Restaurants Wonder: Who Moved My Cheeseburger?

The famous #1 bestselling book, Who Moved My Cheese? by Spencer Johnson, M.D. is about a parable that reveals profound truths about unexpected change.  The story is about characters that live in a maze. In the maze, they look for cheese to nourish themselves and make them happy. Cheese metaphorically represents that which you want in life, while the maze represents one’s business, family unit or community. In the story, the cheese is moved. One character modifies his behavior and deals with the change successfully, while the other does not. I reflect back on this book every time there has been an unexpected change in the CRE world. The COVID-19 pandemic has created change in the germ-conscious maze of the net lease restaurant sector, leading many restaurants and landlords to metaphorically ask: Who Moved My Cheeseburger?

Unexpected changes for restaurants varied depending on their format. The majority of the fine dining establishments across the US were forced to close down for a time because of government restrictions and lack of outdoor dining, as well as their lack of take-out and/or delivery options.  Sit-down concepts, such as Chili’s, Applebee’s, and TGI Friday’s, are “bar centric” models with limited or no outdoor dining, as well as restricted take-out/delivery menu items, all of which are contributing to their struggle to remain relevant. On the other hand, many fast casual and quick serve restaurants have pivoted during this pandemic and embraced the change for the better. They have created efficiencies with drive-up and drive-thru operations, meal delivery services, and mobile ordering apps for easy touchless pick-up. In many markets, as things stand right now, indoor dining and the giant Petri dish playhouse germ fest environments are no more. To survive, restaurant concepts need to quickly adjust to unexpected change.

A great example of a success story for addressing unexpected change is Shake Shack. This well-known cult burger restaurant has introduced “Shack Track,” a drive-up and delivery only format. Customers can go to the drive-up or drive-thru and order on the spot, or by using a mobile application, pre-order and pick up at a walk-up window or the drive-thru.

Chipotle, McDonald’s, Burger King and Taco Bell are all working on concepts to eschew indoor dining for the drive-up only model.

My advice for owners of some restaurant assets is to communicate with the tenant—they may need to make an investment into reformatting their store and downsize to make things pencil. If that is the case, there is an opportunity for owners to add another tenant in the excess space and create more value for them.

For developers and investors, there are now more opportunities to identify a site in a prime market that may have had huge barriers to entry pre-COVID due to larger parking or building requirements. For example, they can create a redevelopment play based on a smaller footprint with less parking if there is little to no sit down component.  

The long-term social, economic and health impacts of the COVID-19 crisis are still unknown, but net leased restaurants and their landlords will need to adapt to unexpected change in order to thrive over the coming years.

Chris Maling is principal, Retail Capital Markets at Avison Young in Los Angeles.