Chris Roach

Shopping is, for the most part, discretionary. But everyone's got to eat, which is perhaps the simplest reason why the food and beverage (F&B) industry is the hottest subsector of retail real estate. Not surprisingly, a closer look at trends reveals other factors driving F&B's ascendency, and the overall picture becomes more complicated and the industry's continued rise less certain.

In 2019, Americans spent more money on restaurants than on groceries for the first time, according to the US Census Bureau. For Americans, eating and drinking are as much of a pastime as a bodily imperative, so in cities across the country, more dining establishments are opening or expanding operations to meet demand.

All told, F&B sales now account for nearly a quarter of all retail sales nationwide. F&B's sizable piece of the pie sweetens an otherwise souring situation for retail real estate as a whole, and currently, F&B properties are considered potentially solid investment opportunities—particularly in urban areas with a growing workforce. Based on supply and demand projections, we anticipate the F&B market will stay healthy in the near future. However, we're keeping an eye on established and emerging trends that may affect F&B real estate, for better or worse. Here are five of them.

Marketplace Fast Casual

When a food hall meets a farmers' market, what do you get? The next evolution in dining: marketplace fast casual. Food halls—the glamorous descendants of 1980s-era food courts—are still immensely popular in their own right, with places like Washington, D.C. in the midst of a food hall "explosion" while Los Angeles and some other major cities may already be overstuffed. By combining the best attributes of food halls (variety, convenience) with farmers' markets (fresh, local foods and ingredients that diners can hand-select), the marketplace fast casual concept "turns a meal break into an experience."

Food Trucks

Also growing in popularity but perhaps not long from cresting are food trucks, which put food vendors on wheels and out of the real estate game. Food trucks are restaurants' competition but they also help would-be restaurateurs garner interest in a brick-and-mortar location. It is also a model traditional restaurants are copying in some respects—specifically by offering menus packed with fresh, artisanal and local ingredients served up with convenience and speed.Although they won't be the death of traditional restaurants, food trucks give diners another option.

Meal Kits

There's no shortage of other options besides dining out that, all together, could cut into restaurant profits. These include subscription-based healthy meal kit deliveries via parcel; Amazon Fresh delivery service; and grocery stores that not only offer delivery and pickup but also takeout sushi and cross-merchandised, grab-and-go "meal solutions." While grocery prices are actually down by 0.5% since 2015, restaurants have raised their prices by 11% and the hikes outpace wage increases and overall inflation. Restaurants face a lot of cost pressures, which drive the price hikes.

Online Ordering Platforms

One cost pressure comes in the form of popular third-party marketplace-style online and app-based ordering platforms (Grubhub, Uber Eats and Waitr, for example), which cut into profit margins. Restaurants pay a steep commission on every order—typically between 20 to 30%. While some restaurants are cutting ties with delivery services, it should be noted that, among millennials, parenthood is driving off-premise dining trends. Among boomers, 51% want to order food delivery more often than they do now, according to the National Restaurant Association research. However, Generation Z's risk aversion and tendency to save money may translate to less restaurant patronage, including ordering in. In some cases, partnering with delivery services may be a strategic move as opposed to a survival measure.

Las Vegas-ification

The "Las Vegas-ification" of New York steakhouses continues as traditional restaurant concepts try to stay competitive by adding non-traditional menu items and creating a livelier atmosphere. Despite New York's steakhouse evolution, the country's balance of restaurant power is shifting west, from Manhattan to Los Angeles, as evidenced by the latest Best Restaurant designations and other indicators.

Chris Roach is the CEO of BBG, a national commercial real estate due diligence firm.