Workers who vacated urban malls to work from home during the pandemic have taken their restaurant to eat with them, and it is not yet clear how much they will return to.
A Pew Research survey in January found that 59% of workers who were able to work from home do so, and most would like to continue working remotely. Compounding the impact of remote work is the fact that many consumers have also moved from the country’s largest cities to live in suburbs, suburbs, and rural areas.
These shifts present challenges and opportunities for the restaurant operators of the NRN Top 500, as they attempt to assess where to invest in unit growth and assess the future potential of locations that relied on pre-pandemic patterns of work, mobility and home life.
Some operators have doubled their investment in suburban locations, while urban sales have lagged, although there are signs of urban sales returning.
Shake Shack, for example, reported that sales in its home market of New York City fell significantly in 2020 and 2021, compared to 2019, but suburban and urban locations showed same-store sales growth in the first quarter of this year. The company said on a call with analysts that same-store sales in Manhattan, for example, rose 35% in the first quarter, while other urban markets, including Las Vegas and Washington, DC, were up more than 20%.
Suburban sales also continued to grow, on top of comparisons with double-digit store sales gains a year ago.
“We continue to encourage our opportunity in the suburban markets as we continue to develop and evolve shapes,” said Catherine Fogerty, Chief Financial Officer.
The company achieved 19.1% unit growth and 41% sales growth in 2021. It has expanded both in traditional suburban locations with its new drive-through formats, and in unconventional locations such as sports stadiums, airports, and highway rest stations.
The Los Angeles-based chain also stressed the suburban unit’s development potential, after unit growth was essentially flat (down 0.7%) in 2021. On its first-quarter earnings call, the company said 90% of its line Its 2022 development pipelines are on suburban sites.
Sales in the company’s suburban stores remained strong, while urban store sales rebounded after taking a hit from declining sales from a dearth of office workers in the past two years.
“With our urban stores recovering, we haven’t seen any change in suburban stores, which is really encouraging,” said Mitch Ryback, chief financial officer.
Competition chain Just Salad said it plans to focus on developing the new units in both urban and suburban locations. The New York-based company plans to have nearly 20 company-owned restaurants in 2022, after adding six net new locations in 2021, for a total of 47.
“We are seeing great success in the suburban and urban markets,” he said. CEO Nick Keener in a recent interview with NRN.
Much of the company’s expansion will occur in existing markets such as Florida and the New York Tri-State area.
“The white space is obviously huge,” Keener said at suburban markets. “We’ve evolved very seamlessly from a purely urban concept to one that works equally well in a suburban landscape.”
Other concepts, including Yum! KFC For Brands, Take a Closer Look at Opportunities in Urban Markets. The company last year revealed plans to expand aggressively in select cities, including St. Louis, New York City and Baldwin Park in California.
The chain is rolling out stores to urban markets featuring a new embedded design with a strong focus on take-out as part of its Next Generation Store initiative.
Overall, the top 500 chains that recorded unit growth in 2021 have a distribution in restaurant locations between urban, suburban and rural locations that closely mirror the entire industry, said Mark Brando, associate director of content at Datassential.
More than half of the growing chain restaurants – 50.7% – were urban, versus 49.7% for the industry as a whole. Meanwhile, 38.6% of growth chain locations were suburban (versus 38.9% for industry), and 10.7% were rural (versus 11.4% for industry).
“There is no neat, tidy association between concentration of locations in a geographic region type and sales growth,” Brandau said. “Instead, sectors that are growing rapidly have a logical geographic footprint for those restaurants.”
For example, full-service seafood/steak restaurants provide a plus indicator for urban markets; Full-service American restaurants (mostly casual restaurants/bar and grill restaurants) with a plus-index for suburban markets; He explained that health authorities/restaurants with limited service are highly concentrated in urban areas, and much less so in rural areas.
Brandau also looked at data by geographic region, which revealed that the most rapidly growing chains had a distribution in markets across the United States.
Utah over-indexed growth chain restaurant sites, at 135, with 100 being the average for all states. It was followed by Washington, D.C., with an index of 131, Montana at 124, Michigan at 123, and Maryland at 118.
“Every region has a few states that are over-indexing growing brands’ positions relative to the entire industry,” Brandau said, adding that some of the most populous states are under the index with a subset of the growing chains, including California (index of 97), Texas (92), Florida (99), Pennsylvania (89) and Illinois (99).
Among the major metro markets, growth chains also had a diversified presence. New Orleans has the highest rating at 136 for having chains growing among the Top 500, followed by Salt Lake City at 133, New York City at 122, Cincinnati at 121, and Baltimore at 120.
“Sometimes the Commerce District benefits from having a local star, as New Orleans does with Walk-On’s Sports Bistreaux, Smoothie King, and Raising Cane’s, all of which are located in Louisiana and have a lot of high-performance stores in the market and across the board,” Brandau said. Same for Salt Lake City, Beans & Brews, Crumbl Cookies, Cafe Zupas, and Cafe Rio.”
The Top 500 report is provided by Nation’s Restaurant News and Datassential, using insights from Datassential’s owned Firefly platform. Datassential’s Firefly is the ultimate strategic tool – the #1 player database, lead generator, customer marketing and intelligence platform all in one. Learn more about full access to datassential.com/firefly