This post originally appeared on tBL member Progressive REP Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.
Are the restaurant and grocery industries a zero sum game? I believe so. Despite my desire to eat all day at different places, it is simply not possible for me or anyone else. As a result, any decision we make to consume food at one place means we are not eating at another place.
The good news for the food industry being a zero sum game is that it is also a game that everyone must play every day. You have to eat! That is why so many landlords love having food users as tenants because regardless of the economy, this industry is virtually guaranteed to capture consumers.
On the other hand, the bad news for the food industry being a zero sum game is that every food purveyor, including traditional grocery stores, specialty grocers, fast food restaurants, quick service restaurants, full service restaurants, farmer’s markets, food halls, etc. are ALL competing for their piece of the pie.
What does this mean for landlords and property owners?
- Strive to lease to the most successful operators even if it is not the best overall deal. The best users will likely have more staying power and create an added draw to the center which benefits all the stores.
- Review the tenant’s website, social media and Yelp to determine how they are being perceived in the marketplace. If the tenant is a start-up, make sure you ask probing questions to determine how they are going to capture their piece of the region’s food dollars. Do they have a competitive edge and, equally important, are they well enough capitalized and have the know how to market their advantage to the community.
- Monitor your grocery store and restaurants merchants carefully to see if they are capturing their share of the pie. Talk to store managers, sit in the parking lot and observe traffic, walk the store, dine at the restaurant, monitor the tenant’s Yelp page to look for any trends.
- Be prepared to replace weak tenants. Whether a grocery store or restaurant, by definition if there is an increased supply of food purveyors in the marketplace, and the industry is a zero sum game, there are going to be some losers.
What does this mean for restaurant and grocery store operators?
- Assuming that restaurants and grocers continue aggressive store openings, existing operators are going to lose sales and market share unless they are better than the new competition.
- So get better! Whether a food provider is a franchisee, corporate player or mom & pop, constant improvement is required. You don’t have to invent the wheel. Just know what the competition is doing and leverage best practices to keep your business at the top of its game.
- Connect with customers through technology. I am not a bleeding edge tech person by any stretch of the imagination, but I am trying. I am joining loyalty programs, taking advantage of online ordering, and finding places to eat on Yelp! It is clear that those that utilize technology to connect with their customers and make them cheerleaders of their brand are the ones that are mostly likely to succeed.
Most of our landlord clients at Progressive Real Estate Partners like having grocery and restaurant users in their shopping centers and especially when they take space that was previously occupied by non-food uses. But this industry certainly comes with risks as it is the most competitive segment of the retail business with minimal opportunity to expand the size of the pie. Unless a scientist invents a way that we can eat more without gaining weight (I am hoping), this industry will remain a zero sum game.