Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Jill wysn't Thal Joe, do
Speaker 1: you remember our conversation with Ali Webb, the founder of Drybar.
Speaker 2: Yes, that was a really great conversation, and you know,
Speaker 2: we talked a little bit about how she selected optimal
Speaker 2: Drybar locations, and I think both of our interests were
Speaker 2: peaked at that exact moment about the art of location selection.
Speaker 1: Yeah, it was sort of a light bulb moment for
Speaker 1: me because obviously you think, yes, if you're a business,
Speaker 1: you're putting a lot of thought into where you're opening
Speaker 1: up a store, and presumably you want to find a
Speaker 1: location with lots of traffic and try to sell as
Speaker 1: much as you possibly can. But there were all these
Speaker 1: new and intriguing factors that were sort of lurking behind
Speaker 1: the scenes. So I remember Ali was talking about how
Speaker 1: for dry Bar, it's really important that you select a
Speaker 1: location where you can effectively slot into a customer's sort
Speaker 1: of day to data routine, right next to a grocery
Speaker 1: store or on the outside of a shopping mall so
Speaker 1: that there's easy access. But there were also things that
Speaker 1: I had never considered, like, if you are in a
Speaker 1: shopping mall, does the shopping mall owner actually allow more
Speaker 1: than one hair salon in that space?
Speaker 2: Speaking of shopping centers, you know, there's this location that
Speaker 2: I drive sometimes when I'm on the Long Island Expressway
Speaker 2: that I always passed, and in this like one shopping
Speaker 2: center that I always see from the highway, there is
Speaker 2: like a dry bar, a soul cycle, and something else,
Speaker 2: and I just imagine that's perfect. Yes, the person, most
Speaker 2: likely a woman in this case, who's like, for yes,
Speaker 2: this shopping center basically like knocks out three of the
Speaker 2: things that they have to get taken care of during
Speaker 2: some like you know, two hour block of time that
Speaker 2: they have.
Speaker 1: Man, that is a that is a lifestyle.
Speaker 2: Yes, it's a lifestyle location for sure.
Speaker 1: But the point is there are all these sort of
Speaker 1: like hidden things happening behind brick and mortar site location,
Speaker 1: and I feel like we should get a better sense
Speaker 1: of them, particularly in the context of what's happening with
Speaker 1: commercial real estate. We've done a couple episodes on cre
Speaker 1: and offices, but also on shopping malls, and again, there
Speaker 1: are things in the shopping mall world that I have
Speaker 1: never considered before, such as the maintenance or how important
Speaker 1: are holiday decorations and how that can feed into values
Speaker 1: and things. So I'm curious if you're a business, if
Speaker 1: you're thinking about, well, I want I want to open
Speaker 1: a store in this particular strip mall because they have
Speaker 1: really nice Christmas decorations or something like.
Speaker 2: That totally or where in the store or where in
Speaker 2: the mall or the strip mall the store physically is
Speaker 2: the types of turns that you have to take could matter,
Speaker 2: like all kinds of things. That's like, yes, we all
Speaker 2: no location matters, but it's like they're real professionals and
Speaker 2: true location optimization and.
Speaker 1: The secret art of choosing shop sites.
Speaker 2: Yeah, and so we should. I'm eager to learn more.
Speaker 1: Okay, So this is actually a two part episode that
Speaker 1: means we have two perfect guests for you. To begin with,
Speaker 1: we're going to be speaking a bit broadly about this
Speaker 1: whole idea of site location. We are going to talk
Speaker 1: with Tom McGee. He is the CEO of something I
Speaker 1: didn't know existed, the International Council of Shopping Centers, the ICSC,
Speaker 1: which is a trade association for shops. We're going to
Speaker 1: talk to him generally about how businesses choose where to
Speaker 1: set up shop. But then we have a second guest.
Speaker 1: We're going to drill down into even more detailed joke.
Speaker 2: That's right after our conversation with Tom, we are speaking
Speaker 2: with Chris Hatch of Forza Development. His actual real expertise
Speaker 2: happened to be in drive through location and so things
Speaker 2: like Starbucks drive throughs and in and out drive throughs,
Speaker 2: and so after our sort of general conversation with Tom,
Speaker 2: we're going to be speaking with a specialist in one
Speaker 2: area about how a national chain figures out the optimal
Speaker 2: spot to put in a drive through location.
Speaker 1: All right, Here is our conversation with Tom McGee, the
Speaker 1: CEO of the International Council of Shopping Centers. Tom, what
Speaker 1: is the International Council of Shopping Centers?
Speaker 3: Well, the International Council of Shopping Centers, which we go
Speaker 3: by the term ICSE, is a trade association. We represent
Speaker 3: about fifty five thousand members landlords, owner developers, tenants, service providers,
Speaker 3: your brokers, accountants, attorneys, everyone that serves the retail industry
Speaker 3: with a particular focus upon physical retail.
Speaker 2: So big picture, some sort of national chain, you know,
Speaker 2: like a tractor supply or a Starbucks. So you know
Speaker 2: they're like, okay, we want to expand in a new area.
Speaker 2: What is the process generally by which they'd go out?
Speaker 2: Do companies have like in house real estate teams? Is
Speaker 2: it brokers?
Speaker 4: Like?
Speaker 2: Walk through the process by which a commercial landlord and
Speaker 2: some sort of retailer will connect.
Speaker 3: Well, you touched upon a couple things, and those are
Speaker 3: two very different brands. But first, most big national retailers
Speaker 3: will have an in house real estate team. That does
Speaker 3: not mean that they won't use brokers for assistance. And
Speaker 3: certainly all national owner developers will have an in house
Speaker 3: leasing team, people that work with tenants to help them
Speaker 3: find space and negotiate terms. But big picture, the CEO
Speaker 3: will start and say, we have growth objectives. You know,
Speaker 3: we want to open up a certain number of stores
Speaker 3: this year to help meet those objectives. And or we
Speaker 3: have a number of leases that are coming due, and
Speaker 3: we may want to renew those leases or look for
Speaker 3: alternative sites. And so what they'll start with is based
Speaker 3: upon those two broad objectives. Say, okay, first of all,
Speaker 3: who's our core customer? You know, particularly if you're an
Speaker 3: established retail you have a pretty good sense to who
Speaker 3: your core customer is and who you want to serve
Speaker 3: and who you want to establish, and so demographics, you know,
Speaker 3: are very very important. You look at different trade areas
Speaker 3: and you say, Okay, does this particular trade area have
Speaker 3: the demographics the type of customer that we're looking to serve.
Speaker 3: If you are a tractor supply, you have a certain
Speaker 3: demographic that's probably interested in the type of products that
Speaker 3: you serve. If you have a Tiffany's, you have a
Speaker 3: certain demographics and the type of property, a type of
Speaker 3: customer that you're trying to serve, and you're looking for
Speaker 3: those different types of locations or areas that fit your
Speaker 3: customer needs. And then you start looking at, okay, what
Speaker 3: other retailers are there, what are the properties that are
Speaker 3: available that I might want to situate in. And generally,
Speaker 3: the vast majority of retail in the United States, New
Speaker 3: York being you know, an obvious exception, where there's a
Speaker 3: lot of street retail and so forth, are domiciled in
Speaker 3: shopping centers, whether that's big regional malls or local open
Speaker 3: air shopping centers and everything in between. And then they'll
Speaker 3: start looking at the tipperate types of properties that they
Speaker 3: want to locate their space in and begin to talk
Speaker 3: to landlords and begin to understand who are the other
Speaker 3: tenants within that space, etcetera. They may use a broker
Speaker 3: to help them with that, they may not. A landlord
Speaker 3: may use a broker to help them, they may not.
