Change is coming to U.S. food-and-beverage operators—and the real estate they occupy. The F&B sector is evolving and the implications for retail real estate could be significant.
A new analysis by CBRE prognosticates on the near-term outlook for the U.S. restaurant and grocery industries, as well as the potential implications for retail real estate. Factors such as demographic shifts, changing economics and automation trends will compel the food-and-beverage sector to undergo a rapid evolution.
“The food-and-beverage category claims nearly 25 percent of retail sales in the U.S., and few other sectors have expanded their presence in shopping centers as quickly as restaurants and grocery stores,” said Melina Cordero, CBRE global head of retail research. “But this sector is just as susceptible as others to sweeping demographic changes, which we’ll see influence real estate through formats such as grocery-restaurant combinations, more kitchen-only outlets and delivery services.”
Suburbs beat out the urban core
As inner-ring suburbs around the country continue to densify, there is growing demand in these neighborhoods for gathering points—for residents and employees alike. Restaurants, bars and grocery stores are ideal anchors for the mixed-use complexes that can fill this need.
“Typically, restaurants are the initial market movers; whether it be because of less rent or the ability to take more space, some restaurants are drawn to the edge of the urban core,” said Phil Golding, vice president with CBRE. “As a result, these trade areas begin to see growth after a successful destination food and beverage concept opens. The restaurant wins and over time, so too does the neighborhood.”
Suburban residents make up 56 percent of all U.S. households and spend more overall and per household on F&B than city-center (36 percent) and rural (8 percent) households. Suburban households also boast the greatest spending power, with average after-tax household incomes of just under $69,000, 18 percent higher than city dwellers. With a greater higher food-and-beverage spend from the nearby population, and without the higher lease rates that are typical in the urban core, denser, close-in suburbs are poised to make the most of every F&B square foot.
Less time leads to changing food buys
Nationally, single-person households rose to 28 percent last year from 17 percent five decades ago, with growth across most age groups, according to data from U.S. Department of Commerce. Dual-income households are also on the climb, increasing from 25 percent to 60 percent in that span. This changing makeup of the American household has led to a populace with an ever-shrinking amount of time to prepare, cook and clean up meals—a situation that will have implications for real estate.
Convenient restaurant formats like fast-casual and fast-food will likely gain in popularity, while the inclusion of bars and restaurants in grocery stores that offer made-to-order, higher-margin fare can help diversify supermarkets’ share of the F&B sector. Some restaurants are also adding kitchen-only locations that cater solely to delivery and carryout customers. Expansion of convenience-oriented offerings will also be key, from curbside pick-up to automated ordering kiosks.
Millennials dine out more than other generations, but they’re thrifty diners. Currently, Baby Boomers collectively spend the most on food and beverage, and Gen Xers spend the most on a per-household basis.
But as millennials’ wealth constraints ease over the next decade, they will likely spend more on food and beverage, sometimes in volume and sometimes in price. Boomers, meanwhile, are likely to spend less as they progress in retirement. These shifts underscore the need for retailers and retail-center owners to analyze and understand their customer base, often through location-analytics technology, so they can tailor their menus and store locations accordingly.
“We see consumer preferences influencing many facets of retail real estate, including store location; store design to accommodate delivery pickup or prepackaged meals, and different store layouts to incorporate automated ordering and self-service,” said David Orkin, an executive vice president leading CBRE’s restaurant practice in the Americas.
Food and beverage eclipses other retail
As a share of U.S. retail sales, the $1.5 trillion F&B sector has grown over the past decade, from 22.7 percent in the pre-recession period (2000 to 2008) to 24.3 percent post-recession (2009 to 2018). Since 2000, the rate of F&B spending growth has been less volatile than overall retail sales growth rates. Consider that at the absolute nadir of the recession in 2009, non-F&B retail sales slumped by 9 percent while F&B sales remained flat. Additionally, F&B sees lower e-commerce penetration than most other sectors.
The CBRE report predicts that spending at brick-and-mortar grocery stores and restaurants will continue to outpace more traditional retail categories over the next five years. This growth means F&B will occupy a growing proportion of retail space, though the pace of this expansion will likely decelerate compared with the past few years as landlords seek to strike the right balance between F&B, entertainment and more traditional retail offers.