t lend money themselves. Rather, they are a guarantor to financial institutions who have been named SBA-approved lenders. This makes it easier for new and expanding restaurateurs to get funding, especially if there is any perceived increased risk associated with the business. For example, if you are a first-time restaurateur, most banks have policies that prohibit lending to new or “start-up” businesses and the restaurant business is particularly difficult, so when a lender has a government backed guaranty on the loan, it can make them more comfortable with the increased risk that a new venture creates. There are many other risk factors that may lead a lender to decline a loan. A shortfall in collateral, the need for a longer repayment term or limited cash available for a down payment are just a few. All of these might be overcome when the lender is provided an SBA guaranty of up to 75 percent of the loan amount.
Bielat Santore & Company – Restaurant Industry Alert
OCEAN COUNTY, NJ TAVERN-RESTAURANT FOR SALE
Photo used to illustrate “Roadhouse Tavern-Restaurant” only and not actual representation.
Ocean County, NJ “Roadhouse/Tavern”; highway location; 35-year operational track record; quality food & spirits in casual surroundings; seats 124 dining + 76 at bar/lounge + 40 outdoor; 22 Flat Screen TV’s; small package good store; business climbing back up to pre-covid gross sales of $2M; 50/50 food & liquor; real estate included in sale; financing available to qualified.
Contact Richard Santore 732.531.4200 for additional information.
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Restaurants Don’t Have to Wait for Gen Z Any Longer
The generation is fully part of the spending picture today for restaurants. Catering to Gen Z preferences is no longer a topic to stash on the agenda. According to an article in Forbes, in 2022 nearly a third of 25-year-old Americans were homeowners, outpacing millennials and Gen Xers at the same age. By 2030, Luxury spending is expected to grow three times faster than other generations, per Bain & Company. That would claim a third of market share. The reason this is happening, the consultancy said, is younger generations are entering the luxury market earlier. While millennials began indulging between the ages of 18 and 20, Bain & Company noted, subsequent groups have done so by 15. It comes down to access, as McKinsey pointed out: Tailored loyalty programs that offer exclusivity; omnichannel connectivity that blends physical and digital sales platforms; and an emphasis on brand building through events and social media. Although the article was mainly in reference to luxury brands like Dior and Prada, restaurant dining fits into the conversation as well. Eating out is often labeled an “affordable luxury,” as are those $6 drinks consumers buy on Tuesday afternoons as an indulgent break. The same could be said of delivery, nights out with friends, and more life moments where restaurants promise experiences for a generation that gravitates toward environments to self-brand and connect. Ordering ecosystem Deliverect recently surveyed more than 3,000 Gen Z consumers to explore generational dining habits, including how and why guests prioritize food from restaurants as part of their budgets. “Gen Z presents a unique, yet vital, opportunity for restaurants; and as the summer season quickly approaches, restaurant owners need to do what they can to win over Gen Z’s share of wallet,” Deliverect cofounder and CEO Zhong Xu said in a statement. “Building trust and offering delicious food at a fair price is the recipe for success with this generation. In today’s competitive restaurant landscape, understanding Gen Z’s dining habits allows restaurateurs to tailor their offerings and marketing strategies to attract and retain this important customer base. Embracing value for money, leveraging the power of user-generated content, and catering to their desire for convenience, especially on weeknights, are core principles that will help restaurants remain a top spending priority for Gen Z and beyond.”
The Restaurant Industry Today May Feel Broken
But the new age of dining is coming. Going out to eat isn’t what it used to be. Dining has become a wallet-busting ordeal for patrons and a constant struggle with negative margins for restaurant operators. Skyrocketing ingredient prices, increasing operating expenses, tipping fatigue, higher experience expectations and growing price sensitivity are reshaping the industry. Restaurant operators, who pour their blood, sweat and tears into their work, face (what feels like) insurmountable pressure and are scrambling to maintain their customer appeal while trying to stay economically viable. Is this the end of dining? No. But the challenges facing consumers and businesses alike must be addressed. Our company’s slogan is “Food. People. Nothing in Between,” but the reality is that we’re facing a lot of things “in between” right now. Is there one particular person, business or economic situation to blame? Unfortunately, no. So many factors are at play. But what is clear is that we as an industry can’t keep doing business as usual. For example, efforts to attract customers with deep discounts and promotions, such as Red Lobster’s all-you-can-eat shrimp campaign, have backfired, causing economic strain rather than boosting profitability. This situation underscores a critical point: Superficial fixes are not the solution. Instead of relying only on pricing strategies, restaurants should prioritize memorable customer experiences to achieve sustainable profitability. The future is customer-centric. And those consumers crave speed, convenience, and quality in their dining experiences. When restaurants prioritize these factors, everyone wins. Here’s what’s going to differentiate restaurants from their competitors.