Speaker 3: The larger they are, generally, the more in house it is.
Speaker 3: The smaller they are generally, the more they might use
Speaker 3: an outside service providers. But even large national chains and
Speaker 3: large national landlords, we'll often use service providers to supplement
Speaker 3: their team.
Speaker 1: What kind of due diligence goes into identifying locations? So
Speaker 1: let's say I don't know, I have a small business
Speaker 1: and there's a nice strip mall and there's a vacant space,
Speaker 1: and I think this looks like a really good possibility
Speaker 1: for us to set up shop. What are the sort
Speaker 1: of factors or things that we would be looking out for, Like,
Speaker 1: for instance, would we be standing outside the shop, like
Speaker 1: measure ring, footfall or something like that.
Speaker 3: You would certainly stand outside the shopping center and want
Speaker 3: to observe it and make sure that it's of a
Speaker 3: stature and a quality that's representative of your brand. I mean,
Speaker 3: you start out that big demographics and looking at your customers.
Speaker 3: But then you start drilling down and you might have
Speaker 3: a shopping center on both sides of the street, right,
Speaker 3: and you might say, well, why do I pick this
Speaker 3: one versus a different one? And you might do research
Speaker 3: on social media and see what the local community says.
Speaker 3: You certainly are going to look at the upkeep of
Speaker 3: the shopping center. Is it visually appealing, is it is
Speaker 3: it well maintained? Who are the other tenants. That's a
Speaker 3: really big deal for retailers because not only are they
Speaker 3: going to want to make sure that there's not, you know,
Speaker 3: a natural competitor that's in that space that they might
Speaker 3: cannibalize each other, but you are who the company you keep, right,
Speaker 3: so you're going to want to make sure that the
Speaker 3: folks that are in that center are consistent with your brand.
Speaker 3: You're not going to generally have a Walmart, which is
Speaker 3: a large mass merchant retailer, next to Ralph Lauren or
Speaker 3: something like Louis Vauton, which is a high end luxury,
Speaker 3: So you want to make sure that there's a consistency
Speaker 3: to the type of retailer that's in that Look.
Speaker 2: Well, I was going to say conversely, from the perspective
Speaker 2: of the shopping center. How much do they think like, Okay,
Speaker 2: here's a vape shop, here's.
Speaker 1: A Spencer's Gifts.
Speaker 2: Yeah, you're right, imagine.
Speaker 1: They're co located next to vape shops if they still exist.
Speaker 2: Yeah, Like how much did they think about like mix optimization?
Speaker 3: Yeah, you absolutely think about that because first and foremost,
Speaker 3: the traffic that's in the shopping center, right, is going
Speaker 3: to be driven by the tenants that are in the
Speaker 3: shopping center. So you want to have a consistency. That's
Speaker 3: why you often see certain retailers that are in the
Speaker 3: same shopping center. You might see, you know, certain discount
Speaker 3: retailers and certain service providers that are often in the
Speaker 3: same shopping center at Alta and a Target and so forth,
Speaker 3: because they have a similar type of consumer. So in
Speaker 3: your example, you probably if you have a vape shop,
Speaker 3: you're probably not going to see certain retailers in there
Speaker 3: because that's not necessarily consistent with the demographics that they're
Speaker 3: looking for. Conversely, the shopping center owner themselves, it's really
Speaker 3: important to them as well to curate the mix appropriately right,
Speaker 3: because that's going to generate traffic. If you have a
Speaker 3: hodgepodge of stuff, you know, mixed in that don't have
Speaker 3: any synergy. That definitely isn't good for traffic, right, and
Speaker 3: it's not good for your brand, and ultimately it is
Speaker 3: not good for your ability to attract the next retailer
Speaker 3: and the next retailer. Because this particular industry retail real
Speaker 3: estate more than any other form of real estate, it
Speaker 3: is very relationship driven, and it's very much people are concerned.
Speaker 3: For example, in an office, a law firm might be
Speaker 3: on the fifth floor and a construction company might be
Speaker 3: on the sixth floor. It doesn't really matter. But in
Speaker 3: a shopping center, whether it's a big reaon mall or
Speaker 3: it's a local shopping center, it does matter who's next
Speaker 3: door to you because there's a synergy and a relationship
Speaker 3: both from brand identity and also foot traffic. That's very,
Speaker 3: very important.
Speaker 1: So let's say we've identified a likely location and we're
Speaker 1: now negotiating with the landlord about setting up a lease
Speaker 1: of some sort. What would go into those negotiations and
Speaker 1: what are the typical sticking points that you observe.
Speaker 3: Well, the most important one of the most obvious ones
Speaker 3: right term and price. So those are often quite frankly
Speaker 3: the most important. They're in the most important points and
Speaker 3: often the sticky point right the sticking points because both
Speaker 3: sides have a mutuality of interest to make sure they're
Speaker 3: being competitive. But outside of that, you're going to look
Speaker 3: at things like co tenancy. You know who else is
Speaker 3: in the shopping center and is there somebody that has
Speaker 3: a clause in there that says I can't you can't
Speaker 3: have a similar type of apparel retailer.
Speaker 1: Could I demand a co tendency clause? Like if for
Speaker 1: my business, could I say I don't want any other
Speaker 1: competitors in this area if I take up the space.
Speaker 3: Yeah, you could have co tennancy clauses as a as
Speaker 3: a tenant and you that would be a negotiating point.
Speaker 3: You're not necessarily going to get it, but you can
Speaker 3: certainly request it. And your prominence, your leverage is the
Speaker 3: bigger you are, and the more traffic you're going to drive,
Speaker 3: the more leverage you're going to have. Now, those tennancy
Speaker 3: clauses can often get renegotiated. So you have a co
Speaker 3: tenancy clause and the landlord might identify a you know,
Speaker 3: a tenant that they want in that shopping center and
Speaker 3: they may go to that other tenant that has a
Speaker 3: co tenancy clause and say, hey, we got this great
Speaker 3: retailer we want to bring in or great concept. You
Speaker 3: have a co tennancy clause that prohibits it less negotiate,
Speaker 3: and you know, that may be a negotiation. They might say, hey,
Speaker 3: that's great. There might be no consideration that needs to
Speaker 3: be because they might look at it and say that's
Speaker 3: going to drive more traffic, or they might ei there
Speaker 3: is no financial consideration, you know, or a free rent
Speaker 3: period or some type of negotiation that might take place
Speaker 3: to adjust that co tenancy clause.
Speaker 2: So drawing to on further, you know, we talked to
Speaker 2: Ali Webb, the founder of dry Bar, and the other
Speaker 2: point that she made that I think was really sort
Speaker 2: of like hit a light bulb. But it's like, you
Speaker 2: can identify a great region or a great area, a
Speaker 2: great town or demographic, you can identify the right shopping center,
Speaker 2: but depending on the nature of your what you're selling,
Speaker 2: location in that center is important. So she pointed out
Speaker 2: that for a blow dry bar, where you might want
Speaker 2: to you know, it's all about the in and out
Speaker 2: and quick. If you're in a mall, you don't want
Speaker 2: to be deep in the mall, and that that's problematic.
Speaker 2: You're not targeting people who plan to spend a lot
Speaker 2: of time in the mall. You want to be on
Speaker 2: the perimeter. What are some other you know, okay, after
Speaker 2: you identify the shopping center, et cetera, what are the
Speaker 2: other types of things that you see retailers thinking about
Speaker 2: with within space, within the air.
Speaker 3: Well, that's a particularly important one, right, if you are
Speaker 3: a convenience type of retailer, you definitely want to be
Speaker 3: a place that's convenient, right, so you want to make
Speaker 3: sure you're on the end. You want to make it
Speaker 3: as easy and frictional lists as possible for your customer.
