Red Lobster and TGI Fridays chains filed for bankruptcy this year, resulting in the closure of more than 175 restaurants. Red Lobster went bankrupt under the management of Thai Union, former global shrimp supplier, due to mismanagement, while TGI Fridays was acquired by TriArtisan Capital Advisors. Denny’s is also set to close 150 restaurants.
Due to a decrease in the number of customers, these chain restaurants have been struggling. Diners choose to eat at home or opt for cheaper fast-food and casual dining chains like Chick-fil-A and Chipotle, which have higher profits compared to dine-in services.
According to CNN, fast-food and casual dining chains are taking over and building more drive-thru lanes. Chipotle is constructing 4,000 new stores, most of which will have drive-thru lanes, while Chick-fil-A’s new stores will feature drive-thru lanes with four lanes.
Drive-thru restaurants typically earn more than dine-in restaurants as they are smaller in scale and require fewer staff and maintenance.
Matt Mandel, Senior Vice President of Retail and Food Services at CBRE, stated, “These chain restaurants have been replaced by companies like In-N-Out, Whataburger, Chick-fil-A, and Raising Cane’s, which were not major competitors 10 years ago.”
Commercial real estate company NorthMarq mentioned that smaller-scale restaurant chains like Brazilian steakhouse chain Fogo De Chao and breakfast chain First Watch are also expanding.
CEO Chris Tomasso mentioned in a financial conference call on Thursday that First Watch has replaced other restaurants by opening 13 new locations, some of which are among the company’s most profitable. First Watch also plans to open 25 new locations at vacant restaurant sites.
Finding vacant spaces or starting from scratch to build new restaurants is not an easy task today.
The retail vacancy rate in the US is currently at 4.1%, the lowest in decades. The lack of construction over the years and constraints on supply due to rising borrowing, labor, and construction costs have limited growth. CBRE reported that the completion rate in the last quarter hit the lowest level in over 10 years.
Many of these vacant restaurants are standalone buildings rather than located behind declining indoor shopping malls. CBRE noted that indoor malls have been struggling in recent years, with a vacancy rate of 6.5% in the last quarter.
Online shopping now accounts for about 16% of retail sales, leading companies like Macy’s, J.C. Penney, and Nordstrom to close hundreds of physical stores.
Real estate research firm Green Street estimates that around 150 enclosed shopping centers have closed since 2008, leaving approximately 900 remaining.
Most closed restaurants are located on busy streets, with large parking lots or near shopping centers, making them highly desirable locations.