Impact of Zoning and Regulations on Fast Casual restaurants

 I just got off the phone with a 10 unit fast casual franchisee going on a 20 minute rant on the impact of Obamacare. He calculated  that it will cost him an extra $500,000 a year or 3-4% of his net income. His margins are only 7-9% so this is significant hit to his bottom line. That $500,000 equates to 2-3 new units he won't be able to open since it costs him about $200,000 in cash to open a new restaurant.  Obamacare is particularly punishing to small restaurant chains and retailers and will kill jobs.  It's not easy to raise prices and pass the costs on to the consumer, but that will happen to some extent.  The result is a slowdown in new restaurant openings or slower rate of growth.
      In addition, more cities are passing new zoning regulations to prevent restaurants from operating a drive thru lane.  This makes it difficult to find new locations for fast food and fast casual chains.  In Ft. Worth, TX the new MU-2 zoning in many dense urban areas of the City require 2-3 story buildings on the street with parking behind and drive thru hidden making it very difficult to make a drive thru work. In Dallas the City is working on an overlay District on 450 prime acres at Valley Mall and Galleria at Preston and LBJ that totally eliminates drive thru.  Also, in Arlington, TX  the City is creating an Entertainment Overlay District on 2,800 acres around Cowboy Stadium and Ranger Stadium at I-30 and Collins that also eliminates all new drive thru restaurants. Some restaurants receive 40% or more of there business from the drive thru lane so this will significantly affect sales.
    The small business franchisees are a major driver of job growth in this country. Increased regulations will curb that growth.

Restaurant Trends

The restaurant industry is about to make a major change with the upcoming government law to label menus with health information and calorie counts. Any restaurant with 20 units or more will have to enforce this law, as reported by the Los Angeles Times.

Along with the upcoming law, restaurant-goers are already expecting full disclosure on menus. Social networking is of increasing importance with restaurant reviews. Consumers trust friends on Facebook and reviews on Yelp compared to marketing professionals. Both Technomic national market research firm and QSR Magazine state that smart phone applications are becoming essential for restaurants as well as the ability to text orders ahead of time or receive discounts.

Sullivision.com training and consulting company claims that consumers are starting to flock to food items with the name “artisan” in it because of the fresh and local aspect. Authentic foods are becoming more important than unhealthy fast food. Specifically, Southeast Asian foods and Indian foods are trending right now on menus. Technomic also predicts the rising trend in ethnic and artisan foods in addition to global cuisine. Consumers are asking for fresh food that supports the local farmers and also serves their community.

Restaurants will also be doing more spontaneous promotions instead of discounting their food. Flexibility will be another trend from fast casual to full service with opportunities to begin catering. Food trucks and seasonal pop-up restaurants are continuing as a fad. Both trend watcher Andrew Freeman & Company and Zagat claim that self-built restaurants and mom and pop shops are increasing in popularity, in addition to single-purpose restaurants such as Peanut Butter Palace

Foreign Restaurant Invasion

Until recently there has been very little foreign chain expansion into the U.S. This is due to several reasons such as the sheer distance from Europe and Asia, lack of franchise experience, the fierce competition, the earlier strength of the dollar making it more expensive and the laws and regulations to figure out. My company the John T. Evans Company is part of the Council of Internatinal Restaurant Real Estate Brokers that tracks the international scene. CIRB has
assisted restaurants with substantial operating partners ... most recently bringing about partnerships in the Middle East for famed U.K. restaurateur, Jamie Oliver, and in India for 75-year-old chain, Trader Vic's. In recent years we are seeing greater numbers of foreign restaurant chains coming to the U.S. Here are a few examples:

South Africa - the fast growing grilled chicken chan in with its famed piri piri flavoring: NANDO'S
France - 100 year-old, patisserie and cafe: Paul's has locations in various US cities.
Spain - 100-unit, mini-sandwich chan: Cerveceria 100 Montadito's has just opened in Miami
U.K.- Spanish-cuisine, La Tasca has opened units in Washington, D.C
U.K-Asian cuisine, Wagamama, with over 60 units worldwide, has opened units in Boston
U.K. - Asian cuisine, Zuma just opened in Miami
Canada - Extreme Pita
Cananda - Firkin Group Of Pubs is opening in western U.S
Italian cuisine restaurant chain, Vapiano's is opening throughout the U.S

New flex-casual idea helping Mama Fu's drive sales

Many fast casual restaurants typically do well at lunch while dinner business falls off. Mama Fu's Asian House has developed a hybrid to boost sales at dinner and weekends. During the day, Mama Fu's locations operate with counter service for the lunch rush, but at night and weekends, the concept turns into a full-service format, making it more appealing for the dinner crowd, such as families. Randy Murphy, the president and CEO of the brand based in Austin, TX says, " the hybrid concept has proven very successful with Mama Fu's costumers, bringing in a dinner crowd that skirts most fast-casual concepts." He goes on to indicate, "Whereas most fast-casual concepts will do 60 percent revenue from lunch and 40 percent revenue from dinner, we do the opposite with 40 percent lunch and 60 percent dinner, and a lot of it is because of our flex-casual service model." This is one reason Mama Fu's has turned around from a struggling brand to a successful concept looking to grow. Will keep you posted if other fast casual concepts transition to flex-casual prototypes in the future.

