I can drive 10 minutes in any direction from my house and come to a screaming example of the modern restaurant industry.
To my north is a Taco Bell with what will be four drive-thru lanes. To my west is Shake Shack’s first drive-thru in the company’s history, shoehorned in a site next to a Portillo’s. To my south is a Raising Cane’s, being opened outside of a mall because the Cane’s location just five miles to the north frequently has a line that wraps around the building twice.
And that location is near a Chick-fil-A, currently being constructed with multiple drive-thrus, out of a closed Perkins.
Demand for drive-thru real estate, already soaring before the pandemic, is basically insane right now. “It’s a tight, tight market,” Barry Wolfe, senior managing director of investments for the real estate investment firm Marcus & Millichap, said on a recent episode of the Restaurant Business podcast “A Deeper Dive.”
Unsurprisingly, this is affecting how much operators will pay for this real estate. In short, more. “Anything with a drive-thru or the capability to put a drive-thru, the land prices are going through the roof,” Wolfe said. “If the drive-thru is already there rents are going through the roof.”
“It’s only going one direction, up,” he added.
The big question to me is whether this real estate market will ultimately lead operators into paying more for the real estate they get than they really should.
The restaurant industry historically jumps quickly and aggressively into trends, often pushing higher prices that end up biting them later on. For years, they could not get enough fast-casual restaurants. That led to heavy demand for in-line real estate, particularly real estate in hip, urban areas. Unsurprisingly, a number of fast-casual concepts got themselves into some bad deals.
These days, everybody wants to add a drive-thru. Fast-casual chains, which for a long time eschewed the idea of drive-thrus, not wanting to be too much like traditional quick-service restaurants, are now embracing their fast-food roots—even if they give them fancy names like “Chipotlane.” Starbucks wants more drive-thrus. And suddenly drive-thru-only ideas are all the rage. Even Jimmy John’s is trying it.
One problem is that all this is coming toward the end of a pandemic that drove a lot of sales toward those lanes. A number of people simply do not want to go into restaurants at the moment. But they still want restaurant food. But that business could shift back into a more normalized direction. Thus, we wonder whether a lot of this effort is made based on a temporary business environment.
That said, this has been a long-term trend. Business has steadily shifted toward drive-thrus as fast-food chains for years and it’s only natural that fast-casuals would follow suit. This was a trend before the pandemic. “It was where the market was trending,” Wolfe said.
One notable thing about drive-thrus is that they just about always increase business. Add a lane and revenues go up 20% or more, regardless of the kind of concept you have. The simple fact is, a lot of customers don’t like leaving their cars for their takeout food regardless of whether there is a pandemic. That makes such sites a safer long-term bet. And Wolfe, for his part, doesn’t believe restaurants are taking things too far, at least yet.
But it’s not as if these sites are readily available. And despite apparent consumer demand for drive-thru sites, some communities still want to keep them from opening. Minneapolis recently moved, again, to block the reopening of a pair of Burger King drive-thrus because of its ban, passed in 2019.
To overcome this, operators will need to get creative. Because the sites they thought would be available are not available. So they’ll need to look at locations they might not have looked at before. They may have to look at banks or end caps of strip malls. Or old Perkins restaurants.
“In the early stages of COVID, March, April, May 2020, national brands, stronger national brands like Chick-fil-A and Raising Canes, thought they were going to have this phenomenal opportunity to nab second-generation sites,” Wolfe said. “They just thought there was going to be this flood of drive-thru opportunity."
“It never came to fruition.”