Speaker 3: Another big one because of the nature of how a
Speaker 3: physical retail is used today, which isn't just for traditional shopping.
Speaker 3: And so we all picture that people go into retailers
Speaker 3: and shop and you know, walk around the aisles and
Speaker 3: so forth, which in fact they obviously do a lot of.
Speaker 3: But think about what happened during COVID. You have this
Speaker 3: whole convergence between the physical and digital world taking you
Speaker 3: have things like curbside pickup and click and collect and
Speaker 3: so forth. So now the actual parking lot and the
Speaker 3: flow of traffic is really really important if you're a
Speaker 3: retailer that really wants to and this is a whole
Speaker 3: other topic, but if you're a retailer that really wants
Speaker 3: to drive as many people as possible to your store.
Speaker 3: It's while you and I all believe it's a constitutional
Speaker 3: right to get free shipping, somebody actually is paying for that,
Speaker 3: and it's the retailer. And so if they can drive
Speaker 3: someone to go to their store to pick up that
Speaker 3: good that they ordered online, that's a big whim because
Speaker 3: they preserve that margin. But you're going to want to
Speaker 3: make sure that experience is very frictionless. And so if
Speaker 3: I'm driving up and I did a click and collected,
Speaker 3: it's curbs I pick up, Well, I wanted to have
Speaker 3: the ability to somebody actually put it in my trunk
Speaker 3: very easily and I drive away. And or I'm going
Speaker 3: to want to set up the store in such a
Speaker 3: way if somebody's going to go do a click, collect
Speaker 3: and actually walk in the store, that they can do
Speaker 3: that in a very convenient way. So location matters. It
Speaker 3: depends upon what your strategy is and how you're going
Speaker 3: to use that store.
Speaker 1: How scalable are these types of tendency agreements. Like if
Speaker 1: I am a national chain, could I strike some sort
Speaker 1: of deal with a major shopping mall operator or a
Speaker 1: major landlord of some sort to set up shops in
Speaker 1: like ten different states at multiple locations.
Speaker 3: You could, but it tends to be much more property
Speaker 3: specific than that because it goes back to kind of
Speaker 3: the basics of location. You really want to think about
Speaker 3: the demographics of that area, the community that you're serving,
Speaker 3: and so forth. So, yes, you could strike a large
Speaker 3: deal like that, but it's generally, particularly on large national
Speaker 3: retailers who already have an established footprint, they're going to
Speaker 3: be much more location specific.
Speaker 1: So the International Council of Shopping Centers, you actually run
Speaker 1: one of the big deal making conferences for this space
Speaker 1: we do.
Speaker 3: It goes back to this industry being very relationship based,
Speaker 3: and so we host about one hundred different events annually.
Speaker 3: We have one exceptionally large event which is in Las
Speaker 3: Vegas in the third week of May every year. We
Speaker 3: call it ICC Las Vegas. We'll have about thirty thousand
Speaker 3: people come to that event, and they come to that
Speaker 3: event for one reason, to do deals. They come to
Speaker 3: that event. Yes, we have content and a whole bunch
Speaker 3: of other aspects to it, but the core reason they're
Speaker 3: there is to network and talk transactions. So if you're
Speaker 3: a major or quite frankly, even a regional landlord owner developer,
Speaker 3: and you're a national regional or a or an emerging
Speaker 3: retailer that's looking to open up locations, you will very
Speaker 3: likely go to that event or one of our other
Speaker 3: one hundred events to build relationships and talk about expansion
Speaker 3: and talk about locations, and landlords will look at that
Speaker 3: as an opportunity to both nurture or existing relationships but
Speaker 3: also attract those new tenants into their spaces.
Speaker 2: I know these conferences are really just about meeting people
Speaker 2: and deals, but I get I assumes in Vegas and
Speaker 2: being in Las Vegas, which is why I would like
Speaker 2: to come have you. Yeah, we'll come out, But you know,
Speaker 2: I assume that there's a program and panels and stuff
Speaker 2: like that. What are going to be the big themes
Speaker 2: right now in spring twenty twenty four in terms of
Speaker 2: location identification?
Speaker 3: Yeah, I mean the biggest challenge the industry has right now,
Speaker 3: and this is going to surprise you, but it is
Speaker 3: really supply so oh spa of space and so particularly
Speaker 3: in suburban real estate is kind of on fire right now,
Speaker 3: particularly suburban open air. Why well, first and foremost because
Speaker 3: of think about what happened in the pandemic. So many
Speaker 3: people move back to the suburbs, and they're working from home.
Speaker 3: They're not necessarily coming into midtown Manhattan every day, so
Speaker 3: they have a lot more time, and so they're using
Speaker 3: those local retail outlets. Retailers are using their stores for
Speaker 3: multiple purposes, like fulfilling online orders, and so you see
Speaker 3: this whole synergy between the physical and digital world. And
Speaker 3: so while you have this increasing demand for space because
Speaker 3: of this multiple purposes, you have really had almost no
Speaker 3: new supply net new supply, and there's individual markets where
Speaker 3: there's been obviously retail construction. But if you look broadly
Speaker 3: over the United States, retail sales since the Great Financial
Speaker 3: Crisis have almost doubled, you know, they're eighty five eighty
Speaker 3: six percent increase since that period of time. Us GDP
Speaker 3: has gone up by thirty percent, population has gone up
Speaker 3: by almost ten percent. Retail square footage has caught up
Speaker 3: almost nothing during that period of time. So the industry
Speaker 3: has kind of done a very good job of growing
Speaker 3: out of the financial crisis, but has not built a
Speaker 3: whole lot of new supply, and quite frankly, there's probably
Speaker 3: not a lot of new supply that's going to be
Speaker 3: built over the course of the next couple of years.
Speaker 3: One it takes a long time. Even if you could
Speaker 3: start today and see I'm going to commit to build
Speaker 3: a whole lot of new retail square footage, it would
Speaker 3: take a number of years for that to come on site.
Speaker 3: And of course we had, you know, the cost of
Speaker 3: capitalism significantly over the course of the.
Speaker 2: Last Once again we see how higher rates actually impair
Speaker 2: the supply side. This casetail so supplying to man so
Speaker 2: occupancy in particularly in the open air space is that
Speaker 2: historical highs.
Speaker 3: Vacancy is exceptionally low. And when you hear of these,
Speaker 3: you know, large retailers that are that have filed for
Speaker 3: bankruptcy and they're closing locations like a bed bath and
Speaker 3: beyond and so forth. There's typical multiple bidders for that
Speaker 3: space almost on the day it becomes available, because it's
Speaker 3: well located and because there's this demand for physical space,
Speaker 3: and whether it's filled by one retailer or multiple, they'll
Speaker 3: the owner developer. May you know reconfigure the space if
Speaker 3: they have multiple possible tenants for it.
Speaker 1: I feel like we need a moment of silence for bed,
Speaker 1: bath and beyond the place where I think probably eighty
Speaker 1: percent of people in America have bought like the essentials
Speaker 1: for their first apartment or house.
Speaker 3: Tom.
Speaker 1: You know, you mentioned the space restrictions there. How much
Speaker 1: of that is the higher cost of funding the PTSD
Speaker 1: from the pandemic versus people writing off physical retail for
Speaker 1: years now. I mean this was a story even in
Speaker 1: the early to mid twenty tens, the idea that well,
Speaker 1: people just aren't going to go to shopping malls. Everything's
Speaker 1: going to be superseded by online shopping.
