National restaurants, entertainment will expand in limited locations

May 22, 2019

It’s possible to attract a new full-service national restaurant to a community – but only on a limited basis.

Several Sioux Falls brokers are meeting with restaurants this week at RECON, the retail real estate industry’s largest annual conference, pitching them on various sites citywide.

But landing them in a time when many are in slow growth mode will require all the right ingredients.

While Starbucks is still planning to add hundreds of locations this year, most food and beverage providers are projecting much smaller numbers, according to Garrick Brown, head of retail intelligence for the Americas at brokerage firm Cushman & Wakefield.

“There’s nobody with huge numbers,” he said. “If you look at Burger King, McDonald’s, it’s basically flat growth, putting their capital expenditure budget into automation and touch-screen menus.”

Burger King, Taco Bell and Jack in the Box are all estimating about 30 to 50 new locations this year, he said.

Shake Shack will add 40 locations this year and hasn’t yet reached markets the size of Sioux Falls.

“Shake Shack, for hot retail concepts, is definitely something to watch,” Brown said.

“And Chipotle is back in growth mode, with 100 new locations.”

Some full-service restaurants also are slowly expanding. Brown points to Cheddar’s Scratch Kitchen, which is owned by Olive Garden parent company Darden Restaurants, and BJ’s Restaurant & Brewhouse, which markets itself as a Southern California-inspired concept specializing in Chicago-style pizza.

“But typically we’re seeing less than 20 units (added per year) if they are in growth mode,” Brown said.

Labor challenges have impacted the restaurant industry, he added, and some chains are focused on converting corporate locations to franchised ones.

The fast-casual restaurant format “is slowing because of market saturation,” Brown said. “And there’s increased competition from food halls popping up everywhere. We’ve seen at least 75 of them opening this year, so it’s taken off, and it’s no longer a giant market thing.”

The new concept from Look’s Market being built in the former Callaway’s is the closest the Sioux Falls market has seen to a food hall.

“We had a stretch from 2010 to 2015 where we had in the neighborhood of 30,000 restaurants opening a year across the country,” Brown added. “There’s a lot of food out there. And if you’re a good or great concept, you’re fine, but the fact of the matter is even though people are eating out more than ever, the pie didn’t get that big. So growth is slowing, and I think it’ll continue to slow until we get to the next downturn.”

Restaurants and bars that combine an element of entertainment such a large arcade and other recreational games are continuing to expand, he said.

“Dave & Buster’s would arguably be the grand-daddy, and they’re talking about 25 new locations,” Brown said. “Punch Bowl Social is doing 10 or 15.”

Both concepts started with a 40,000-square-foot format and are rolling out smaller versions better suited for some markets, he said.

Otherwise, the retail industry is seeing a lot of one-off entertainment-based concepts, he said. That includes bowling centers and ax-throwing bars.

“They’re doing well and are fun,” he said. “The trick is to see if they have legs when they’re not the corporate team-building event of the year.”

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National restaurants, entertainment will expand in limited locations

It will take just the right ingredients to draw new national restaurants and entertainment concepts to town, but here’s who is slowly growing.

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