Suburbs still attract some franchise brands
Boston’s is one brand finding success in the suburbs, despite demographic shifts favoring urban areas.
Whether you blame the housing crisis, the millennials or global urbanization, there is a noticeable shift away from the staid suburbs in favor of trendy urban neighborhoods. But, while suburban locations may be down, it may be too soon to count them out completely.
Even though it has hardly been a mass exodus from suburbia, both millennials and empty nesters are exhibiting a definite preference for urban living. Businesses ranging from new tech start-ups to major corporate headquarters are following that urban migration and pulling up stakes in the suburbs in exchange for new digs closer to that growing urban workforce. That shift is forcing franchise groups to take a hard look at their real estate strategies.
Retail and restaurant groups that tend to “follow the rooftops” are more focused on urban growth. Added to that, much of the development and redevelopment activity occurring now is concentrated in urban areas where there is more density, said Jeff Badstubner, a senior vice president of retail at JLL in San Francisco. The San Francisco Bay area, for example, has seen very little new suburban development in the past several years.
Historically, food and service franchise groups have focused on locating at or near traditional grocery-anchored or Target-anchored shopping centers. “In our market, the majority of those Class A and Class B type of prototypical centers that were available for franchise group’s expansion are fully leased or very close to fully leased,” said Badstubner. So for a new franchise operator coming into the market, they really had no choice but to consider alternative locations, especially for those operators that were committing to opening multiple stores in the market, he added.
Family-friendly interiors are a must for suburban locales, says Boston’s Ken Phipps.
Particularly in larger metro areas, the ability to build a traditional, single-story shopping center on 10 to 20 acres just doesn’t exist anymore, said Badstubner. Land costs and lack of availability of prime development sites are two of the big stumbling blocks to new urban development. Developers are having to push further out from core cities to find those sites, and these days, that is not where the population growth is occurring.
Retail construction has been slow to return in the suburbs, which creates the added challenge of rising rents. One could argue that rents are on the rise in both high-demand urban and suburban locations. However, rents are “skyrocketing” in some suburban areas due to the still high demand for space and limited supply, said Jennifer Watson, a senior managing director at Newmark Grubb Knight Frank in Chicago. In markets like Orlando and Dallas, for example, where one would expect suburban rents to be less than that of downtown, rents nearly match the asking rates at high-demand suburban shopping centers in Plano and Frisco, said Watson.
Suburbs battle back
Although space is becoming more challenging to find, the suburbs are definitely not dead, said Ken Phipps, director of franchise development USA at Boston’s Restaurant & Sports Bar in Dallas. Boston’s acknowledges the demographic shift occurring as more people choose to live in urban areas that have the convenience of being more walkable and closer to activities such as restaurants, theaters and sporting events. “Those demographics are always going to be ever-changing as the population grows, but you have a whole other generation coming up that are starting families,” noted Phipps.
Suburban locations have long been a cornerstone to growth for Boston’s. Founded in Canada, the company has nearly 450 locations in North America. The company has highly successful urban locations such as downtown Columbus and Mexico City. Yet the majority of its restaurants are located in suburban markets. “It comes down to where do you get the most for your dollars when it comes to building,” said Phipps.
Some suburbs also are looking to replicate some of the amenities and characteristics that thriving downtowns offer. “We are seeing mixed-use centers that incorporate the work-live-play vibe that millennial and empty-nesters are striving for,” said Watson.
Centers located in suburban areas are no longer standard grocery-anchored with a nail salon, a liquor store and a McDonald’s that capture those daily needs dollars. “These centers are becoming miniature versions of urban centers, with higher-end restaurant concepts breaking into suburban markets to capture even more entertainment dollars, she said.
Location analysis critical
Whether they are urban or suburban, the home run locations for Your Pie are those live-work-play locations that offer access to significant daytime and nighttime populations.
Some of the urban neighborhoods that are being revitalized with millennials living upstairs and food and retail businesses on the ground level are a great fit for the pizza franchise, said Your Pie CEO Bucky Cook.
For example, Your Pie just opened an urban store in Houston that is on the ground floor of a high-rise apartment building. “But, we don’t shy away from suburban locations, because they can be just as viable or even more so,” said Cook. Your Pie also opened recently in suburban Atlanta with a location in Snellville.
One of the biggest impacts of the shifting demographics and development trends is that franchise groups need to analyze potential locations very carefully to avoid costly mistakes. To that point, Your Pie uses analytical software tools, as well as more traditional property tours and franchisee feedback to assess a possible location from all angles.
Franchisors are relying more heavily on the analytic tools and software that are available to paint a picture of a potential location in terms of current and future predictive forecast models. “Besides demographics and traffic counts and a plethora of other criteria, you have to look at the growth. What has the growth been in that area from both residential and employees coming from the surrounding area to benefit the restaurant and its longevity of success,” said Phipps.
Beyond the numbers
Although those software tools can be helpful in finding good location opportunities, sometimes it pays to look beyond the numbers. For example, Boston’s has a franchisee in Arizona that is opening a new location in Casa Grande in March. The town of about 50,000 people is located between Phoenix and Tucson. Boston’s has had great success in those size cities in Canada, but the company was a little wary of going into a similar market in the more competitive U.S. market.
Rather than discount the location, Boston’s did some additional homework to look beyond the demographic and population data. What they found is that Casa Grande actually has a much bigger tourist and temporary base of winter “snowbird” residents that are not included in the demographic data.
“We found that almost a million plus individuals visit that area during a six-month time period, but they are not permanent residents,” said Phipps. “So, you have to understand what is going to make that area a success, and a lot of times that is taking that extra step and doing the extra legwork to make sure that location is going to be a success for the brand and the franchisee,” he said.