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Restaurant Unit Growth Put On Back Burner, But Some See Post-COVID-19 Real Estate Opportunity Ahead

The outlook for post-COVID-19 restaurant expansion remains cloudy, but a slowdown in new-unit development is inevitable, according to operators and observers.

Photo Courtesy of NRN.

Some operators that were well-financed before the pandemic and have business models that support off-premise dining could be poised for growth.

Restaurant companies that shut significant portions of their operations down during the crisis will be focused on the massive effort that will be involved in reopening, including rehiring and retraining staff, implementing new safety precautions and monitoring regulations.

Operators seeking to expand will also face challenges working with landlords who are dealing with complex issues. Anchor tenants such as movie theaters or department stores may pull out of some developments.

As many existing restaurants are likely never to reopen, some in the industry foresee more favorable terms extended by landlords eager to fill vacant properties.

The market may turn into a tenant's market rather than a landlord’s market. That will likely translate into more substantial improvement allowances for restaurant tenants.

Some operators say they are well-positioned for expansion in the post-COVID-19 environment.

Ursula Lane, director of franchise recruitment at Checkers & Rally’s, said that concept’s focus on drive-thru service bodes well for the current environment and for the post-COVID-19 future. The Tampa, Fla.-based company had already been refining its concept to speed its drive-thru and increase kitchen efficiencies before the crisis, she said.

“I think that our little closed-kitchen, drive-thru concept is built for the ‘new normal,’” said Lane.

Yet even with a concept that appears ideally suited for the new environment, Checkers & Rally’s is scaling back its new-unit development plans by 10-15%, she said.

Photo Courtesy of NRN.

Denver-based Chipotle Mexican Grill is ramping up expansion of its Chipotlanes concept, which allows customers to order ahead on the app and pick up their orders in a drive-thru lane. Pick up orders at Chipotle inside can be accessed via lockers.

But many full-service restaurants are taking a more measured approach to new-store development. Glendale, Calif.-based Dine Brands Global Inc., parent of the Applebee’s and IHOP chains, said in a recent earnings call that there were still too many variables to forecast future growth.

A key question at this stage, however, is whether or not operators will be willing to invest in solutions that may provide only a temporary fix. What if a year from now, consumers are flocking back into restaurants, and delivery becomes an afterthought?

2020 NRN.

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