Heavy traffic for drive-thru seekers
Which Wich has a new model featuring a drive-thru.
Drive-thrus can add 30 percent to sales, so it’s no wonder more franchises are pursuing such sites. Trouble is, competition is fierce. Erbert & Gerbert’s and Which Wich are among the brands taking a stab.
Restaurants are hitting a speed bump when it comes to securing drive-thru locations. Drive-thrus are on the short list for a wide variety of businesses selling everything from sandwiches and burgers to frozen yogurt and gourmet coffee.
Unfortunately, those locations also are in short supply. “Anyone and everyone now wants that location where they can get at least a single lane drive-thru and in some cases even a double lane drive-thru,” says Joe Tocco, a vice president and principal in the St. Louis office at Cassidy Turley, a national real estate services firm.
The improving economy and growing restaurant expansion is fueling appetites for both freestanding and end-cap locations with existing drive-thrus. Drive-thrus can be a huge revenue generator for quick-service restaurants and other food and beverage concepts. The current demand along with a limited supply of new opportunities is creating stiff competition.
“More and more restaurants see the benefit of a drive-thru. So, they are hard to get,” says Stuart Johnson, owner of Magellan Franchise Development in Eden Prairie, Minnesota. Johnson provides strategic market development for the Erbert & Gerbert’s sandwich chain. Erbert & Gerbert’s expects to open 24 stores this year and drive-thrus are a preferred format for its suburban locations.
Specific to the suburban venues, the drive-thrus have the potential to add significantly to store revenue—often in the mid-teens, notes Johnson. “There are many factors that go into a successful store, and we don’t hang our hat just on drive-thrus,” he says. “That being said, if a drive-thru location is the best fit for a particular marketplace, then that is the one that we want to pursue.”
In fact, many national retailers, such as Dunkin’ Donuts, Starbucks and Panera, are focusing primarily on drive-thru opportunities in many U.S. markets. “Drive-thrus can be a huge revenue generator for a QSR restaurant or coffee concept as they increase sales by 30 percent or better,” says Jennifer Watson, a senior managing director at Newmark Grubb Knight Frank in Chicago.
The pursuit for drive-thru locations is competitive, especially in a market where restaurants are stepping up expansion plans. Which Wich is one of the latest concepts to add drive-thrus to its repertoire. The company opened its first drive-thru location in Marble Falls, Texas, in July 2013. Although it can be a challenge to find locations that also fit the store’s 1,600-square-foot footprint, the company has opened two additional drive-thru locations near Chicago and Tallahassee this year and is continuing to keep an eye-out for additional opportunities.
“It is tough to get a drive-thru,” says Johnson. Sometimes the only way to get a drive-thru position is to be the first one into a new development, he adds. Erbert & Gerbert’s also keeps tabs on concepts that have drive-thrus that might be on their way out, or locations where there is a potential to add one to an existing building, he adds.
One key to getting a jump on the competition is to work with local brokers so the franchise can hear about potential vacancies early on. Tacco also works with local developers to lease space in projects before they are completed. “That represents a good chunk of the success that we have had in putting clients on end-caps with drive-thru lanes,” he adds.
In the past, drive-thrus have been a tough sell for some landlords. Most shopping center developers are looking to maximize the amount of rentable square feet in a project. Making room for a drive-thru often means carving space out of the gross leasable area of a property. However, landlords also are recognizing the strong demand for drive-thrus, particularly at end-cap locations. “The demand for those spaces is so large that, in my opinion, a drive-thru lane or two is going to drive retailers to your locations,” says Tacco.
These days, drive-thrus on both end caps and freestanding buildings are leasing for a premium. In some situations, landlords are able to collect up to 30 percent higher base rents for those locations, notes Watson. The spaces are prone to attracting high-caliber national tenants that are willing to sign long-term leases of up to 15 to 20 years. Those tenants also help to attract other strong national retail and restaurants to a property, she adds.
Another option for franchise operators is to add a drive-thru to an existing end-cap space or freestanding building. Watson recently worked with one franchise client who was retrofitting an existing store to include a drive-thru. The plans incorrectly showed the operator did not need to relocate a power transformer. It was a mistake that cost the franchisee an additional $35,000. Despite the unanticipated cost, the drive-thru retrofit is on track to add 15 to 20 percent in sales, which will turn into a great investment for the franchise, says Watson.
Although adding a drive-thru can be a great return on investment, it can be a complicated process. A variety of obstacles can prevent such an addition, mainly related to the traffic flow at a property, ingress and egress and specific city zoning requirements and setbacks. Cities can have stringent requirements, and in some cases cities have even passed moratoriums prohibiting new drive-thrus. Some common complaints are that they add to noise, traffic congestion and may detract from an overall aesthetic or pedestrian-friendly environment a city or neighborhood is trying to create.
Yet adding a drive-thru to an existing location is certainly feasible. For example, Erbert & Gerbert’s has been extremely successful. That is an option that may become more prevalent as there are no signs the shortage of drive-thrus is likely to ease soon.
“I’m definitely on the hunt for that,” says Johnson. However, the argument to do it has to be very strong and a number of factors, such as costs and traffic flow, have to line up in order to make those work, he adds.