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