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Remote Work Presents Opportunities (and Challenges) for Suburban Restaurant Growth

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 Exterior of the Stamford, Connecticut storefront of Dig.

For the past few years, DIG has been opening new locations in the commuter suburbs of the urban areas where it already operates restaurants, including New York and Boston. — Dig

Why it matters:

  • Post pandemic, more than half of U.S. employees (52%) are working in hybrid office/work-from-home environments, according to Gallup.
  • Restaurant chains including Chipotle, CAVA, and others have seen customer visits to suburban stores closer to where they live ‘significantly outpace’ visits to urban stores in recent years, according to Placer.ai.
  • At the same time, at fast-casual chain DIG, lunch volumes have slid to about 65% of sales, versus an estimated 85%, in part due to increased remote/hybrid work, which requires a different operational approach, its CEO said.

As workers settle into new hybrid or work-from-home routines, they have also adopted new restaurant habits.

Restaurant operators such as DIG (formerly DIG Inn), CAVA, and Sweetgreen, which have long been lunchtime destinations for downtown office workers, are leveraging this to their advantage as they build out stores in both urban and suburban markets.

More than half of workers (52%) that have remote-capable jobs are working in hybrid office/work-from-home environments, and 27% are working completely remote, according to a Gallup poll. That compares with 32% who were working in hybrid environments and 8% who were fully remote in 2019.

The shift has created tremendous challenges for office landlords and other businesses in urban centers and downtown areas that have long depended on the spending of these workers. Among the most heavily impacted have been the restaurants where workers grabbed their morning coffee, ordered lunch, and sometimes met with friends and coworkers after hours for dinner and/or cocktails.

As many of these workers have dispersed to more suburban and rural areas to work from home, some restaurant operators have adjusted their growth plans and made efforts to follow their customers to these outer areas.

 Exterior of a suburban Cava location.

Cava began exploring more suburban development before the pandemic, and has found success in both urban and suburban markets. — Cava

Restaurants follow customers to suburbs and ‘urban donuts’ in the remote work economy

Daniel Diebel, Economist at CBRE Econometric Advisors, said he’s seen more restaurants looking for sites in suburban areas, including more delivery-only concepts such as ghost kitchens, commissary-like facilities where restaurant items are made, often for both takeout and delivery.

Not all restaurants are rethinking their real estate plans, however. Some of the more upscale restaurants and cocktail bars, for example, remain largely focused on what he called the “urban core,” or in some cases the area between downtown business centers and the suburbs, which he called the “urban donut.”

Areas near suburban coworking facilities have also attracted restaurant development, as many workers appear to be opting for more flexible office workspaces closer to home.

Mobile foodservice concepts, such as food trucks, have also benefited from their ability to relocate to be close to their customers, Diebel said.

He sees the migration to the suburbs as a long-term opportunity for restaurants.

“We think this more hybrid working environment is going to persist,” said Diebel. “Once consumers find something they like, they continue to do it.”

Among the challenges that restaurants face as they seek to move to more suburban locations is the lack of available real estate, Diebel said. In fact, recent CBRE research of its own properties found that for the first time, urban real estate availability has exceeded suburban availability.

“There is a lot of competition and demand for these prime retail spaces, and a lot of that is from restaurants,” he said.

[Read: Future Shop: Retail Innovations That Will Change How Consumers Spend in 2024 and Beyond]


Pre-COVID, the company was very focused on a city footprint and primarily a New York City footprint. COVID changed consumer behavior— I think forever, frankly.

Tracy Kim, CEO, DIG

DIG-ging into the suburbs and going beyond lunch: ‘The business is much more spread out throughout the day’

DIG, for example, a New York-based restaurant specializing in hot and cold bowl dishes made to order and a staple lunch destination for many of the city’s office workers, has shifted its sights for new restaurant development to the suburban areas where its customers have relocated, said Tracy Kim, CEO at the 32-unit chain.

“Pre-COVID, the company was very focused on a city footprint and primarily a New York City footprint,” she told CO—. “COVID changed consumer behavior— I think forever, frankly.”

So, for the past few years, DIG has been opening new locations in the commuter suburbs of the urban areas where it already operates restaurants, including New York, Philadelphia, Boston, and Washington, D.C. Recent openings include locations in the suburban towns of Stamford, Connecticut, and Bridgeport, N.J., and in the Washington, D.C., suburbs of Bethesda, Maryland, and Ashburn, Virginia. It has also expanded into more urban residential and mixed-used areas of cities, including City Point in Brooklyn and Georgetown in Washington, D.C.

“We’re trying not to go too far from home, but it’s certainly a different use case, a different demographic, a different consumer type, and certainly a different market than where we’ve historically gone,” said Kim.

