May 23, 2018

Restaurateur Todd Porter’s most recent business decision is a microcosm of the shift that has been occurring steadily in his industry.

After 27 years, he sold his Applebee’s franchise and is focusing on growing fast-casual concepts instead.

“Sit-down casual dining as we are used to it is, I would say, out of favor,” Porter said. “The business model itself is not profitable like it used to be.”

Porter points to a lot of factors, from regulations governing wages and food safety that increase costs to the changing tastes and dining preferences of younger generations.

Look at big quick-service restaurant chains, and “there’s a huge value battle going on,” Porter continued. “And you can’t ignore the effect that will have on concepts like Applebee’s or Fridays or Ruby Tuesday or any sit-down dining. And the millennials are not doing all that well in our country. They’re having trouble finding jobs and living in their parents’ basements, and they’re very price-conscious. I don’t look for that to change anytime soon.”

The changing customer, though, has created opportunities for all kinds of restaurants. Dining has become a heavier component of the retail mix in shopping malls nationwide, including The Empire Mall, which added Red Robin last year.

“You still have the staples – Burger King and McDonald’s – and they seem to be surviving,” said Greg Maloney, CEO of JLL, the nation’s biggest third-party retail manager.

“Most of those are really for the value-seeker. Fast-casual is still hot. Food is still hot. But it seems like how many more burger operators can we have? That’s the question we’re all a little fearful of. When do we saturate the market? But I think they’ve all identified themselves in some sort of specialty niche.”

Knowing your niche

Porter used to like running Applebee’s because there was something for everyone.

“Mexican, steak, salads, Asian, some really great pastas – it was a great thing to be a little bit for everybody,” he said. “Once the market filled out – the last entry was probably the Buffalo Wild Wings era – we had everybody and anything in casual dining, and it got to the point it was a pretty crowded market.”

He continues to see success with his franchised Sioux Falls locations for Chevys Fresh Mex and Johnny Carino’s, as “we found ethnic restaurants became more of a destination,” he said. “Who doesn’t like Italian, and most everyone loves Mexican or chips, salsa and margaritas, so we were positioned well.”

His newer ventures have brought him into fast-casual concepts, with more limited menus where customers order from a counter, don’t tip and often use a drive-thru. Catering presents additional revenue opportunities, too.

“It’s a lot easier to execute with a smaller menu and one protein,” he said, adding the PizzaRev store is leading the nation in year-over-year sales increases and Slim Chickens is “doing very well.”

Emerging restaurant concepts also are integrating some sort of entertainment, Maloney added, from unique happy hours to music.

“People love going there because they can go there and they can do other things,” he said, contrasting the approach to a more traditional sit-down restaurant such as Olive Garden.

“If you’re going to Olive Garden, that’s all we’re going to do,” he said, adding the company now is considering how to “get more exposure to it.”

It’s a concept Porter is running with at PizzaRev this summer, where he plans to market his patio seating and beer options.

“PizzaRev is definitely an expandable concept for me,” he said, adding he’ll think about where to grow next after opening his second Slim Chickens next month on Louise Avenue.

“We’ll consider PizzaRev down the road in the not-too-distant future because the product is great and the concept has legs. It works.”

Who’s growing

The national restaurants expected to add the most units this year are familiar names, led by players in the coffee industry.

Starbucks is expected to add 500 stores, including one on East 10th Street, and Dunkin’ Donuts is expected to add 275, according to Garrick Brown, vice president of retail intelligence for brokerage firm Cushman & Wakefield.

“It seems like the coffee world is just the most rock solid of all the food categories in retail,” he said. “It doesn’t seem to matter what the price of coffee is — people show up and spend.”

He expects Canada-based coffee chain Tim Hortons to expand rapidly in the U.S. following an acquisition by the same private equity group that owns Burger King. The first stores look to be concentrated in the Midwest and New England, Brown said.

“I think you’re going to see this coffee race going on between Starbucks and Dunkin’ Donuts, which is tweaking the brand to be more about coffee, and Tim Hortons is looking to become the dark horse in that race.”

The Starbucks deal on the east side started three years ago at RECON, said Ryan Tysdal of Van Buskirk Cos., who announced the lease a couple of months ago.

“We are currently mid-deal on the space right next to Starbucks, which only leaves one additional space in the center,” he said. “My expectation is that we’ll have that space leased before construction is complete later this summer.”

Other chains adding hundreds of units include Jimmy John’s Gourmet Sandwiches and Jersey Mike’s Subs.

“And Chipotle is still out there and kicking and will do about 150,” Brown said.

Chicken chains Chick-fil-A and Wingstop are expected to add more than 100 units each, he added.

“You never know what’s going to stick,” Brown said. “A couple years ago, it looked like fish tacos would keep going as a craze, and it ebbed out.”

Restaurants that include an entertainment element also are expanding but much more slowly.

“Dave & Buster’s is ramping up growth considerably, but for them that’s about 17, 18 locations,” Brown said.

Alamo Drafthouse Cinema, which combines dining, drinking and movies, has 20 locations and is adding at least three more this year, he said.

Punch Bowl Social, which combines games such as bowling and shuffleboard with craft cocktails and “food for foodies,” has 17 locations and is adding six more by the end of the year, he continued.

“So the whole barcade entertainment is white-hot, but it’s all spread between small-growth players,” Brown said.

Ax-throwing bars are another growing concept nationwide, but the biggest player so far – The Rec Room – is adding five stores in the next 18 months. Sioux Falls has a local version coming from the same owners as Escape 605 when they add ax throwing at their new downtown location this summer.

“The real question is whether this is going to have legs and stick around,” Brown said. “The trick is to become popular enough to become something people do away from their corporate events. I think there’s a really good chance though. It’s fun and these are bars, and hopefully if they do food right, they probably should do fine.”

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