The Necessity of Evolution in Retail Spaces (Part 1) An interview with Panera’s Chief Development Officer, Rob Sopkin
Written by Albert J. Haddad
A Conversation with Panera’s Chief Development Officer, Rob Sopkin (Part 1)
There is no doubt that the dining experience is changing. With the rise of delivery services like GrubHub and DoorDash, plus an emphasis by the Millennial generation for conscious consumption, the ethos of dining out and fast food is changing before our very eyes.
I recently had the privilege of talking with Panera Bread’s Chief Development Officer, Rob Sopkin, about the landscape of the food industry and enjoyed listening to him describe how he sees that milieu, how it’s changing, and how his company is doing their best to navigate this terrain.
Below is part one of our conversation:
Albert Haddad (AH): With money so cheap right now in new developments, what’s the new development plan for Panera? Will square footages and layouts, the brick and mortars, stay the same? Are they going to shift? Are they going to change?
Rob Sopkin (RS): Well, I think we’ve seen a continued evolution of retail space that’s pushed things out onto the streets, and where we’re seeing some fallout in the big box space. We’re not necessarily seeing that in the more convenience-oriented retail spaces that are nearer to the street, and smaller boxes, and things along those lines that I think just the opposite. I think there’s been increased competition for those spaces, and I think we’ll continue to see that as retail space evolves and becomes more convenience-oriented.
AH: With that said, as it relates to these retail spaces and regarding delivery services like GrubHub, do they impact the size of your brick and mortars?
RS: I think we don’t know all of the effects. I think we are seeing an evolution of what’s happening with the consumer. That said, we still believe that there’s a demand for in-restaurant dining and we still see that. I think that most of what people have seen in the industry on the delivery front is that that’s creating an incrementality to the demand. So, from a impact on our square footage standpoint, I think we’re seeing an evolution for us. We’re not necessarily believing that we need to do exclusively smaller stores. But, almost independent of what’s happening on the delivery front, we do see an opportunity to have more tailor-made stores from a consumer standpoint, some of which serve the consumer need to want to sit and dine, and some of which are a little bit more convenience-oriented.
We do have a, I would say a portfolio of store types that we’re utilizing depending on the trade area. If we see it a certain demand within a trade area, we might go with our traditional store, our full sized store, and we’re still growing in that space. That’s typically around 4,200 – 4,300 square feet. But, we also have smaller stores that allow us to be a little bit more nimble and keep our occupancy a little bit more in check where we see an opportunity to meet consumer demand that might be more specific to whether it’s a suburban office or a little bit more residential. In that circumstance we can open up a smaller store that’s able to meet that one particular consumer demand. We’ll be doing that as well.
AH: That’s great. Do you think you can project or forecast for us if these delivery services are going to change the fact that people are going to want to eat in? And, if so, how does Panera plan to swerve in that particular direction?
RS: Well, I think we’re looking at this, as I said right now, incrementality in terms of people do want the ability to have things delivered to them. In terms of eating in, I don’t know that we’re not necessarily forecasting that people are going to want to eat in less, as much as we’re looking at that as no longer being the exclusive way that people were dining.
Now we’ve gotten into drive throughs. On the company owned side we’re up around half of our portfolio being drive throughs, and that’s a percentage that’s going to continue to increase as we’re meeting that particular consumer demand. We also have what we call RPU, which is rapid pickup, where people can order on their phone and come in and simply grab the bag of food and be on their way. Then, of course we have delivery, and Panera does its own delivery. We’ve been a pioneer in terms of delivery. We’re kind of out ahead of it before most of the industry. Then you have dine-in.
It’s really more… I don’t think that that particular need state is going to go away for the consumer or continue to necessarily shrink. It’s really more how do you create an ecosystem of stores and channels that are able to meet the consumer where they want to be met. There are going to be times that are going to, I think, stay fairly consistent, where people want to meet friends and or spend time in the restaurant. We don’t view that as a dying segment, but we just no longer view that as the exclusive segment that reaches the consumer. There’s many different channels now that you need to meet the consumer where they want to be met, and that’s just one. So, it’s really for us more how do we create an ecosystem that’s able to meet all of these consumer demands in the most efficient way possible, if that makes sense.
In order for businesses to stay competitive in their retail spaces, they must be willing to evolve.
Because of the continued evolution of retail, restaurants and food services there is an increased competition for street-level convenience-oriented retail spaces.
The rise of delivery services is making more traditional fast, casual dining experiences evolve to meet the consumer demand for convenience.
The rise of delivery systems doesn’t necessarily indicate that people are willing to dine-in less, but rather, it is just another way they are looking to consume fast casual dining.
If you have any questions about how this evolution for businesses in retail and restaurant space affects you or your investments, please call the Alpha-Rex team to discuss and answer questions on any property or portfolio needs you have.
I would like to thank Rob Sopkin, CDO of Panera, once again for his access, insight and thoughtful candor regarding the retail, restaurant and food service industry.
A Conversation with Panera’s Chief Development Officer, Rob Sopkin (Part 1) (Full Audio below)