Food Trucks entering Dallas

Much has been written about the success of food trucks or mobile restaurants in cities like LA, Portland, Austin and New York and the failure in Dallas. However, I see the trend will come about in Dallas in time. Austin saw the explosion of food trucks like Torchy Tacos that has since
grown into a full fledged restaurant chain opening up storefronts in Dallas. The codes for operating food trucks were poorly written or not well defined. This created problems until comprehensive codes were developed. Dallas codes are currently very restrictive preventing
food trucks from traveling the streets. Right now developers are meeting with Dallas City officials to mirror some of the new Austin codes so that Dallas can have a well coordinated approach to monitoring food trucks. There are plans to turn the old Arcadia Theater site on Lower Greenville in to a food park with space for chefs to park converted trailers and trucks with picnic tables and public restrooms. Also, Bishop Arts District the Dallas Arts District and West Village are other areas discussed as possible food parks. This will create new
energy to different areas of town and give Dallas more variety as chefs bring in new food ideas.

Multiple-unit franchising continues to lead restaurant growth





According to research by IFA, more than 50% of all franchises
are owned by 20% of franchisees. The old days of franchisors
looking for single-unit franchisors is all but over. Multi-unit
operators can open stores more quickly and efficiently. In addition,
they can cross market different brands. Franchisors are offering
multiple brands like Fransmart, Focus Brands and Yum!Brands.



Fransmart portfolio includes Boardwalk Fresh Burgers and Fries, Elevation
Burger, Freshii, Mazzio's Italian Eatery, Nature's Table, Oliveto Italian Bistro,
Sandella's, Sonoma Chicken, Tossed, Vapiano and ZPizza.

Focus Brands features Moe's Southwest Grill, Schlotzsky's Deli, Carvel Ice
Cream, Seattle's Best Coffee and Cinnabon's.

Yum!Brands combines Taco Bell, KFC, Pizza Hut, Long John Silver's,
A&W Restaurants and Wing Street.

These franchise development companies use co-branding to cross
market concepts. Schlotzsky's puts Cinnabon's and sometimes
Carvel Ice Cream inside their restaurants. Long John Silver's
and A&W go under the same roof.

Working with different brands allows you to branch out after
saturating a market with one brand. Hearing about different
ways to operate a brand helps franchisee's adopt new methods
for each restaurant.

The three largest restaurant franchisees in the country are NPC
International Inc. with 1,100 Pizza Huts, AAFES (Army and Air
Force Exchange Service) with over 800 A&W Restaurants, Baskin-
Robbins, Seattle's Best Coffee and others and Carrolls Restaurant
Group with 559 Burger Kings along with Taco Cabana chain and Pollo
Tropicals. These are called "mega-'zees" operators.

However, there are risks with large multi-unit operators. Doc
Cohen a Texas based entrepreneur has run franchise stores
since 1979 including Great American Cookie Company, TCBY
and Pretzel Time. Doc has seen the progression to large mulit-unit
operations. He says, "It scares me when I see a new or young
system selling large areas." "They need to keep their options open.
What if a guy gets the rights to develop Texas, opens three stores
and decides that's enough?" That's why many companies only sell
the rights to develop five to seven units at a time. Also a large
franchisee can begin butting heads with the franchisor expecting
specialtreatment or discounts. They could force their own changes.

Multi-unit franchisee will continue to be the standard for future
franchise growth as companies realize the benefits to owning
more than one brand.

Some Theaters enter competitve restaurant business

Dinner and a movie used to be a big attraction for restaurants wanting to

feed off the traffic from theaters. However, more and more theater chains

are combining dinner with the movie experience. The latest is Gold Class

Cinemas from the west coast that just opened in Fairview, TX just outside

Dallas. Movie tickets are $17.50 for members enjoying huge individual

reclining lounge chairs in a smaller home theater experience. Waiters

serve up $16 artisan pizza or farfalle pasta for $14 while you enjoy first

run movies. The developer boasts the increase sales to your restaurant

by locating next to the theater. but is anyone really going to be looking to

eat after that experience. Gold Class is run by restaurant people not

theater people so you know they intend to push their menu and drinks

during the movie. Movie Tavern and Studio Movie Grill sell movie tickets

at the market rate with a lower price points on their food. They all want to

take away dining dollars from your restaurant. Right now cinema eatery chains

only account for 1% of all movie screens, but this is a growing trend.

Theaters like Cinemark and AMC are still great draws for your restaurant

dinner and weekend business. The movie business is still strong. Make sure

you are not competing with the dinner movie theaters.