Food-Service Saturation

August 26, 2005
Print
Text Size:
A A

There is a scene in the movie “Cocktail” in which Tom Cruise’s character, bartender Brian Flanagan, is taunted by a college professor for his proposed business plan — to expand and franchise his bustling neighborhood tavern into suburban neighborhoods and shopping malls across the country.

Flanagan worked at T.G.I. Friday’s.

Founded in Manhattan in 1962, Friday’s today has 760 locations in 47 states and 54 countries. It was one of the first national full-service chains in West Michigan with its WoodlandShopping Center location, and is the only full-service national chain in downtown Grand Rapids

But the full-service national chain is now far from unique in Grand Rapids. From only a handful a decade ago, centered largely at Woodland Shopping Center, Kent County at last count had 59 full-service national chain restaurants, not including the family dining subset — national chains like Perkins Restaurant and Bakery and Arnie’s Bakery Restaurants locally — which do not serve alcohol by the glass.

Full-service restaurants (FSR) are, by definition, establishments that provide table service.

With few exceptions, local national full-service national chains are located on

28th Street
, Alpine Avenue, East Beltline near Celebration Cinema/Knapp’s Crossings, within a mile of the RiverTown Crossings Mall in Grandville, and at the recently developed Gaines Marketplace at the M-6/Kalamazoo Avenue interchange.

The national chain is a staple of first-class commercial development. The opening of RiverTown Crossings attracted more than 20 full-service chains to Grandville, just as the emergence of the region’s other commercial corridors has attracted these high-profile tenants.

As Gaines Marketplace progresses, it is sure to attract more, as will the 119-acre Waterfall Shoppes in Cascade Township at 28th Street. The Village at Knapps Crossing, at the northeast corner of

Knapp Street
and East Beltline, has proposed seven restaurants.

“Restaurants become a very important part of these developments,” said Bill Bussey, vice president of land, retail and investment for Grubb & Ellis/Paramount. “Retail centers are often laid out specifically to include restaurant developments on the out lots.

“When a guy builds a shopping center, he’ll lay those aside for restaurants because they’re good income producers and they’re stable. They’ll pick an Applebee’s or some national guy that needs a spot.”

As Bussey explained, the cost of first-class commercial development is so steep that it often creates million-dollar restaurant sites. Most of these sites will be leased, and since there is no real estate to secure a mortgage, only a company with a national bankroll can offer a lender enough security to finance the project. The Applebee’s on East Beltline, for example, has a lien on the building but not the real estate it stands on.

This creates a relationship where, on one side, only national chains and the occasional superstar independent have access to the development. On the other side, such developments are banking on national chains as tenants.

Likewise, this dynamic extends into commercial developments from strip malls to downtown storefronts, as national chains and independents alike are expected to fill retail space. In many developments, especially those in the core city, restaurants and bars outnumber retail shops.

But as new development continues across the region and old structures are rehabilitated for new use, developers may soon reach a point where they can no longer count on food service — already notorious for its high failure rate — to absorb vacancies.

According to the Michigan Department of Labor, KentCounty had gained 134 food-and-drink establishments from 2000-2004. In addition to the county’s 16.4 percent increase, there was a 10 percent, 166-unit spike in the metropolitan area.

Restaurant Business magazine reported that — contrary to the dismal forecast for the region — the Grand Rapids area saw a 14 percent jump in overall restaurant sales from 2001-2003, the latest available data. In 2002, the magazine ranked West Michigan 279th of 318 markets for growth potential. In 2004, it separated Grand Rapids-Wyoming from two Lakeshore communities, ranking Muskegon 291st, Grand Rapids 308th and Holland 337th, of 348.

The forecast is based largely on West Michigan’s per-capita restaurant sales, which rank among the lowest in the nation. A resident of Ann Arbor, for instance, spends $800 more at restaurants each year. That is one of the reasons Grand Rapids-based Schelde Enterprises Inc. has chosen to open restaurants in Ann Arbor, Ypsilanti and Royal Oak instead of West Michigan. The 36-year-old Schelde operates more than a dozen concepts across the state, including Rio Grand, Freshwater Lodge and the North Peak Brewing Co.

“I think we’re at a saturation point,” said Schelde President Barry Haven. “We just don’t see a lot of opportunity here, for mid-scale restaurants in particular. We’re putting up restaurants in the Detroit area, where there isn’t such a heavy density of restaurants.”

Schelde has taken some lumps in West Michigan this year. It shut down a Rio Grand Steakhouse at the Westshore Mall in Holland, blaming “saturation.”

Rather than expand its concepts with hopes of becoming the next large chain, it has opted for uniqueness. Its first entry into Ann Arbor was Grizzly Peak, in partnership with local entrepreneur John Carlson. A wine-themed restaurant is currently under construction.

Grand Rapids-based Brann’s Steakhouse and Grille has looked east as well, with recent openings in Northville and Macomb County.

“It’s getting oversaturated here,” said Tommy Brann, president of parent company Sizzlin 5 Corp. “We think we have a special niche, but I think everyone thinks that, so that’s why they keep building restaurants.”

With many of the concepts sharing the same niche, Brann noted, not every startup, even the high-powered chains, are going to last. At RiverTown Crossings, for example, Tony Roma’s, Kahunaville Island Restaurant and Tumbleweed Grill & Bar have already shut their doors.

“If you have so many restaurants in one place, some are not going to make it,” he said. “You’re going to have some concepts not working, and you’re going to have boarded-up buildings.”

Jeff Lobdell, president of Restaurant Partners Inc. and treasurer of the Michigan Restaurant Association, said that competition has become a growing problem for restaurant operators.

“With the impact of people shopping on the Internet, a lot of property developers are finding that retail is consolidating,” he said. “But people’s eating habits are continuing to grow. There is more grab and go, and the concept of ‘fast casual’ is taking hold.”

At Lobdell’s only full-service restaurant, the Beltline Bar at 16 28th St. SE, carryout sales growth has easily outpaced in-store sales gains.

“To be competitive, a lot of the chains have pushed hard with curbside service,” he said. “I think we’re ahead of the curve, but some (independents) are getting rubbed out by the chains with deeper pockets.”

Lobdell cited the dozens of startups on East Beltline.

“We looked at opening a store there a few years ago,” he said. “But I like neighborhoods, and there isn’t a lot of rooftops out there.

“Now, take a look at how many restaurants there were 10 years ago — zero — compared to today. Where is the saturation point?”

Bussey doesn’t see a saturation point on the horizon.

“We have a very strong, balanced market, and we’ve been underrepresented in the variety of restaurants here for a very long time,” he said. “Some of the restaurants we’re seeing now are just discovering Grand Rapids. You can’t just say we have enough restaurants.

“We can have 16 hamburger places on one block, but if there is a hole for a Greek restaurant, one will open up there and do well.”

In particular, there is opportunity for upscale restaurants in the coming years, he said, which have largely overlooked expanding into Grand Rapids. Ethnic concepts will be arriving soon, as well, such as PF Chang’s Chinese Bistro. 

Recent Articles by Daniel Schoonmaker

Editor's Picks

Comments powered by Disqus