Speaker 3: Well, the biggest factor in the challenge around supply is
Speaker 3: just the lack of construction. And the lack of construction
Speaker 3: really was, you know, I think a byproduct of the
Speaker 3: Great Financial Crisis, owner developers, you know, being resistant to building,
Speaker 3: you know, having gone through that, obviously, lenders being resistant
Speaker 3: to the construction of new retail space during that period
Speaker 3: of time. So I think the market kind of dictated
Speaker 3: that we had enough retail square footage and we're not
Speaker 3: going to build a whole lot more unless you're building
Speaker 3: new housing developments and so forth, and growing parts of
Speaker 3: the United States. Obviously there's been a lot of new
Speaker 3: retail in Texas and Florida and places where the market's growing.
Speaker 3: So to that extent, the narrative around the demise of
Speaker 3: physical retail influenced how much construction there was over the
Speaker 3: last fifteen years. Today, I think if you talk to
Speaker 3: most people in the space, and those most people that
Speaker 3: are investors in the space or possible sources of capital,
Speaker 3: commercial retail real estate is actually a fairly favored sector
Speaker 3: right now, which is historically where it's always been except
Speaker 3: for the fifteen years ago, because it's emerged from the
Speaker 3: pandemic in such a strong.
Speaker 1: Positions, also on a relative basis to office space right well,
Speaker 1: but there's.
Speaker 5: Also other forum.
Speaker 3: I mean, there's logistics in industrial and healthcare. I mean,
Speaker 3: there's lots of different types of commercial real estate. So
Speaker 3: I think it's gone back to a space where people
Speaker 3: view it in a favored way. It's stable statistics and
Speaker 3: data around it. Back to this supply and demand or
Speaker 3: such that it suggests that there's a stability around it
Speaker 3: and there's an unlikelihood that you're going to have a
Speaker 3: whole bunch of new supply coming on the market anytime soon.
Speaker 3: So I think most investors look at retail real estate
Speaker 3: quite favorably right now. Clearly there's some challenges in the space.
Speaker 3: I mean it depends upon there's you know, centers that
Speaker 3: haven't done as well, but that's just competition and the
Speaker 3: mall sector. There are exceptionally well performing malls, particularly in
Speaker 3: the high end sector. There are some challenge malls. But
Speaker 3: you know, if you look at the mall sector gets
Speaker 3: such a disproportionate amount of attention. You know, there's over
Speaker 3: one hundred thousand shopping centers in the United States, about
Speaker 3: a thousand of them are malls. But because they're so
Speaker 3: iconic and they take up a lot of square footage,
Speaker 3: they do get a lot of attention. But all malls
Speaker 3: aren't created equal, and some are doing exceptionally well and
Speaker 3: some are more challenged.
Speaker 2: Are there cursed locations because you always, you know, you
Speaker 2: drive through your town and a new restaurant or something
Speaker 2: isn't that it's like, oh, it's the fifth one in
Speaker 2: that spot, and it's just something you just sort of
Speaker 2: this must be a cursed spot.
Speaker 1: Or even in New York there's real estate that stays
Speaker 1: empty for years and you think what's going on there?
Speaker 2: And like, a, is that a real phenomenon? Or is
Speaker 2: that just something we create in our brains? But then
Speaker 2: the other question is if I have a store and
Speaker 2: I'm looking, would I get unnerved? It's like, man, I'm
Speaker 2: the last five tenants in this location. They each only
Speaker 2: lasted eighteen months. It looks good on paper, but for
Speaker 2: some reason, whoever occupies this space? Like, is that a
Speaker 2: real phenomenon? And is that something that a prospective tenant
Speaker 2: would take into account?
Speaker 3: Well, certainly something of perspective tenant should take into it, okay, Right,
Speaker 3: you should look at you know, the location and say,
Speaker 3: what's the history of somebody that's been in that location.
Speaker 3: And if you have a series of failed tenants in
Speaker 3: a location, it may be because they had a bad
Speaker 3: concept or it maybe the location has something to do
Speaker 3: with it. So you should clearly look at it. And
Speaker 3: sometimes it's as simple as is it a right turn
Speaker 3: or a left turn? You know what's the traffic flow?
Speaker 3: And that does matter. Look, time's limited. There's stressed for time.
Speaker 3: If you have a young family and you got away
Speaker 3: five minutes.
Speaker 2: Time, I drive with my family, and that is a
Speaker 2: big factor. Oh, it's on the other side.
Speaker 1: Of the road, you can only turn left.
Speaker 2: No, it's just more like you're thinking about like where
Speaker 2: to stop on a drive and you're like, oh, do
Speaker 2: I really want to have to do a left turn
Speaker 2: in or a left turn out? Maybe I'll go to
Speaker 2: the one where you know.
Speaker 3: Like those things matter absolutely so, So I do think
Speaker 3: perspective tenants should look at the history of who's in
Speaker 3: a space. Generally, if it's a quote cursed location, honestly,
Speaker 3: it has to do more with take a step back
Speaker 3: and look at that location or that shopping center. It
Speaker 3: probably is one that either there's a really strong center
Speaker 3: right next door to it and that strong center and
Speaker 3: or the one that's quote cursed just isn't getting the
Speaker 3: kind of care and attention and investment that is needed.
Speaker 3: People want to shop someplace where it's clean and it's
Speaker 3: well capped and it's well maintained, and they want to
Speaker 3: shop where. Quite frankly, while we all don't like crowds,
Speaker 3: we kind of like crowds because if there's a crowd
Speaker 3: there that attracts us to go there, there must be
Speaker 3: something to it. So often it has to do with
Speaker 3: investment and just care and feeding of the center.
Speaker 2: To that great Thank you so much.
Speaker 1: That was fantastic.
Speaker 2: I gave you what your Yeah, it was fun. That
Speaker 2: was our conversation with Tom McGee, CEO of the International
Speaker 2: Council of Shopping Centers. And now let's talk to Chris
Speaker 2: Hatch of Force the Development on the art of drive
Speaker 2: through site selection. What does a Force the Development do.
Speaker 4: We are a retail developer and we're based out of
Speaker 4: Salt Lake City and we build retail throughout the United States.
Speaker 1: Kind of retail any specific names.
Speaker 3: Yeah.
Speaker 4: Currently we're doing a lot of work for Dutch Bros.
Speaker 4: Throughout their expansion going, and then we are also doing
Speaker 4: some Starbucks have an in and out deal going, Jack.
Speaker 5: In the Box, et cetera.
Speaker 2: So are you, like, are you a domain expert for
Speaker 2: drive through type concepts of coffee shops and restaurants.
Speaker 4: If you really like to nerd out and think through
Speaker 4: through put through a drive through, then I am your person.
Speaker 2: Yes, I have a feeling that odd Laws listeners are
Speaker 2: really into the idea of nerding out on drive through
Speaker 2: through put.
Speaker 5: Yeah.
Speaker 1: Wait, so are there specific considerations for drive through though?
Speaker 1: Because when I think about a Starbucks. I primarily I
Speaker 1: mean this may be an offshoot of living in large
Speaker 1: cities for a long time, but I primarily think of
Speaker 1: walking into a Starbucks, ordering my coffee and then probably
Speaker 1: not staying.
Speaker 2: Shows walking out How out of touch city dwellers we
Speaker 2: are that we mostly associate Starbucks with the place you walk.
Speaker 1: In, But they have both. I mean, even in the
Speaker 1: suburbs there's both. So when you're thinking about developing a site,
Speaker 1: are you thinking specifically about the drive through potential or
Speaker 1: about the retail opportunity overall?
Speaker 5: Yeah, that's an excellent question.
Speaker 4: I would say, either you're out of touch or that's
Speaker 4: the natchan charm of living in a city life.
Speaker 1: So might be both.
