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Curbside Enthusiasm: Reconsidering the Need for Drive-Thru Real Estate

Alternatives Such as Take-out Service and Pickup Windows Can Unlock Flow and Improve NOI
A double-lane Chick-fil-A restaurant drive-thru line in Florida. (Getty Images)
A double-lane Chick-fil-A restaurant drive-thru line in Florida. (Getty Images)

Demand for convenience has turbocharged drive-thru real estate assets throughout the pandemic. Retail stores and restaurants are shifting gears, and the distinction between locations that work best as a “stop-and-shop” verses a “grab-and-go” has somewhat dissolved. No matter what the business sells — be it pizza or prescription medicine — property owners need to think about how to optimize for convenience.

The short story is that while drive-thru is the king of convenience, there are many instances in which a pickup window or a curbside pickup model is better for net operating income (NOI), according to experts who understand the convenience retail segment through and through.

Choose to Supersize, Slim Down or Both

To start, drive-thru real estate is reportedly expensive. And it’s increasingly hard to buy or build.

“What’s really difficult to find nowadays is a true drive-thru,” explained Juan Martinez, principal of Profitality, an industrial engineering advisory firm. “This means a location with a lane or two to queue cars as they order and pay, and places for them to park.”

To compete against neighboring drive-thrus and quick service restaurants (QSRs), you need to keep cars moving like “a lazy river,” Martinez told LoopNet. If the flow is choppy, he said, usually the most obvious solution — à la some of the “ drive-thru of the future ” concepts — is to add another lane. And then maybe even another.

Then, when you’ve completely mastered the whole drive-thru thing like Chick-fil-A, which scored highest on several performance criteria to snag QSR magazine’s Drive-Thru Restaurant of the Year for 2021 , he posited, “you end with up as many as three lanes along with places to put cars if something goes wrong with their order. You’ve also got separate ingress and egress,” he continued.

“Well that’s a pretty nasty location. It’s very wide and it ends up being very expensive.” Apart from that, he noted, a lot of municipalities “are harping on drive-thrus” because of their alleged contribution to the carbon footprint and traffic congestion.

And even if you’re the owner of the world’s “greatest drive-thru,” Martinez said, “you’re going to have delays.”

A line of cars at a McDonald's drive-thru extends out into the street in California. (Getty Images)

From a real-estate perspective, “everybody’s designing these drive-thrus with multiple lanes, but they’re forgetting about the engine inside.” You could have an Autobahn on the outside of the restaurant, he joked, but if you have a Yugo engine running the operation as opposed to say, a Lamborghini machine, then cars are stuck and the operation becomes more like a “park-thru.”

The good news is that the “engine” operating the business doesn’t require a lot of space, he continued. “You can design a fast casual restaurant in less than 2,000 square feet, possibly with an outside seating component, and it’s not a problem at all — especially in this day and age where people have become so keen to order off-premise.”

But balance is key. The industry-identified king of drive-thru, Chick-fil-A, has certainly stepped on the gas when it comes to bigger and better drive-thru lanes. The chain restaurant now has a prototype showing units that can stack 38 cars through its drive-thru system at any given time, and such a location requires almost two acres of land.

If it weren’t challenging enough to find a parcel that big, keep in mind that it also must be in a prominent location. “Access is paramount. You want to be convenient and out front where people can see you every day — not behind some building,” said Spencer Bomar, principal, retail advisory services for Avison Young. “Furthermore, the site needs to have an efficient shape. [Designers] are not doing the square box that can support four cars anymore, but more rectangular buildings with double-sided drive-thru lanes.”

Finding that perfect location for a drive-thru is tricky, but it can be lucrative. “I think there are people in our business right now who are making a very good living going out and looking for these types of spaces to accommodate [an ideal drive-thru],” Bomar told LoopNet. “It could be large institutions, or it could be individuals that are scouring the landscape for a 10-year-old Chick-fil-A with a single, inefficient drive-thru lane and a playground that's too big, and they're looking for a place for it to relocate.”

Wherever that is, it needs to bring in enough NOI to pay rent in these trying times. “The land prices are such that you can't afford it if it’s not efficient,” he said. Chick-fil-A is able to add more space for drive-thru lanes because it has “evolved for years to be incredibly efficient,” he explained. So much so that some of their actual units, he said, are downsizing. “They just don’t need the interior space.”

