Why Smaller Footprints Deliver Big for QSRs

August 21, 2024

Millennials' need for speed is a key factor, write Northmarq's Mike Philbin and Matt Lipson.

Driven by social and economic shifts, consumer preferences are rapidly evolving, with significant acceleration during major disruptions such as the COVID-19 pandemic. This period underscored the importance of convenience and speed, propelling technological advancements such as online ordering and delivery to the forefront. Innovations, particularly in artificial intelligence and operational technologies, have transformed the quick-service restaurant and casual dining sectors, enhancing operational efficiency and meeting the growing demand for drive-thru and mobile delivery services. Staying ahead of these technological trends is crucial to maintaining a competitive advantage in this rapidly changing landscape.

Surge in takeout and delivery

The pandemic substantially increased demand for takeout and delivery, with nearly 70 percent of American adults now more likely to order takeout and 60 percent doing so at least once a week, according to Yelp. To meet this demand, new restaurant formats with smaller footprints and limited dining areas are emerging. NPD/CREST 2022 data reveals that 79.5 percent of restaurant traffic now comes from carry-out, drive-thru and delivery, with QSRs seeing an even higher proportion of 86 percent. This shift to smaller, more efficient designs lowers development and operational costs while adapting to consumer preferences.

Brand adaptations to new trends

Brands are recognizing the benefits and adapting to the trend of smaller footprints. Buffalo Wild Wings recently launched its fast-casual concept, Buffalo Wild Wings Go, with an 1,800-square-foot prototype in Atlanta and saw a 140 percent increase in takeout and delivery business in just six weeks. Del Taco, with a focus on efficiency, has also introduced a new small-format concept at just 1,200 square feet.

Portillo’s, which traditionally operates restaurants of approximately 11,000 square feet, have opened several new formats in recent years: a smaller store design, at 7,700 square feet, and a “restaurant of the future” at just 5,500-6,000 square feet. A third concept featuring a drive-thru and takeout-only is even smaller yet, allowing the brand to take advantage of smaller lots in strategic markets. Also in an effort to enter new, urban markets, Panera has launched both a new small-format restaurant that is half the size of a typical location, as well as the “Panera To Go” concept that excludes a dining room.

Taco Bell has employed other innovative solutions to address space concerns while developing restaurants for their customers to enjoy. It recently transformed a former neighborhood home in an urban area into a restaurant, using the front yard for lounge seating and outdoor games. This restaurant did not have space for a drive-thru lane, but this was intentional, as they elected to deliver a more socially focused concept over a quick-delivery option.

Along with another new Taco Bell concept named Defy, which provides a completely drive-thru experience, Yum! Brands is also exploring a Go Mobile prototype that features a walk-up window for digital orders, catering primarily to third-party delivery services. At just 1,600 square feet, the restaurant does not include a dining room, allowing these locations to be built on lots as small as half an acre.

Introducing new prototypes with millennials in mind

These and other prototypes are being tested with success, as QSRs and fast-casual restaurants are increasingly targeting millennials and younger generations, primarily those aged 18 to 33, who represent a potential $1.3 trillion in revenue. Ten years ago, it was estimated that millennials allocated 44 percent of their food budget to eating out, according to a 2014 USDA analysis, and that percentage has undoubtedly grown in recent years. As this population ages and their disposable income increases, they will become an even more valuable audience for restaurants. It is crucial for brands to attract and retain this key demographic along with future generations that are even more tech savvy and who prioritize efficiency, affordability and convenience.

Mike Philbin is a senior vice president and Matt Lipson is a vice president at Northmarq. Together, they lead the firm’s Net Lease Restaurant Group and focus on sale-leasebacks, portfolio advisory and restaurant investment sales.

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