Speaker 4: Yeah, right, So, as far as the Dutch Bros goes,
Speaker 4: a Dutch Bros Is a nine hundred and fifty square
Speaker 4: foot building. The vast majority, in fact, with the exception
Speaker 4: of only maybe a few units, have no interior seating.
Speaker 4: There's no interior dining. Sometimes they'll have a patio and
Speaker 4: a walk up counter is typical, you know, for a
Speaker 4: walk up pedestrian traffic. However, ninety five percent plus of
Speaker 4: their drive through traffic is their customer pattern.
Speaker 2: For what about like for a Starbucks. So you said
Speaker 2: you've done Starbucks as well, and I know that like
Speaker 2: their drive through, pickup, et cetera. That's I think that's
Speaker 2: like a booming part of their business overall. But like,
Speaker 2: how do you think about, say, like balancing that. I
Speaker 2: was actually just at a Starbucks that had both a
Speaker 2: drive through and a walk in, So how would a
Speaker 2: Starbucks or you think about balancing those two different modes.
Speaker 4: So I'm currently building my ninth and ten Starbucks that
Speaker 4: I've developed for them. We have done one of those
Speaker 4: as a drive through only concept, which is sort of
Speaker 4: similar to that Dutch Bro's footprint, about nine hundred and
Speaker 4: fifty scare feet, no interior dining, and has a pedestrian
Speaker 4: walk up window. The other nine of all been cafe stores,
Speaker 4: and the average size on those has been about twenty
Speaker 4: four hundred square feet. It typically allows for about eighty
Speaker 4: customers to sit down inside of the restaurant or Starbucks cafe,
Speaker 4: and then the rest of the traffic to go through
Speaker 4: the drive through. I think they're typically experiencing about fifty
Speaker 4: percent of their traffic and sales going through the drive through.
Speaker 3: Wow.
Speaker 5: So massively important for them.
Speaker 1: Okay, here's another step back question. What is the allure
Speaker 1: of the drive through I don't get it because I
Speaker 1: do see you know, Okay, not in New York. When
Speaker 1: I'm in Connecticut. There is a local coffee shop that
Speaker 1: I go to and it has a drive through window,
Speaker 1: and there is every morning an incredibly long line, and
Speaker 1: I will still get out of the car, go into
Speaker 1: the store, order the coffee there, take it into the car,
Speaker 1: and avoid the driver.
Speaker 2: Can I answer this? Yeah, you don't have kids to
Speaker 2: get out of car seats and buckle them back up.
Speaker 1: Maybe that's it, And I think, well.
Speaker 2: I'll let Chris answer. But my first impulse is I
Speaker 2: can tell you exactly why I don't want to get
Speaker 2: out of a car sometimes.
Speaker 5: Yeah, you bet.
Speaker 4: You were asking me about the weather when I sat down,
Speaker 4: and I was telling you how Salt Lake is in
Speaker 4: a little bit of a warm front right now, which
Speaker 4: is high thirties and mid thirties for this time of year.
Speaker 4: But imagine, for example, you're my wife who we have
Speaker 4: five kids. I'm fifteen to six years old, and you've
Speaker 4: got multiple kids buckled into seat belts and you're running
Speaker 4: a dance or ice skating or soccer or whatever the
Speaker 4: current exact activity is. At this moment, you're just trying
Speaker 4: to hydrate yourself and the kids. It is just so
Speaker 4: much more convenient to go through the drive through. Now,
Speaker 4: what's wild about that is if you have the time
Speaker 4: and energy and desire, it's so much faster typically to
Speaker 4: walk into the restaurant, right and especially on these coffee things,
Speaker 4: the way that most of these retailers have become very
Speaker 4: smart with tech, and so you can typically make an
Speaker 4: order in advance and it'll be prepared and and sitting
Speaker 4: for you, so you just walk in, grab it, and
Speaker 4: walk out.
Speaker 2: Buckling and unbuckling car seats in particular is just like
Speaker 2: one of those things that like it's not that hard
Speaker 2: and it doesn't take time, but there is like there's
Speaker 2: like mental elements like, oh man, who's going to do
Speaker 2: the buckling in so I get It's like I like,
Speaker 2: don't mind like spending several minutes in the theoretical drive
Speaker 2: through to avoid the fifty eight seconds of the unbuckling
Speaker 2: and buckling process. Let's get into site selection. So whether
Speaker 2: it's a Dutch Bros. Or a Starbucks, you want to
Speaker 2: find the optimal place for that person to come in,
Speaker 2: swing their car and stand the line. What are the
Speaker 2: first things that a site location must have to make
Speaker 2: it applausible drive through location?
Speaker 5: You bet, And for this I might switch brands.
Speaker 4: Let's flip over to in and out Burger for a
Speaker 4: So I'm working on my first in and out Burger location,
Speaker 4: and it's actually located in the city of South Salt
Speaker 4: Lake City, not Salt Lake City. Now, the reason I
Speaker 4: bring that up is the very first thing you need
Speaker 4: to pay attention to when you're selecting a site is
Speaker 4: you've got a good corner, it's got good presence on
Speaker 4: the street, it's got excellent ingress, so you can get
Speaker 4: into the site very easy with a vehicle, which is
Speaker 4: how most of the traffic is driven to these.
Speaker 5: Types of concepts.
Speaker 4: Then your next step is to determine if it actually
Speaker 4: is large enough and if your targeted client can fit
Speaker 4: and operate and run their mouse trap on the site.
Speaker 4: And then the second part of that is to make
Speaker 4: sure from a city perspective that you actually have zoning
Speaker 4: in place and you have support from the local municipality
Speaker 4: that you can put in a drive through that's going
Speaker 4: to create the kind of traffic and trip generation that
Speaker 4: one of these typical users is going to create. So
Speaker 4: the reason this is a good example is originally In
Speaker 4: and Out was actually trying to locate in Salt Lake City.
Speaker 4: So they have rolled out just under a dozen restaurants
Speaker 4: in the state of Utah, but they've actually never entered
Speaker 4: the capital city of Salt Lake City. And part of
Speaker 4: the reason they've never done that is that there's a
Speaker 4: number of different zoning regulations that make it quite preventative
Speaker 4: to build new retail in Salt Lake City, and because
Speaker 4: of that, they've just never been able to get in.
Speaker 4: So there was a closed Burger King and then burned
Speaker 4: down Scone Cutter, which is a scone drive through business,
Speaker 4: which is kind of Scone Cutters.
Speaker 1: That's a great name.
Speaker 4: Yes, love that. It's too bad it's gone by the
Speaker 4: wayside a little bit here. But so there was a
Speaker 4: burnedown restaurant, and then there was a former Burger King
Speaker 4: that wasn't doing very much volume, maybe a million or
Speaker 4: a million two or something, and In and Out wanted
Speaker 4: to come in and place their unit there, and Salt
Speaker 4: Lake City would not allow them to place a prototype
Speaker 4: unit unless they had a maximum of five parking stalls. Well,
Speaker 4: I don't know if you've been to an in and
Speaker 4: out burger, but they need more than five parking stalls.
Speaker 4: So that was a real problem. So it hit kind
Speaker 4: of a stalemate. And what ended up happening is Jack
Speaker 4: in the Box actually opened in the Burger King instead
Speaker 4: of in and out, and so in and Out came
Speaker 4: across the street to my site, which is located in
Speaker 4: South Salt Lake City, where our city had open arms
Speaker 4: as a municipality to welcome them in.
Speaker 1: How much do safety considerations go into site selection for
Speaker 1: a drive through? Because I imagine a normal shop front,
Speaker 1: you just plunk it down in the correct zone and
Speaker 1: there's probably not that many problems that are going to emerge.