The transition to more suburban markets does introduce some new challenges, however, including the lack of population density in suburban markets. That has led the company to look at potential deals carefully to ensure that the projected costs are in line with projected sales volumes, Kim said.

Another shift the company has seen is a shift toward more all-day use of the suburban locations, as opposed to the lunch-heavy traffic that the company draws at its urban sites. While urban locations had generally generated 80-85% of their sales during lunch before COVID, the percentage has shifted closer to 60-65%, Kim said, and it’s even closer to 50-50 in suburban locations.

“The business is much more spread out throughout the day, so it requires consistently being quote-unquote ‘on your game,’ all day, but in a slower paced way,” said Kim. “It’s like the difference between a sprint and a marathon.”

Suburban locations also require more on-site dining capacity, she said. While urban customers are more likely to eat lunch at their desks, suburban diners are more likely to seek a place to stretch out and eat on-site, and often visit with small children, including some in strollers.

“Some of these things we’ve never thought about with our urban footprints, which in general are much smaller,” said Kim. “Having that look and feel of the dining room is critically important, because many people want to stay and enjoy the meal there.”

The same goes for parking space, which isn’t necessary in most urban locations but is critical in the suburbs.

Another difference between operating in urban and suburban locations, she said, is the ease with which the company can share staffing among its urban stores because of their relative proximity. In New York, for example, if one location is short-staffed one day for some reason, it’s relatively easy to find a replacement worker from another store. In the newer, suburban locations, that’s generally not feasible.

Kim said the company is confident that it is making the right move by focusing its growth on more residential areas, however.

“We’re excited about the trajectory that we’re on,” she said. “We’re definitively in growth mode, and more confident than ever about the future of the business.”

[Read: Delivery-Only Model Drives Newfound Business for Restaurant Brands]

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Made-to-order salad chain Sweetgreen has also seen strong performance at both its urban and suburban locations.

Fast-casual chains’ smaller market locations outperform their urban stores

R.J. Hottovy, Head of Analytical Research at Placer.ai, which tracks shopper visits to restaurant and retail locations, said migration trends have impacted the store-opening plans for several operators seeking to expand.

“With many consumers having the ability to work remotely and moving away from urban areas in favor of suburban and rural settings, we’ve seen restaurant operators start to prioritize smaller markets,” he said.

Hottovy said that in many cases, the shift toward these markets has been positive. Visits per location in smaller markets for chains including Chipotle Mexican Grill, CAVA, and others has “significantly outpaced” their urban stores the past few years, he said.

Smaller markets also tend to have lower rent rates and cheaper buildout costs, making them attractive to restaurant operators, he added.

Hottovy also said that the trend toward working from home has also impacted restaurant operations and layouts.

“With fewer employees going into the office, we’ve seen early morning visits trend below pre-pandemic levels,” he said. “Instead, we’ve seen a pickup in late morning and early afternoon visits, often when work-from-home employees need to get away from home offices.”

CAVA Group, the Washington, D.C.-based operator of fast-casual Mediterranean restaurants, had already seen the trend of opening in suburban locations gaining traction before the pandemic. In fact, that trend was one of the factors that led to the company’s 2018 acquisition of Zoe’s Kitchen, which was a much larger chain but had a strong presence in smaller markets.

The company has been converting many of the Zoe’s locations, which are also a Mediterranean, fast-casual concept, into the higher-volume CAVA-branded locations. The pandemic accelerated that process, CAVA CEO Brett Schulman said at the time.

The company is now leaning into an expansion strategy that includes pairing urban sites with what Schulman recently described as “high-profile suburban areas.” The company is now taking the learnings from its experience expanding into the Los Angeles market, and applying it as it enters Chicago, he said in a conference call with analysts.

“Given our proven portability and broad appeal, it allows us to really go into a market in a multitude of ways,” he said.

Tricia Tolivar, CAVA’s Chief Financial Officer, said the company’s restaurants are performing well in both urban and suburban locations.

“As we look at our performance across vintages, across geographies, across formats, whether it’s suburban or urban, we’re seeing consistent strong trends in all of those environments,” she said.

Jonathan Neman, Co-Founder and Chief Executive Officer at made-to-order salad chain Sweetgreen, said his stores have also seen strong performance at both urban and suburban locations. He cited a new Sweetgreen in Totem Lake, a residential area in the Seattle suburb of Kirkland, Washington, as performing on par with the chain’s top urban restaurants.

The company has even been testing its newest automation innovations — dubbed the “Infinite Kitchen” — at suburban units before it plans to roll the concept out to its urban locations.

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Published

Mark Hamstra

This post was originally published on this site

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