Foodservice Cooks Up 'Halo Effect' for Retail Real Estate

By Mae Velasco, Associate Editor

To say foodservice has been cooking up some growth would be an understatement. According to a study by the International Council of Shopping Centers (ICSC) and Business Wire on Yahoo! Finance, the foodservice industry is "expanding at an exponential rate with the amount of space dedicated to food growing from [5] percent a decade ago to 15 percent today." By 2025, this trend is expected to hit 20 percent.

Why could this be? Well, no one cooks anymore. In 2016, the United States economy flipped on one of its longstanding traditions — there were less grocery store sales made than sales at restaurants and other food and drink establishments. The pattern of buying and cooking at home, one that has been established since the 1970s, was outpaced and shifted, largely due to more female participation outside the domestic labor force  and other social changes.

This restaurant versus grocery store switch isn't just in U.S. borders. Europe and Asia are following this trend, as well. And with restaurants being more in demand, the National Restaurant Association reports there will likely be 1.6 million new restaurant jobs created by 2027.

“The increasing popularity of dining out is revitalizing retail real estate around the globe by creating a true sense of community where people can go out to dinner, take in a movie and shop, all in one place,” President and CEO of ICSC, Tom McGee, said. “Centers that are strategic and innovative when incorporating foodservices are sure to reap benefits such as increases in foot traffic, dwell time and number of visitors.”

Mark Chase, founder of Restaurant Real Estate Advisors, agreed. Along with foodservice elevating retail centers, he believes restaurateurs should take note of the growth of food halls when it comes to retail real estate.

"Online shopping has forced many retailers to downsize or close. Many shopping center owners have had to rely on restaurants and entertainment to fill vacancies. Foodservice has been very positive for retail and shopping center owners," Chase said. 

The Halo Effect of Foodservice

Still, space is finite, even if restaurant popularity is growing. What are the implications of this global and fundamental change? Moving forward, landlords will need to address several challenges when innovating foodservice into their retail space.

How they will need to support restaurant operators will be different from how they will interact with other traditional retailers, because while "restaurant and bars do not necessarily equate to success for shopping centers," there's no denying that foodservice drives shopper traffic. This dwell time boosts overall spend and sales growth, the ICSC study determining that the restaurant industry causes the "halo effect" — an impression on a topic in one area influencing opinions in another — on retail real estate.

The Future of Foodservice in Shopping Centers

“The last 10 years have enabled us to understand change and what the challenges are; the next 10 years are about implementing that change," Jonathan Doughty, Head of Foodservice Consulting at JLL, said. "Whatever change we have seen in the last decade will be dwarfed by the transformation coming in the next decade.”

With foodservice and retail real estate still beginning to mold together, what can we expect in the future? Consumers are becoming more involved and interested in food trends, demand better service and quality, and are increasingly integrating technology in their everyday experiences. Based on the ICSC study, here are some areas foodservice and retail real estate professionals can consider when planning to seamlessly integrate their operations. 

Food Trends

  • Keep it casual. The popularity of street food, upscale fast casuals, and diverse casual dining has called for a "casualization" of foodservice. Finer dining restaurants have taken steps to become less formal in order to fit the busy consumer schedule. White-cloth tables are no longer synonymous with Michelin-starred. For example, Speceriet in Stockholm offers a relaxed setting next door to its Michelin-starred sister restaurant and Hong Kong Soya Sauce Chicken Rice and Noodles in Singapore is a Michelin-starred street food operator that proves success exists in the casualization spectrum.
  • Back to our roots. Consumers are drawn to food with a story. As a result, chefs, restaurants, and retailers are looking toward cuisine that go back to traditional cooking methods, locally sourced ingredients, or ones that celebrate nostalgic culinary styles. Trends such as smoking food and drying and curing are old-school thoughts making their way back to the modern world. And others, such as Chef David Chang's Momofuku family of restaurants, pays tribute to his humble beginnings in Japanese ramen bars.

Technology

  • Efficiency and analytics. Technology is important in improving customer service, in foodservice, in retail, and foodservice in retail. Not only is tech valuable in streamlining service — cutting down wait times with ordering apps and tablets — but analytics allows brands to measure and drive performance. Tech can also retain guests in the shopping center by providing a more efficient dining experience. 
  • The reality of virtual reality. In both the foodservice and retail space, operators are getting hyper-personal. It's more than just social media — restaurants and retail stores are diving into the online addictions of consumers by creating a virtual reality presence. Whether through toying with campaigns like the Pokémon Go craze, offering virtual tours, or even interacting with guests through augmented reality, tech is taking over.

Tips for Restaurant Operators

So, as foodservice and retail real estate continue to go through this evolution, what are the top things restaurateurs should keep in mind, especially when it comes to choosing a retail location?

"Focus on visibility,  easy access, and convenient parking," Chase said. "If you are opening a new restaurant, it's important to build the right team that understands leasing, permitting, and construction for restaurants. There are so many hidden traps that can cause delays and unforeseen expenses." 

  • Location matters. Much like Chase mentioned, the study recommends having a solid location strategy, particularly when trying to attract foot traffic in a congested retail center. While foodservice categories such as "refuel and relax" operations like coffee shops should be dispersed, fast casual, fast food, and casual dining locations are typically clustered together. Gourmet and finer dining establishments tend to be at entry and exit points.
  • Avoiding the restaurant bubble. There is a talk about oversaturation in the restaurant market, especially because landlords are giving space over to food due to the potentially "choppy" performance of traditional retail stores. Still, the foodservice structure will find ways to once again adapt. 

“To be successful, businesses must support smart expansion and understand how demographic behavior and regional preferences impact which foodservice providers they choose,” McGee said. “The future for foodservice is bright, and with the right approach, a shopping center can build the type of experience that consumers desire.”