The Tenants Edge

A Restaurant Recession?

Angel Cicerone - Friday, August 26, 2016

A Restaurant Recession?

Restaurant leasing in on fire. The restaurant business, unfortunately, is not. At least not according to two different articles that appeared this week.

First, The Restaurant Industry Snapshot, produced by TDn2K, announced that July’s restaurant sales represented the weakest performance since December, 2013 in both sales and traffic (same store sales declined 1.4 percent and traffic fell 3.9 percent.) According to the article, this is the “continuation of a downward slide that began after a strong start in 2015.”

Then, a few days later, the Washington Post published an article with this ominous title, “A ‘restaurant recession’ sounds scary. Are we really on the brink of one?” Ouch!

While these articles are primarily focused on chains, I’ll bring my own anecdotal evidence to the table. This year approximately 50 percent of my tenant clients are restaurants which leads me to conclude the malaise is affecting independent operations as well. Large and small, experienced and start up, franchise or independent, record openings and increased competition are leaving restaurants hungry for loyal customers.

The struggles restaurants face are difficult to define or identify. Everyone seems a bit befuddled. The economy and consumer spending are showing modest growth. Why aren’t restaurant sales following?

The Washington Post article had a few theories as to the reasons for the downturn, including it may be “a foreboding sign that consumers are starting to pull back on their spending” and the fact that groceries are starting to look like a good deal these days especially given the expansion and availability of prepared foods.  I’ll add a few of my own thoughts on the reasons for the decline, including the rising popularity of meals in a box like Blue Apron which satisfies the need to eat healthy and at home and the fact that a lot of restaurants are just plain bad. And if they’re not bad, they’re boring. Not a great formula for success.  

My point in all this is, regardless of the reason, there’s a change in consumer patterns that is affecting restaurants which means your centers are potentially affected as well.

            Keep an eye on restaurant sales in your portfolio and 
            look for red flags in sales trends

            Be even more diligent in your vetting of new restaurant
            tenants, especially the independents. Studies show failure 
            rates of 26 to 60 percent in the first year!

            Look for new, interesting concepts that can differentiate a 
            new establishment from the competition.

In good times and bad, the last thing any consumer or shopping center needs is one more mediocre restaurant.

Links to the two articles mentioned above.
The Restaurant Industry Snapshot
Washington Post

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