As we previously discussed in Part 1 of our study of the latest trends in retail development, the retail development landscape continues to evolve, forcing occupants to continue to adjust their efforts to meet the needs of the average consumer. These influences have had a major impact on big box stores and other brick-and-mortar retailers, with some of the most rapid and noticeable changes occurring in the restaurant industry. First transformed by the COVID-19 pandemic, then by changing dining preferences of the average customer, and more recently by local ordinances aimed at benefiting residents, many restaurant concepts have found themselves having to get increasingly creative to succeed in today's market.
Local regulations limiting expansion efforts
Current Legislative Status
The rapid expansion of QSRs has become a contentious issue in some parts of the country, particularly in the context of city ordinances aimed at regulating QSR expansion. These ordinances often vary widely from city to city and are enacted for a variety of reasons, including traffic congestion, public health, and protecting local character.
A prime example is the recent Mesa ordinance, which changed the zoning code to restrict where drive-thru restaurants can operate. The ordinance places limitations on the development of new QSRs in certain designated areas in an effort to control urban sprawl and maintain the aesthetics and cultural identity of neighborhoods. While well-intentioned, these regulations can sometimes be at odds with evolving market trends and changing consumer demands.
Changing consumer eating habits
Modern consumers' preferences for convenience, especially in the dining arena, have been significantly accentuated by the COVID-19 pandemic. The average consumer has seen a notable shift in preferences toward QSRs, which are often perceived as a quick, affordable and efficient dining option. The pandemic and resulting lockdowns, which have limited dine-in service and heightened health concerns, have accelerated this shift, with many consumers choosing takeout and delivery over the traditional sit-down restaurant experience.
While the convenience and speed of drive-thru is clearly a trend, there is still a strong demand for traditional sit-down dining experiences. Many people still value the atmosphere, slower pace, and social aspect of sit-down restaurants and would like to see more of these types of restaurants in Mesa in new developments. However, current market conditions have led to high rents and construction costs, making it difficult for these types of restaurants to operate in the current climate. To be profitable, traditional sit-down concepts must raise prices, and to succeed in these conditions, they must be fully booked from day one. In the current market, only the more expensive fine dining concepts that attract the most foot traffic can succeed.
This puts landowners, developers, and businesses in a difficult position. Everyone wants to provide the public with restaurants that meet their needs and can thrive. Most people generally agree that they would like to see more sit-down restaurants in their area, but they can't patronize the same restaurants regularly and consistently. The combination of speed, convenience, and reasonable prices that QSRs offer causes the average consumer to choose these restaurants for their meals more frequently. This is also why drive-thru restaurants continue to expand in these areas. Businesses want to serve the average consumer better.
Market polarization
The combined impact of these factors has led to a polarization of the overall food and beverage market. At one end are convenience-focused QSR and take-out-only concepts that thrive on efficiency and affordability. These establishments are hugely popular because they value efficiency and affordability and meet modern consumer demand for fast, accessible, budget-friendly dining options. The success of these models is further driven by the integration of technology enabling mobile ordering, contactless payments, and streamlined service delivery that resonate with the fast-paced lifestyles of many consumers.
At the other end of the spectrum are fine-dining sit-down restaurants. These restaurants cater to a different segment of the market, where consumers are not just looking for a meal, but want to enjoy a leisurely meal in a more upscale and unique setting. These restaurants focus on offering fine cuisine, a relaxed atmosphere, and attentive service. These restaurants appeal to people who value eating out as a social and luxury activity, often at a higher expense.
But this polarization has created a widening gap in the market for mid-priced dining establishments. Traditional mid-priced restaurants that offer sit-down dining rather than premium pricing like higher-end establishments are finding it increasingly difficult to compete. These restaurants are often weighed down by high operating costs inherent to their business model, including staffing, real estate, and ingredient costs. At the same time, they face increasing competition from QSRs and take-out-only models that have captured a large portion of the consumer market due to their convenience and speed. Restaurants must find a balance between adapting to consumers' changing demands for speed, convenience, and value while maintaining the quality and ambiance that differentiate them from QSRs. This may involve rethinking their service models, embracing technology to streamline operations, or rethinking their menu options to offer a more competitive and attractive proposition to customers who are increasingly gravitating to both ends of the dining spectrum. The key for these mid-priced restaurants is to differentiate through a unique dining experience, food quality, and a hybrid model that incorporates elements of convenience and affordability.
These recent trends highlight the need for adaptability, innovation and strategic foresight in retail development across a range of use cases. As the situation continues to evolve, developers and occupiers must remain agile and responsive to stay competitive. The future success of retail, and particularly F&B, will depend on its ability to effectively balance operational efficiency, customer experience and adaptability to market changes. The continued evolution of these industries will be a testament to the resilience and ingenuity of the people who navigate these dynamic challenges and opportunities.
Joshua Simon > Founder and CEO
Joshua Simon, founder and CEO of SimonCRE, directs day-to-day operations and leads the company's growth strategy. He spearheads a team dedicated to developing projects that benefit clients and the communities they serve. When not in the office, Joshua acts as an advocate for the CRE community, serving on several committees and speaking as an industry expert at various conferences.