Dunkin’, as another example, at almost all locations “used to have a whole wall of donuts,” Bomar said. “The other day I visited one …and found they had shut down for a few days and reduced the size of [the retail area] by around 60%. They completely revamped it to add efficiencies to the drive-thru, and now it’s the size of a postage stamp.”

Pick the Perfect Tenant: A Tech Firm That Sells Pizza

To support smaller spaces, off-premise digital ordering is the most essential ingredient in the mix.

Chick-fil-A’s drive-thru is supported by a labor-intensive model of stationing staff outside to greet drivers in their cars and take their orders. “You have to be doing a lot of volume [to support this model],” Bomar said, “because think about how much it costs to have one person on the other side of a speaker compared to having three or four people outside walking around with tablets.”

It’s a somewhat chicken-or-egg scenario, because the latter likely brings in more volume, he added. Order-taking methods sometimes even find their way into the lease. “Some landlords of extremely high-volume restaurants who either don’t have the land or the money to add more lanes are stipulating in the lease that the restaurant have people outside taking orders,” Bomar said. “They’re basically saying, ‘if you’re not doing the right thing the right way, we’re going to make you.’”

“Domino’s is not a pizza company that applies technology. Domino’s is a technology company that sells pizza.”

Juan Martinez, Profitality

But labor is not just expensive, it’s hard to find. “With labor scarce and [wages going up], you have to replace labor with some technology and automation,” Martinez said.

“Think about technology where you don't order at the drive-thru, but place the order with one button beforehand from an app on your phone,” posited Nick Egelanian, the founder and president of SiteWorks Retail Real Estate Services. “These restaurants have the technology to alert them when your car is approaching and when your car arrives, so they know when to prepare your food. That technology is going to continue to evolve and become an increasingly important part of the business.”

Panera also exemplifies an engine running on that kind of technology. “It gives them a lot more versatility,” Bomar said. “They can have a smaller footprint because they don't have customers coming in and standing around to order and wait for their order, which allows them to focus on drive-thru.”

Technology has become an inexorable part of convenience-based retail and restaurant segments, Martinez continued, noting that those who excel at it will come out on top. He cited Domino’s as an example. “Domino’s is not a pizza company that applies technology. Domino’s is a technology company that sells pizza. It’s a phenomenal machine.”

Find a Window of Opportunity

Technology also unlocks more real estate options. It’s a lot easier to find a building that can support a pickup window than it is to score a true drive-thru property, Martinez explained. If cars can pull up to the side of the building, all you need, to put it simply, is a small opening.

In contrast to a true drive-thru, he said, “you don’t need to have queuing for cars to get from the menu board to the pay window to the pickup window.” The same goes for a pedestrian-centric window on the side of the building.

A Shake Shack in downtown Washington, D.C. has pedestrian-friendly pickup window service. (Elvert Barnes/Flickr)

However, it’s never that easy, he countered.

Pickup windows are prevalent in the drugstore business, he continued, where “as long as I am ready when they pull up to the window, it becomes just a matter of reaching out my hand.”

But it never works that way in the restaurant business, especially, because customers don’t arrive on time. “From a real estate perspective, where do I put them?” An escape lane, for instance, becomes essential, Martinez said, so that cars can pull out and park if their order is not ready, which complicates the site’s design and limits its potential.

"If a customer orders digitally, pays digitally, pulls up to a window and takes the food, they’re doing me a favor. The moment I have to walk outside to give it to them, there's a labor cost."

Juan Martinez, Profitality

But when the tenant has off-premise ordering capacity through a website, app or third-party service such as DoorDash or UberEats serving as an air-traffic control system for the business, he added, it certainly opens doors for real estate options such as pickup windows.

Create Some Curb Appeal

When it comes to curbside pickup, a fresher real estate alternative to the convenience of drive-thrus that has become essential for almost any retailer and restaurateur, technology is nonnegotiable.

“Curbside pickup is huge for everybody to go after,” Martinez said. “From a real estate perspective, it’s critical.”