Why Sale Leasebacks are an Attractive Capital Source
For restaurant owner-operators. The cost of debt capital has more than doubled over the past two years thanks to the rate hikes prompted by Federal Reserve open market operations. For many restaurants, this increase has impacted profitability and presented a barrier to supporting the rebound of the food service industry. An attractive financing option that restaurants with owned real estate can consider is a sale leaseback. These transactions are often considered a hybrid capital alternative, and with debt markets functioning well but still expensive, SLBs are now even more attractive on a comparative basis. A number of restaurant chains have executed sale leasebacks to fund their growth initiatives in recent years. One is Red Robin, which has sold and leased-back 27 of its properties in a series of transactions over the last 12 months, raising a total of $84 million. The company used the proceeds to reduce debt, fund capital investments, and support share repurchases. Two other examples are an $18 million portfolio of seven Taco Bells in Ohio, and a portfolio of six Zaxby’s locations in the Southeast totaling $13.4 million, both in 2022. Sale leaseback transactions involve the selling of owned properties and then simultaneously leasing them back from the buyer under a long-term lease, unlocking valuable capital that is tied up in real estate. This freed-up capital can then be used to fund M&A, new unit development, and to pay down debt, among other use cases. What makes sale leasebacks a readily accessible alternative is this: 1) real estate is a stable asset class with a readily discovered value and a reasonably high degree of liquidity and 2) sale leaseback investors are well-capitalized and actively looking for properties to purchase.
Managing Your Restaurant Brand with the Power of Technology
Brand inconsistency can be the downfall of a business. In the competitive restaurant industry, a balanced blend of brand consistency and operational efficiency is the recipe for sustained success. Specifically in the case of multi-location businesses, maintaining consistent brand marketing will help to stand out amongst the crowd, resulting in brand loyalty among consumers and an array of other benefits. In today’s digital era, it’s no surprise that technology is the secret ingredient to enhancing marketing strategies for restaurants. From signage to targeted digital promotions to menu design, using technology can ensure that every marketing asset resonates with the brand’s overall message and identity. Brand inconsistency can be the downfall of a business, which is why platforms that streamline marketing initiatives and processes are crucial. These platforms enable centralized management of branding assets, ensuring that all locations apply the same visuals and messaging—with so many restaurant brands having locations in different regions of the country, this is an especially helpful feature. Additionally, utilizing technology allows businesses more insight on customer trends and behaviors, which gives a leg up on competitors who aren’t receiving any feedback or analytics on their marketing and branding efforts. Ultimately, leveraging technology not only benefits operational efficiency but also strengthens brand perception and customer engagement across all locations, which gives a brand a competitive edge in a crowded market. Effective brand management requires consistent and cohesive visual and digital assets across all touchpoints, from in-store signage to online/social media marketing campaigns.
Understanding Legality of Non-Alcoholic and Cannabis-Infused
Beverage trends. There has been a lot of fluidity in the beverage sphere over the past few years with the rise of mocktails and other nonalcoholic experience. In 2023, off-premise sales of non-alcoholic beer, wine, and spirits topped $565 million, according to NielsenIQ, which was a 35-percent increase in dollar sales from the prior year. Alternatively, there’s been an uptick in the cannabis-infused beverages market – with the $2.04 billion market in 2023 projected to grow to $3.09 billion globally. What do restaurants need to understand and meet the needs of these potential guests? To learn more, Modern Restaurant Management (MRM) magazine reached out to Greenspoon Marder. In addition to advising beverage retailers, suppliers and wholesalers in the hospitality industry, the firm represents public multi-state operators, state-licensed dispensaries, cultivators, infusers, distributors, new social equity entrants, ancillary businesses, and those looking to enter the cannabis space. Brad Berkman is a member of the Hospitality, Alcohol and Leisure Industry Group at Greenspoon Marder. He concentrates on providing guidance to all tiers of the alcohol beverage industry, including suppliers, wholesalers, and retailers. Irina Dashevsky is a partner and co-chair of the Cannabis Law practice group at Greenspoon Marder. She advises clients on legal, regulatory, and legislative developments in the highly regulated and competitive cannabis industry. During the pandemic, many states relaxed laws on the sale of cocktails to go for restaurants and many of these laws were then put in place as they were an economic landline. What is the status of this as a nationwide trend and what are the risks and benefits? Many of these laws remain in effect around the country. Only a few states have allowed pandemic era cocktails to go legislation to lapse. For restaurants, this has been an economic success and many restaurant associations have effectively lobbied for these laws to remain in effect. Clearly, the benefit to the restaurant is economic leading to increased sales volume and profitability. As we know, alcohol sales are a strong profit center for restaurants. Risks include potential cannibalization of traditional package store sales and the sale and delivery to underage consumers of alcoholic beverages.
Did You Know?
How to maximize restaurant growth through strategic real estate investments. The restaurant industry is intensely competitive, and growth isn’t just about great food and excellent service. Real estate investments play a crucial role in the success and expansion of a restaurant brand. Here’s how you can maximize restaurant growth through strategic real estate investments. Location is a determining factor for most businesses, and for restaurants, it’s paramount. The success of a restaurant often hinges on its visibility, accessibility, and surrounding demographics. A strategic real estate investment can enhance foot traffic, brand visibility, and ultimately, sales and profits. One of the pivotal decisions in real estate investments is choosing between leasing or buying the property. Both have their pros and cons:
Employee Tip
Labor advocates air the demands they’ll push on California’s fast-food restaurants. In addition to a 3.5% hike in the sector’s minimum wage, union representatives say they’ll press the state’s new Fast Food Council for pay protections, predictive scheduling and a louder voice. Labor forces controlling four of the nine seats on California’s Fast Food Council have revealed what workplace concessions they’ll seek in addition to a 3.5% hike in the minimum fast-food wage when the quasi-regulatory agency meets on Wednesday. Included on the list are more restrictions on changes in fast-food work schedules; guarantees that fast-food workers will get the pay due them should their employer sell or close the business; a crackdown on employers who violate current workplace regulations, including safety measures; and the systemization of a way for fast-food workers to communicate more readily with the Council.