Speaker 1: But in something like a drive through, you do have
Speaker 1: things that happen where, for instance, if it gets too crowded,
Speaker 1: you start to have cars sort of coming out of
Speaker 1: the space and maybe disrupting traffic and things like that.
Speaker 1: How does that factor into it?
Speaker 4: Yeah, Tracy, it's a good question. I get asked that
Speaker 4: question so frequently, and it comes from a wide variety
Speaker 4: of people asking that question. Most of the brands that
Speaker 4: we work with are national retailers, their household names. You
Speaker 4: typically can recognize them as they're rolling off my lips.
Speaker 4: And the vast majority of them do a lot of
Speaker 4: homework on these sites, and that includes engaging a traffic engineer.
Speaker 4: That includes engaging a very talented civil engineer, and a
Speaker 4: lot of time is spent figuring out what the traffic
Speaker 4: demand is going to look like, what the trip count
Speaker 4: is going to look like, and then making sure that
Speaker 4: humans and vehicles are moving in and out of the
Speaker 4: site in a safe manner and that is also very efficient,
Speaker 4: and then also taking into concern how the pedestrians are
Speaker 4: coming on and off a site and how bicyclists are
Speaker 4: coming on and off a site. I would contend more
Speaker 4: attention is paid how to work some of those issues
Speaker 4: out than you may think. Now that isn't being said
Speaker 4: that it always works out flawlessly, because as soon as
Speaker 4: I say that, somebody could point out ten examples, you
Speaker 4: know that they've driven by where it is not efficient
Speaker 4: and it does not work well, and it does happen frequently.
Speaker 5: This is unfortunate.
Speaker 4: We try to spend a lot of our time at
Speaker 4: FORZA making sure we have a very efficient site plan
Speaker 4: so that we are is maximizing the real estate that
Speaker 4: we have and maximizing how to get customers on and
Speaker 4: off the site.
Speaker 2: Stepping back for a second, Normally, when you hear about
Speaker 2: zoning issues, I feel like local planners are talking about
Speaker 2: minimum parking requirements. They're like, Okay, if you're going to
Speaker 2: build something here, you have to provide minimum amount of parking.
Speaker 2: I know there's a lot of fights about this, but
Speaker 2: in the issue at Salt Lake City was a maximum
Speaker 2: parking situation. They couldn't have more than five places. Why
Speaker 2: was that And what are the sort of like others
Speaker 2: zoning What are some generally zoning questions that come up
Speaker 2: for the drive through concepts.
Speaker 4: Yeah, there's a lot of wonderful markets throughout the western US,
Speaker 4: and it certainly gets more challenged as you get closer
Speaker 4: to the water. But there's a number of, you know,
Speaker 4: California coastal communities that could definitely benefit from having a
Speaker 4: Chick fil A or somebody else like that, or even
Speaker 4: take one in my backyard, which is Park City. I'm
Speaker 4: sure in and Out or Chick fil A would love
Speaker 4: to land right in the middle of Park City. However,
Speaker 4: the county has no desire to really approve a drive
Speaker 4: through use at that intersection, and so sometimes it's just
Speaker 4: for whatever reason, you know, certain councils feel certain way
Speaker 4: about things. And even though it is definitely a continued
Speaker 4: trend in America and has only been increasing over the
Speaker 4: last twenty to thirty years, not decreasing, it doesn't seem
Speaker 4: to really alter the way some of these councils are wired.
Speaker 4: They typically sometimes they just don't want drive throughs. In
Speaker 4: the case of Salt Lake City, that was a little
Speaker 4: bit unique there. Salt Lake is really pushing for more
Speaker 4: vertical growth than anything else, and one of the ways
Speaker 4: that they're pushing for more vertical growth is by restricting
Speaker 4: open parking lots. They do not want an open, unstructured
Speaker 4: parking lot, and so part of what they're doing is
Speaker 4: pushing people to build structured parking and that can work,
Speaker 4: but some retailers they simply will not deal with a
Speaker 4: mixed use scenario and it's just not the way their
Speaker 4: mass trap works. And if they can't expand to Salt
Speaker 4: Lake City, then they'll go on and build another one
Speaker 4: in Dallas or wherever else they can get the zonning.
Speaker 1: What does creativity look like in your business? And the
Speaker 1: reason I ask is because I can imagine, you know,
Speaker 1: Joe and I are in journalism, and being creative in
Speaker 1: journalism is you know, maybe you write something in a
Speaker 1: very innovative way, or you present information in a new way,
Speaker 1: or you find a new way of telling a story.
Speaker 1: But in sits like what would be a creative choice
Speaker 1: When it comes to choosing a retail.
Speaker 4: Location, sometimes it's just figuring out what would actually work
Speaker 4: for a development opportunity. There are a lot of corridors
Speaker 4: that are mature, and they're built out, and they're an
Speaker 4: established retail trade area, and you go drive them, and
Speaker 4: we might have two or three tenants that would like
Speaker 4: to locate in that trade area, and there is no land,
Speaker 4: for example, There's not like an easy, no brainer, just
Speaker 4: piece of land sitting in front of a Walmart or Kroger.
Speaker 4: And so sometimes the creativity is just trying to figure
Speaker 4: out where could we actually land the retailer. Is there
Speaker 4: a former Taco John's or subway or something else that's
Speaker 4: run down that we need to go call the owner
Speaker 4: of the property and say, hey, this is kind of
Speaker 4: run down. How are rental payments coming in? Are you
Speaker 4: getting regular rent? So we spend a lot of our
Speaker 4: time working on lower performing restaurant locations that already have
Speaker 4: a drive through use and sometimes already have a built
Speaker 4: in which today's world that is much cheaper if it's
Speaker 4: got a building most of the time, especially if we
Speaker 4: can repurpose the building.
Speaker 2: Big box retailers like a Walmart or a Costco, etc.
Speaker 2: How much of when they think it's like, okay, we
Speaker 2: all have our mind of like what does look like
Speaker 2: there's like in the back, you know, there's a big building,
Speaker 2: and then there's just things like seeming me sometimes like
Speaker 2: acres of parking. How often do they think about like
Speaker 2: do we want to allocate some of this stuff in
Speaker 2: the middle of this parking lot to or drive through
Speaker 2: versus just having that be more parking.
Speaker 4: If it's in advance, then it's very intentional. And for
Speaker 4: a long time, when Walmart was on their big US
Speaker 4: groc bree, which was really kind of two thousand to
Speaker 4: about twenty seventeen twenty eighteen, as they were growing, they
Speaker 4: were typically going in and they would put in as
Speaker 4: many out parcels as they could fit on to a parcel. So,
Speaker 4: for example, a two hundred thousand foot Walmart's typically going
Speaker 4: to need about twenty to twenty two acres to fit
Speaker 4: on and have enough parking for its own needs in
Speaker 4: its opinion, and then if they could buy another ten
Speaker 4: acres that had pad frontage, then they would go buy
Speaker 4: another ten acres and more or less what would happen
Speaker 4: is they might have bought the entire site at seven
Speaker 4: dollars to ten dollars per score foot, and then they
Speaker 4: turn around and they charge people like me twenty to
Speaker 4: thirty dollars per square foot to buy one of the
Speaker 4: out parcels. And it wasn't uncommon for them to write
Speaker 4: their basis and their landdown by maybe a third or
Speaker 4: half of what they might have paid for it originally.
Speaker 4: And so it really is a nice robust business plan
Speaker 4: for them. Now, if it's an afterthought and you're going
Speaker 4: in on an existing store and you're saying, hey, look,
Speaker 4: this area of the parking field really.
Speaker 5: Is not that well utilized.
