Americans remain hungry for even more food-and-beverage options, but the industry’s strong growth also brings challenges for restaurateurs, grocers, and their landlords who must monitor and adapt to ever-shifting demographics.
It’s easy to see why the food-and-beverage sector is a darling of the retail real estate industry these days. It has one of the lowest rates of e-commerce penetration of any major retail category. What’s more, it is gaining an increasingly larger share of consumer spending, rising to 24.3% of total retail sales in the past decade from 22.7% before the recession.
Yet the risks of F&B can’t be ignored: a notoriously high fail rate, substantial tenant-improvement costs for landlords and, perhaps most troubling of all, a high sensitivity to shifts in demographics and consumer tastes that require industry participants to be ever-vigilant in tracking the trends.
CBRE analyzed demographic, real estate and industry data to arrive at several near-term predictions about the trajectory of the U.S. F&B industry. Among them: Convenience will rapidly become a leading factor in consumers’ F&B choices; densifying suburbs will emerge as the hottest F&B destination; and grocery-delivery service will dramatically revamp the cold-storage industry.
These trends have enormous repercussions for retail real estate. F&B has steadily expanded its presence in retail centers in the United States. For example, restaurants have collectively increased the square footage they occupy in U.S. malls by 18% since 2007 to 43 million sq. ft., according to the International Council of Shopping Centers. At CBRE, as many as one in every three retail real estate transactions we handle involves F&B.
Here’s a look at several of CBRE’s predictions and why we made them.
1. Changing demographics will make convenience a chief F&B consideration. In simple terms, many of us don’t have a lot of time — and some don’t have the inclination — to prepare and cook many meals anymore. Consider that single-person households made up 28% of all U.S. households last year compared with 17 in 1969, according to the Commerce Department. Dual-income households also are on the rise and now account for more than 60% of all U.S. households from 25% in 1970.
Other trends favor convenience: Many millennials, who rent or own homes with small kitchens, prefer the social experience of dining out and the convenience of carry-out or delivery.
As a result, convenience-focused concepts will flourish. Restaurants are experimenting with kitchen-only outposts for delivery. More grocers are setting aside space to offer prepared meals, as well as in-store restaurants and bars. Delivery services like DoorDash now are common. A growing number of restaurants offer separate entrances and service counters for use by delivery services and customers picking up meals to take home.
One key facilitator of this trend will be location-analytics services (see cover story), which restaurants can use to pinpoint the most effective sites for sit-down restaurants and kitchen-only outposts. Another will be automation, as exemplified by Kroger’s partnership last year with online grocer Ocado to facilitate more delivery by establishing robot-staffed warehouses across the U.S.
2. Industrial cold storage will happen in a big way. Grocery-delivery services are catching on fast, and the most efficient and cost-effective way to facilitate the service at scale is through industrial cold-storage warehouses.
Consider that online grocery orders now account for roughly 3% of total U.S. grocery sales. FMI/Nielsen forecasts that will expand to up to 13% – roughly $100 billion – by 2022. In turn, CBRE calculates that growth will require demand for up to 100 million sq. ft. of cold-storage space to shift to industrial facilities from grocery stores over the next four to five years.
Again, demographic shifts come into play. A 2018 study by consultancy Brick Meets Click found that the percentage of 18- to 29-year-olds buying groceries online increased by 3 points to 22% while such ordering by older cohorts, while significant, declined a bit. The uptick for the younger category might reflect increasing earnings and purchasing power for some millennials, as well as some millennials more often ordering groceries for dining in.
We foresee this trend of growth in online grocery shopping resulting in greater demand for industrial cold-storage space in leading food-production states (such as California, Washington and Florida), high-population metros (such as Northern New Jersey, Chicago, Los Angeles) and major seaport markets (such as Los Angeles, Seattle, Oakland, Houston, Northern New Jersey and Miami).
3. First-ring suburbs will shine as F&B hotspots. Densification has pushed from the urban core into the first-ring suburbs of many major cities, resulting in more construction of mixed-use projects with ideal, ground-floor space for restaurants, bars and grocery stores.
These locations put F&B operators in position to capitalize on several advantageous shifts. First, suburbanites spend more on F&B in aggregate and on a per-household basis than their counterparts in urban-core or rural areas. Suburbs also have the greatest spending power. Second, urban cores attract daytime commuters who often pass through these first-ring suburbs or live there to be closer to work.
Additionally, while many first-ring suburbs are seeing the early stages of densification, few have the higher lease-rates typical of urban cores.
4. Millennials will dominate U.S. F&B spending within 10 years. While millennials tend to dine out or order in frequently, they’re not the biggest F&B spenders. That distinction goes to Baby Boomers and Generation Xers. Baby Boomers collectively spend the most due to the sheer size of the generation. But Gen Xers, now in their prime earning years, spend the most on a per-household basis.
On average, millennials tend to be relatively frugal F&B spenders due to limited earning power and the burden of student debt. However, those obstacles will alleviate within the next 10 years, allowing millennials to spend more on F&B and trade up to pricier fare. That, coupled with the magnitude of the millennial generation at 71 million members, creates a seismic force in F&B and most other industries.