A curbside pickup system, unlike a cumbersome drive-thru plot or even a pickup window on the side of a building, essentially requires nothing more than digital ordering technology and one or two parking spots or car standing access, he said.

“To become the best in whatever category you’re in, whether it's a pharmacy or a food or hardware store,” Martinez said, “try to get some curbside [access] that belongs to you. It’d be nice if you had dedicated parking, especially right in front of the store.”

If the business has the internal systems to take and process orders efficiently, you don’t even necessarily need dedicated parking spaces for curbside pickup to operate like “a pit stop in Nascar. You could be a 20-foot wide in-line; you could be in the middle of a strip joint.”

But if it's parking that unlocks a successful curbside service, he continued, the landlord holds the key. Building owners needs to provide the space for curbside service, which is the tricky part to negotiate. “In my experience, landlords do not like [to readily provide dedicated parking in lease terms]," Martinez observed. "Often they'll say, ‘that’s a space only for Joe's Burgers next door, not your pizza place.' And most customers, I’ve found, are honest.”

A negotiation process among neighboring tenants and landlords comes into play, he added. “It becomes a challenge. How do you get the landlord to give you that [capacity] and how do you make it stick?”

Some retail businesses in downtown Washington, D.C., offer curbside pickup service amid curbside dining (Elvert Barnes).
Nearly all urban retailers considered curbside pickup service after the onset of the pandemic. (Paul Sableman/Flickr)

The point may be that convenience brings with it NOI. If everything about a certain business with two locations in a shopping center were equal, other than that one is in-line with neighbors and the other is freestanding with a drive-thru, the latter would “absolutely” bring far more revenue, according to Bomar.

But if the in-line has a few parking spots, “all you have to do is walk outside and hand out the order,” Martinez said, making it more like the drive-thru. “It then just becomes about how efficient you can be. It’s like the Domino's ad about its curbside business, where they were throwing the pizza at the car from the store. That's the idea. I think that if you really ‘own’ the curbside pickup model and can even get parking spots as well, you can do tremendous business, because people just want [the product] to go.”

But Curb Your Enthusiasm: Take-Out Comes With Traffic

If parking spots for pull-up aren’t available, though, the system can actually be a detriment. “During the pandemic it was amazing to see how people pivoted,” Martinez said. “Jamba Juice, for example, had taken five or six parking spots in front of the store and created a drive-thru and curbside pickup model because there was nobody in the mall. They got very creative and it worked.”

But Bomar has seen businesses impaired by curbside pickup. “Years ago, some big-box, ‘category killer’ retail anchors re-leased some of their unused [parking] land to restaurants for curbside pickup-type models, but didn’t plan the traffic flow for such uses, and actually noticed a decrease in sales because customers couldn’t get into their stores.”

What’s more is that curbside requires labor that drive-thrus do not, circling us back to the Chick-fil-A labor dynamic. “If a customer orders digitally, pays digitally, and pulls up to a window and takes the food, they’re doing me a favor,” Martinez said. “The moment I have to walk outside to give it to you, there's a labor cost.”

The idea is similar in the world of grocery, Egelanian explained. “The typical retail model for grocery stores has always been that the customer provides the labor. You put the product on the shelf and you're done until the checkout experience. And what have we seen in the last 10 years? Self-checkout.”

No grocery store makes money from curbside pickup, Egelanian said. “They actually lose money on it because of the labor.” That’s especially true of stores like Aldi and Lidl, he said, because of their “ultra-low-pricing-models.” But, he noted that more and more grocery stores have been implementing curbside pickup models because of the perceived threat from the Amazon Fresh concept.

Walmart, for example, sometimes carves out 20 to 30 parking spaces in the front of their stores for curbside pickup, he said, questioning whether curbside pickup always makes sense given how labor costs potentially eat into profit margins. “A lot of very successful companies ranging from the TJX brands to Williams-Sonoma to most dollar store do not participate in curbside pickup." Egelanian added. The reasons for that, he said, is that they tend to be low-margin and do a high percentage of their business in cash.

Landlords must understand that it all comes down to the businesses' profit, Egelanian concluded. “So much of the story is about determining where it is profitable to do drive-thru or curbside, and where it isn’t.”