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The pros and cons of fast food tenancy.

In the city that never sleeps, eating can be just one more entry on the list of things to do. When the Midtown lunch hour hits, fast food establishments are flooded by hoards of hungry business people with little time to eat much less wait for food preparation.

Therefore, the demand for fast dependable cheap food becomes a necessity. In a city of endless eating choices, people take comfort in the familiar. And fast food's claim to fame is consistency. When was the last time you went to McDonald's and they didn't have a Big Mac on the menu board?

As a consultant specializing in fast food leases, I am often asked to define the term "fast food." There is no standard answer, but there are several factors that remain constant when explaining the fast food phenomena.

Fast food is an eponymous term - it's food and it's fast. Fast food operators function in a hyper-efficient mode because volume, not price, drives the bottom line. By servicing high volume, chains are able to purchase provisions in bulk quantities. Costs saved on provisions allow the operators to sell the product cheaper than mom and pop establishments. The cheaper product appeals to a large volume of consumers, and this generates more sales. It's a self-perpetuating cycle.

But what really separates fast food from other food operations is the uniformity in every aspect of business. From method of operation, to product, price and image, a standard protocol is in place. These factors are identified and controlled by a corporate entity that dictates to its franchise or company store every. aspect of the food service operation. It's an effective tactic for monitoring standards, and also serves as a reassurance to consumers who want to know what to expect when they walk in the door.

New Yorker's demand for fast food of a known quality has spawned a huge fast food industry, mainly concentrated in the Midtown and Downtown areas of the City. Manhattan is home to all the well-known international chains such as McDonald's, Subway, Dunkin' Donuts, Taco Bell, Burger King, Pizza Hut and Wendy's. These establishments draw on vast resources to minimize the risks inherent in the Manhattan market. But local operators in New York, such as Ranch 1 and California Burrito, have also proved successful thanks to the high-volume in need of a quick bite.

Some of the national players like Subway and McDonald's have proven they can also be successful in mostly residential areas as well. The one fast food chain that does not rely on heavy lunch traffic is Dunkin' Donuts, who tend to do 85 percent of their business before noon. However, Dunkin' Donuts' recent acquisition of ToGo Sandwiches, a West Coast sandwich chain, will launch them into the fight for the lunch dollar.

The Pros and Cons of Fast Food Tenancy

Although the typical fast food tenant may be flexible, the landlord is often not so easily convinced. Typically, most property owners stay away from food. Property image, higher insurance costs, "venting" and vermin are all perceptions of fast food tenants. Landlords are also aware of the difference between a corporate signature and franchise signing. Landlords prefer the parent company on the lease, so that they can use the signature to finance the property with more flexibility.

However, there are actually several benefits in a fast food tenant. Fast food tenants rarely go out of business, tend to spend a great deal on advertising, and have great product awareness. All of these factors ensure stable tenancy.

In addition, fast food retailers are able to efficiently utilize a small space to ply their trade. Most deals tend to range in size from 1,000 to 3,000 square feet. Recently, I negotiated a fast food lease of only 280 square feet with no basement. If the location is right, tile chains adapt. McDonald's Express operations are a prime example. The Express uses a little as 1,200 square feet to compensate for the rising cost of doing business in New York.

Other negative perceptions of venting requirements and vermin overrun are still issues for concern. However, corporate chains have strict enforcement on pest control to avoid costly lawsuits and negative imaging. Also, chains like Taco Bell, Subway, Dunkin' Donuts, Pizza Hut and California Burrito can all cook without venting.

In addition to the changing needs of a fast food tenant, the most fascinating trend is cobranding. With the rising rents of a hot real estate market, it is necessary to do high volume business and expand not only what you sell, but also increase business hours. With the recent pairing of TCBY and Subway, and the Allied Pomecy (owner of Baskin Robbins and Dunkin' Donuts) acquisition of ToGo Sandwiches, we can expect to see this trend continue throughout the fast food industry.

At Winick Realty Group, we provide an array of professional leasing serves for McDonald's, Subway, Dunkin' Donuts, Ranch 1, California Burrite, Taco Bell and many more fast food retailers. Our efforts on behalf of these chains have helped to achieve their market penetration goals, and also to establish greater profitability for the establishments in areas throughout the Big Apple.
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Copyright 1998, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Focus on Commercial Sales & Leasing
Author:Pruger, Jason
Publication:Real Estate Weekly
Date:May 20, 1998
Previous Article:The rising tide is lifting all boats.
Next Article:A hot as a pistol market, but for how long?

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