Speaker 4: That sounds really good if you're sitting in a boardroom
Speaker 4: in Bentville, Arkansas, and you're sitting around trying to tell
Speaker 4: your asset management boss, hey, I'm figuring out a way
Speaker 4: to drive more revenue. In reality, it's a nightmare. You
Speaker 4: have to get through operations. You have to There's just
Speaker 4: so many layers, and there's so much corporate bureaucracy, and
Speaker 4: it's not the way that the retailers are really geared
Speaker 4: to figure out how to make money out of existing
Speaker 4: real estate, and so it becomes very challenged to get
Speaker 4: through that process. We've looked at a number of those,
Speaker 4: We have done a few of them, but I would
Speaker 4: tell you that you probably work three times as hard
Speaker 4: on the site selection side as a normal piece of land.
Speaker 1: Can shopping malls be converted into drive through centers? Like,
Speaker 1: if you have a bunch of dead shopping malls in
Speaker 1: the country, could we just get rid of the mall
Speaker 1: and create I don't know, to McDonald's and five Starbucks
Speaker 1: and three Taco Bells.
Speaker 4: It's a great idea. A lot of them even have
Speaker 4: prefery retail sitting around them. Now, what you're watching right
Speaker 4: now is most of these mall reats have been off
Speaker 4: on earnings for a couple of years here, and so
Speaker 4: you're starting to watch a lot of these mallreads list
Speaker 4: some of their assets for sale. Sometimes that's the entire mall.
Speaker 4: Sometimes that's just the out parcels, but it is definitely
Speaker 4: a way in which the reads are looking at this
Speaker 4: saying we would like to create value. You have two
Speaker 4: challenges when it comes to those. Typically, the first challenge
Speaker 4: is what kind of redevelopment rights or what kind of
Speaker 4: development rights do the anchor tenants have over the pads.
Speaker 4: In other words, can a dealer's or can a sas
Speaker 4: dictate a building cannot be more than twenty eight feet
Speaker 4: in height with parapot walls and all the architectural features,
Speaker 4: or can a building even be built.
Speaker 5: There at all?
Speaker 4: And so they may just have their hand out to
Speaker 4: get paid. It may take a year to get that approval.
Speaker 4: It's just you know, so that's kind of involved. The
Speaker 4: second part of that just has to go with what
Speaker 4: has to do with mall maintenance as far as running
Speaker 4: the property long term, and then how that is untied
Speaker 4: to the outparcels. Sometimes figuring out how to untie the
Speaker 4: expenses becomes so problematic that the companies don't move forward.
Speaker 1: You know, it'd be funny. I was just thinking if
Speaker 1: we converted all the dead malls into massive drive throughs,
Speaker 1: and then at some point all the drive throughs decide
Speaker 1: we should just put a roof over the top of
Speaker 1: all our stores to make it more convenient for people.
Speaker 1: And then we're just back where.
Speaker 2: We starting with a gigantic food court. Yeah, let's talk
Speaker 2: about another thing that's come up in this conversation about
Speaker 2: site selection, and that is proximity or lack of proximity
Speaker 2: to competitors. And well, I mean, you know, it's funny
Speaker 2: because at least for a time, I think they've thinned
Speaker 2: them out a little bit. You know, like in New
Speaker 2: York City, you could be sitting in a Starbucks or
Speaker 2: to see another Starbucks. I think they've gotten rid of
Speaker 2: some of the I think that's gotten rare. But whether
Speaker 2: it's proximity to an existing location or a close competitor
Speaker 2: or a modest competitor, how does that go into site selection?
Speaker 4: Yeah, it just goes into the model. So a retailer
Speaker 4: will typically have some kind of sales forecast as they
Speaker 4: show up and look at a new site. There are
Speaker 4: a number of different factors that go into what that
Speaker 4: model looks like and what the output comes back as
Speaker 4: an estimated for sheer sales volume and then typically a
Speaker 4: two or three or four year stabilized sales volume. Some
Speaker 4: industries have got this pin down much tighter than others.
Speaker 4: For example, if you're looking at a grocery store location,
Speaker 4: the grocery casing analysts.
Speaker 5: Are very dialed in.
Speaker 4: They typically can figure out within a very tight degree
Speaker 4: of accuracy, what a grocery store is going to do
Speaker 4: in its first full year of volume. So there's only
Speaker 4: so many sales dollars in any given trade area, the
Speaker 4: easiest way is to think of it as any like
Speaker 4: ring city. So take like Dallas Fort Worth for example,
Speaker 4: or even just Dallas. You have a ring around it,
Speaker 4: and you know there's no geographical obstruction, So just put
Speaker 4: say a one mile or two mile or three mile
Speaker 4: ring around the center point of being the site. And
Speaker 4: then basically you have to figure how many of the
Speaker 4: customers that exist in there would normally be a shopper
Speaker 4: for that concept, and then number two, how many of
Speaker 4: those can then shop at a competitor where you might
Speaker 4: lose those sales. And so once you kind of boil
Speaker 4: it in, all of that goes into coming up with
Speaker 4: an estimated sales volume for the retailer, and more or
Speaker 4: less that's where our world lives, right. The higher the
Speaker 4: sales volume for the retailer, the more they can pay
Speaker 4: in rent, and so there's a direct correlation there. There's
Speaker 4: an occupancy cost that each retailer can afford as a
Speaker 4: percentage of their gross sales how much they can pay
Speaker 4: in total operating expense.
Speaker 2: So, in a given trade area, would the analyst or
Speaker 2: the company or the modelers say, like, come up with
Speaker 2: a total annual dollar volume that people in this area
Speaker 2: might be expected to pay for takeout coffee?
Speaker 5: Yes?
Speaker 2: Year, Yeah, so you come up with that number first, yes,
Speaker 2: and then they do the retailers do it. But then
Speaker 2: like in terms of like, well, like how far away
Speaker 2: do I want to be from a let's say jack
Speaker 2: in the box versus in and out, which are kind
Speaker 2: of substitutes. They're not exactly the same thing, but one
Speaker 2: might choose one over the other on a given day,
Speaker 2: Like how far would a jack in the box want
Speaker 2: to be from the nearest in and out?
Speaker 4: That's actually a great example. A jack in a box
Speaker 4: can probably live with a mile and a quarter to
Speaker 4: two mile spacing.
Speaker 2: But how do you come up with that number? Just
Speaker 2: talk to us about that.
Speaker 4: Well, in part is if you look at their average
Speaker 4: annual volume, I'll forget offhand, but if you check quick
Speaker 4: service restaurant, which is typically the periodical to go to
Speaker 4: for these kind of sales, I think they're at one
Speaker 4: point four one point five national average Okay, million per
Speaker 4: year per year. In and Out does not release numbers,
Speaker 4: but they're widely thought to have a number over ten
Speaker 4: million per year per unit, and so almost ten times.
Speaker 4: Typically their draw is more like a three to six
Speaker 4: mile draw, and a Jack in the Box is more
Speaker 4: like a one to two mile draw. Chick fil A
Speaker 4: has a wider draw than Wendy's, right, right, that makes sense.
Speaker 4: You do have to think of this in terms of
Speaker 4: suburbia though, Yeah, I mean it's got it back to
Speaker 4: the soccer bombs driving suburbans.
Speaker 1: And on that note, I have a sort of technical
Speaker 1: drive through specific question how much do acoustics factor in
Speaker 1: to site selection? Because things have changed a lot over
Speaker 1: the years. I think the audio technology that people are
Speaker 1: using to communicate if the drive through is vastly improved.
Speaker 1: Most people nowadays are probably ordering on an app anyway.
