Food Glorious Food: The Building Block of Retail in LA

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I could eat sushi every day. In L.A., there are hundreds of choices if I want to stop in for lunch or dinner, and there are also numerous ways to have it delivered to me whether I feel like having a triple salmon crunch roll or just a simple California roll while I watch the latest episode of Fleabag at home.

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Food (and beverage) has been elevated to an experience that extends beyond the ambience of a restaurant to include how you order and get your food. On the other end of the business, the way food is made and delivered is evolving at an explosive pace as well.

Americans are increasingly spending more time and money on dining out, according to CBRE’s U.S. Food-in-Demand report. In lockstep, prepared meal food delivery, primarily from restaurants, increased 40 percent in the past five years to $18 billion in 2018 and sales are expected to reach $25 billion by 2023, with two-thirds ordered online.

Going out to eat is a form of entertainment, and restaurants are a vital amenity to a live-work-play environment. It’s no coincidence that some of the top restaurants are in these inner-ring suburbs. Just as other retail sectors evolved to meet consumer demand by offering both online and brick-and-mortar choices, consumers want options when it comes to dining out, take out, delivery, and meal preparation. According to Statista, meal kit delivery sales were $4.65 billion in the U.S. in 2017 and are expected to reach $11.6 billion in 2022.

The unifying theme is convenience, ease of use, and experience. Millennials dine out more than other generations, but they’re thrifty diners. Currently, Baby Boomers collectively spend the most on food and beverage, and Gen Xers spend the most on a per-household basis. This profile could change over the next ten years as millennials’ wealth constraints ease with decreased debt and increased income and Boomers spend less into retirement.

A CBRE analysis of U.S. consumer spending and demographic patterns suggests significant changes for food-and-beverage (F&B) operators and the real estate they occupy, including a greater push for convenient, prepared foods, a growing millennial influence, and the emergence of live-work-play neighborhoods. The densification of inner-ring suburbs draws restaurants, bars and grocery stores that serve as gathering points for residents and employees alike. Prepared meals, food delivery and meal kits put time back in the hands of the consumer to enjoy other things and facilitate work/life balance.

The F&B sector as a whole is rapidly evolving to accommodate a wide variety of consumer preferences but also as a way to differentiate from the competition. Virtual kitchens have emerged to meet delivery demand and the shift of consumer eating habits toward prepared meals accessed via technology platforms. In Greater Los Angeles, these shared meal preparation spaces, according to CBRE’s latest research, are capitalizing on prepared meal delivery expansion, including Cloud Kitchens, Kitchen United and Colony, and much like last-mile warehouses, are locating their facilities to maximize customer order fulfillment reach. Restaurants and grocers are evolving beyond the standards and offering everything from ready-made meals and cooking classes to in-store cafes and bars with cheese tasting events. Some grocery chains are even acquiring meal kit companies to enhance in-store offerings.

The implications for commercial real estate extend into every aspect of F&B. This sector’s share of total U.S. retail sales increased to 24.3 percent in the past 10 years from 22.7 percent in the eight years prior to the recession, according to Commerce Department data. Those factors have resulted in restaurants, bars and grocery stores claiming an expanding share of retail real estate. According to the International Council of Shopping Centers, in the F&B category, U.S. mall square footage dedicated to restaurants, excluding food courts, increased by 18 percent since 2007 to 43 million square feet. Some restaurants are adding kitchen-only locations catering solely to delivery and carryout customers. Spaces within virtual kitchen facilities rented to restaurants are typically in the hundreds of square feet versus thousands of square feet for traditional restaurants, and offer a low-cost and efficient alternative. For landlords, virtual kitchens could be another source of demand for smaller industrial properties and vacant restaurant space. Within office buildings, landlords are also focused on upgrading F&B for their tenants.

We need to eat, but how we eat is changing as rapidly as a seasonal menu. It’s clear F&B is becoming the darling of the retail sector as evolving trends dictate how we hunt and gather.

Petra Durnin is the director of research and analysis for CBRE Southern California.