Drive-thru establishments have been around for quite a long time and have stayed the same since the beginning. All that changed in March of 2020, with the spread of Covid-19, the restaurant businesses came to a standstill. Dine-in restaurants had to close their shutters due to social distancing and the only way for food businesses to survive in this cataclysm was drive-thrus. Customers became so comfortable with drive-thrus that the country doesn’t have enough drive-thru locations to meet the demand. The sole dependency on drive-thrus and curbside pickup have led Quick service restaurants (QSR) to rely on them more. Thus creating the demand for drive-thru real estate.
Increase in demand for drive-thru real estate
Studies have found that an average American spends around $1200 on drive-thrus every year, and this number is before COVID happened. A more recent study by the NPD group has revealed that drive-thru spending had gone up by 26% in the second quarter of 2020. And after the removal of lockdown restrictions, drive-thru real estate investment saw an increase of another 13% in the third quarter.
With lockdown introduced for months, it was very ambiguous when everything would return to normal. Like most businesses, restaurants and fast supply chains were suffering too. With dine-in being shut down adapting to new trends and other means was the only way to ride the pandemic wave safely. For restaurants and fast-food chains, it was deliveries and drive-thrus. Drive-thrus let food businesses run uninterruptedly as it limits physical contact between employees and customers. Also, the CDC has labeled drive-thrus as essential retail and permitted them to remain open during the pandemic
Even after lockdown restrictions were lifted, drive-thrus kept growing in popularity and increasing their sales. Drive-thru restaurants have always been relied on as the most convenient and fastest way for customers to order their food. QSR noticed that during the lockdown they had saved a lot of money by cutting expenses of dine-ins like service and maintenance, cleaning, soft drinks, paper cups and trays, and others. As a result, more and more restaurants and fast-food chains are setting up drive-thrus. And those who already have drive-thrus are trying to come up with new business models like multiple lanes to help increase sales and income.
Read Lilypads’ article on the impact of COVID-19 on the food and industry market here.
Investment opportunity in drive-thru real estate
With an increase in demand for drive-thru restaurants across the country, executives of QSR chains are thinking to expand their business, and are hoping for a more favorable real estate market that will offer good locations.
Dine-ins and small restaurants have been forced to close during the pandemic. Taking advantage of the current market situation, elite fast supply chains are looking to get a hold of these vacant spots at a comparatively lower lease cost. Since the vacancy rate is higher than ever, the present environment not only calls for lower leases but also allows room for rent negotiations for investors.
However, there will be a larger competition for these locations for new and improved drive-thru restaurants. Thus Drive-thru investments have become quite a hot topic in commercial real estate. Commercial properties with existing drive-thru lanes are now seeing an increase in property value. Future lease agreements can also go for 10 to 20% higher rent than usual.
Fast-food chain giants like Mcdonald’s, Taco Bell, and Chick-fil-a, have consistently reported higher sales generated from drive-thrus. The increase in demand has led some companies like Starbucks to open drive-thru-only outlets, with future provisions of multiple lanes.
Fast-food chains are trying to implement these changes to their business by adding drive-thru outlets to their existing property or expanding their current ones by constructing new lanes. Therefore, it creates NNN investment opportunities for investors in drive-thru properties. The triple net ground lease is suitable for QSRs who are deciding to upgrade their restaurants according to the new trends. These new business models will help increase investments in drive-thru real estate.
Future of drive-thru real estate
As sales keep increasing brands have realized the true potential of drive-thrus. An increase in demand has led to an increase in the size of drive-thrus. Although it’s not here yet, soon most of the drive-thrus will be having multiple-lane facilities to meet the demands. Yum Brands is opening new restaurants at a fast pace. Taco Bell, a subsidiary of Yum Brands, has proposed to open a four-lane futuristic drive-thru and promises a 100% contactless delivery system.
Other companies like Mcdonald’s are inclining towards technology to make drive-thrus more fast and convenient. The world’s largest restaurant chain is collaborating with IBM to improve the drive-thru experience and keep up with the demand. With its AI-based ordering, Mcdonald’s shed light on how technology could help make drive-thrus better. Automated ordering and digital menus can help increase speed and accuracy. AI cameras at drive-thrus can help detect cars in the lane and give an estimated waiting time. As Drive-thrus clearly indicates to be the dominating aspect of Quick service restaurants in the near future. The need for technology will surely help in increasing operational speed and efficiency.
The Lilypads Bottomline
The world is changing and so are our lifestyles with it. It is only logical that businesses have to change their model too to cope with this new environment. Not just in the food and dining sector, drive-thrus are the next hot thing in the real estate market too. Its fast and convenient process has led to its increasing demand. Pickup windows and drive-thrus became top contenders for keeping the food business running during the pandemic. The demand for drive-thru real estate is well clear by now. As the future looks promising with increasing customer demands and high income-generating capability, investing in drive-thru properties is an excellent choice.