Speaker 1: But one of the big frustrations of prior years has
Speaker 1: to be if you pull up to a McDonald's on
Speaker 1: the side of a highway and you're trying to communicate
Speaker 1: with the person inside and you're yelling at them that
Speaker 1: you want a quarter pounder with cheese, and they just
Speaker 1: cannot hear you at all. Is that a factor at
Speaker 1: all anymore? Has that mostly been sort of improved through tech?
Speaker 4: It has been improved, however, the amount of customers going
Speaker 4: through the drive through has increased, So I think in
Speaker 4: some of those cases where you have old equipment that
Speaker 4: has not been reinvested into it for sure is still.
Speaker 5: A problem on a lot of these units.
Speaker 4: Some of the newer concepts have definitely made some massive
Speaker 4: advances in that. And then you have other groups, like
Speaker 4: to go back to Dutch Bros. For example, they don't
Speaker 4: have a squawkbox. There is no ordering system. It's a
Speaker 4: human that takes your order in.
Speaker 1: But did they actually call it a squawk box like
Speaker 1: in finance that's so cool?
Speaker 4: The head of real estate does. Yeah, So they take
Speaker 4: your order on an iPad and it's a human that
Speaker 4: takes your order. There are massive advantages of ordering through
Speaker 4: their app, for example. And then there's a whole slew
Speaker 4: of other restaurants that are more of like a pickup service,
Speaker 4: so it's meal, pickup back to the point of saving
Speaker 4: time and not undoing buckles. Joe. Right, So think of
Speaker 4: that as like a typical restaurant that you would normally
Speaker 4: never really go into, like even a Panera, Like you
Speaker 4: call ahead and then you basically as you queue into
Speaker 4: the drive through, you hit on the app I'm here, right,
Speaker 4: and then they run an order that's already kind of
Speaker 4: pre ordered, pre put together out to your car.
Speaker 5: All right.
Speaker 2: Another factor that came up, and I'm thinking again to
Speaker 2: a recent time I went to a Starbucks in my car,
Speaker 2: minimization of left turns or other situations in which you're
Speaker 2: going to have a longer wait, or it's like, oh,
Speaker 2: when I get back on the street, am I going
Speaker 2: to have to take a left turnout? And is there
Speaker 2: a light Talk to us about traffic patterns around the location.
Speaker 2: And I imagine it might be different for like a
Speaker 2: sort of Starbucks, which I imagine is busier in the
Speaker 2: morning and in one direction of the commute, versus maybe
Speaker 2: a in and out which you might get on the
Speaker 2: way home or something like that, and maybe the other
Speaker 2: you're on the other side of the street. Talk to
Speaker 2: us about traffic and turnamentimization and whatever else comes into
Speaker 2: play there.
Speaker 4: In regards to traffic, I've probably spent more time in
Speaker 4: my life behind a windshield sitting at a corner counting cars,
Speaker 4: then I.
Speaker 5: Would like to admit SayMore.
Speaker 4: Yeah, it's pretty easy to find where the am traffic
Speaker 4: pattern strong am traffic pattern is versus PM. You sit
Speaker 4: at an intersection and you watch traffic, and you do
Speaker 4: that from like eight to ten AM, or you do
Speaker 4: that at four to five pm, and then the inverse
Speaker 4: logic is there, so if it's heavier at four or
Speaker 4: five pm, you know that the other side of the
Speaker 4: road is heavier in the morning. That's the easiest way
Speaker 4: to find any coffee site is to sit at an
Speaker 4: intersection and count cars if you're unfamiliar with that trade area.
Speaker 4: With regard to as far as getting ingress and egress
Speaker 4: on and off the site, most of these retailers are
Speaker 4: going to care about ingress. Most probably eighty percent of
Speaker 4: their weight is worried about how does a car get in.
Speaker 4: You rarely want somebody to be making a left in
Speaker 4: unless it's a very safe left in at a traffic signal,
Speaker 4: a dedicated kind of left in. You you see those
Speaker 4: sometimes with like the raised medians Yeah, but a right in,
Speaker 4: right out is so preferred. And if you're sitting at
Speaker 4: an intersection where you can get a right and right
Speaker 4: out on one side of the site and a full
Speaker 4: movement on the other side, that's.
Speaker 2: The Chris Hatch, Thank you so much for coming on
Speaker 2: odd Lots. Now I feel like we have to talk
Speaker 2: to their traffic engineer and zonners.
Speaker 1: As soccer moms to Starbucks.
Speaker 2: Yeah, that was really fun. Thank you so much.
Speaker 5: Thanks for having me.
Speaker 4: It gave me an excuse to get steak freets in
Speaker 4: the city.
Speaker 2: It's perfect. Tracy, I loved this whole conversation. I'm trying
Speaker 2: to think, like where to begin. Okay, location matters, we
Speaker 2: all know that, but then you think like all these
Speaker 2: different types of retail concepts and the sort of specific
Speaker 2: things that matter to them, whether it's like what side
Speaker 2: of the road you're on, or who are the other
Speaker 2: entities or are you in some other companies parking lot.
Speaker 2: I just feel like there's an endless amount to learn
Speaker 2: in this area totally.
Speaker 1: I also thought that the sort of evolution of what
Speaker 1: you're looking for with a physical space is also interesting.
Speaker 1: I think Tom touched on this idea that Okay, post pandemic,
Speaker 1: things started to shift like it was much more of
Speaker 1: an almost warehouse effect or you know, you order something
Speaker 1: online and then you pick it up, which means that
Speaker 1: the demand for locations that are on the outer fringes
Speaker 1: of shopping malls are easily accessible, become even more important totally.
Speaker 2: It's also just sort of fascinating that, like as Tom
Speaker 2: was saying, the demand for space, according to him, is
Speaker 2: still enormous. Yeah, which is really interesting. And you know,
Speaker 2: we talk a lot about again Siri office, right, and Okay,
Speaker 2: we all know that that's troubled. But the other the
Speaker 2: fact that there's all this other kind of SIY and
Speaker 2: some of it is absolutely.
Speaker 1: Booming, absolutely, and there is that sort of bifurcation or
Speaker 1: segmentation in the market as well. Were you convinced at
Speaker 1: all to get out of the car to get your
Speaker 1: coffee to avoid the drive through or not? Are you
Speaker 1: even more dedicated to the coffee drive through now?
Speaker 3: No?
Speaker 2: I mean actually so the most recent time I went
Speaker 2: to a Starbucks, I did get out of the car.
Speaker 2: It really is conditional, Like part of it is like
Speaker 2: the weather. Part of it is how annoying my kids
Speaker 2: are being at any given time, like these are like
Speaker 2: the big factors that go in and like I swear,
Speaker 2: do I have to take a left turn to get it?
Speaker 2: This is like a big deal. Like I know it
Speaker 2: sounds silly.
Speaker 1: But well, now we should all feel better knowing that
Speaker 1: there are people out there who are taking this stuff
Speaker 1: into consideration.
Speaker 2: Yeah, right, Like as Chris was saying like that, he
Speaker 2: would sit there at a corner and just count the
Speaker 2: number of cars making various turns from eight to ten
Speaker 2: and then come back from four to six or whatever
Speaker 2: and count again, as like totally fascinating to me.
Speaker 1: Yep, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 4: Okay.
Speaker 1: This has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 2: I'm Jill Wasenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guests Tom McGee he's at Tom McGee's CEO.
Speaker 2: And Chris Hatch his handle is at n N Income.
Speaker 2: Follow our producers Carmen Rodriguez at Carman armand Dashel Bennett
Speaker 2: at Dashbot and Kelbrooks at Kelbrooks. Thank you to our
Speaker 2: producer Moses Ondam from our Oddlots content. Go to Bloomberg
Speaker 2: dot com slash odd Lots, where we have a blog,
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