Sustainably Sourced: Impact of Fresh Options on QSR Sector

As consumers increasingly favor locally sourced and fresh ingredients, what will the impact be on quick-service restaurant owners and investors? Stan Johnson Co.'s Clint Robison and Lanie Beck believe having a well-located property is key.
Stan Johnson Co.'s Lanie Beck, Director of Research & Clint Robison, Associate
Stan Johnson Co.’s Lanie Beck, Director of Research & Clint Robison, Associate

Fast food is one of the world’s largest and now most dynamic industries. American consumers spend billions of dollars per year in the drive-thru with annual growth projections around 2.5 percent, but expectations are changing. Millennial consumers are demanding flavorful, interesting and regionally specific menu choices, organic and sustainably sourced food options, and dining experiences that integrate seamlessly with evolving technology – all while continuing to be affordable, quick and convenient. As quick-service restaurants embrace these shifting trends, real estate investors should take notice: the brands able to capture the new, ideal customer experience will likely be lucrative long-term investments. But what impact will the need for locally sourced, fresh and organic ingredients have on real estate, as well as on the consumer?

Some customers fear rising prices will occur as a direct outcome of restaurants choosing to use fresher, higher-quality ingredients. Others feel slower service may result from restaurants cooking their burgers from scratch, rather than having patties ready to serve from warming drawers. Similarly, the move from frozen to fresh may have health implications as the use of certain fresh ingredients, when cooked improperly, could pose health risks. Convenience is another factor that could be jeopardized, and some QSR chains are already feeling that impact. West Coast-based In-N-Out Burger, much to the dismay of their East Coast fans, cannot expand outside a small, regional radius due to their commitment to deliver fresh beef directly to their restaurants from their distribution centers and patty-making facilities.

But the long distance problem is just the beginning: What about restaurants that source ingredients from local farmers and distributors? Will they have no ability to expand beyond local boundaries? Or will technological advancements allow distributors to leverage modern farming techniques and re-purpose outdated or abandoned industrial facilities for indoor growing spaces – similar to how Tender Greens, a small California-based chain, plans to expand? Or, will the industry begin to see additional consolidation of sister restaurant brands? Will restaurants elect to invest in higher-quality ingredients, while saving money on their real estate by sharing kitchen space with another concept? We already see plenty examples of dual-brand restaurants today, with Dunkin’ Donuts and Baskin-Robbins frequently co-existing, and Hardee’s and Red Burrito opening joint locations in recent months. Taco Bell, KFC and Pizza Hut have had combination stores for many years, with each other and with other brands like A&W and Long John Silver’s.

It remains to be seen what the long-term impact will be on real estate decisions of quick-service restaurants. Consumers have made it clear that they are willing to pay a little extra for an organic label, but they are not necessarily willing to trade convenience. Therefore, location remains a key factor for QSR real estate, and investors should not discount the value of a well-located property.