The Hottest Commodity In Retail For The Foreseeable Future: Drive-Thrus

Drive-thrus were the life raft that kept many fast-casual and quick-service restaurant chains afloat during the most difficult days of the coronavirus pandemic.

As major brands continue to come up with new and inventive ways to expand and improve their drive-thru offerings, more traditional dine-in restaurants are also pivoting to incorporate drive-thru accessibility into their models, according to retail experts.

NewQuest Properties Vice President Austin Alvis said that drive-thrus have become an absolute requirement for new store growth. The industry has recognized that the drive-thru is not just a driver of revenue, but also a protective mechanism in times when things go wrong.

“Everybody operated almost an entire year with no dine-in business, so it really changed the game,” Alvis said.

Drive-thrus have been popular for several decades, fueled by America’s car-centric culture and increasingly busy lifestyles. But the coronavirus pandemic pushed that popularity to new heights, as health fears forced restaurant dining rooms to close for extended periods.

The second quarter of 2020 was arguably the toughest for retail and restaurant businesses, thanks to widespread lockdowns and mandatory closures. Total eating and drinking place sales were $176.7B in Q1 2020, but plummeted to $119.5B in Q2, according to the National Restaurant Association. At the same time, drive-thru business soared: In the U.S., traffic rose by 26% during Q2 2020 and represented 42% of all restaurant visits in the U.S., according to The NPD Group. 

In July, when more restaurants reopened at limited capacity and overall retail sales rose — back up to $162.3B for Q3 — figures showed that drive-thru visits still increased by 13%, the highest visit increase among the service modes of on-premises, carry-out and delivery.

Chipotle began to roll out drive-thru lanes in 2018 as part of a broader push into digital ordering. The firm has now made drive-thru lanes a priority: about 70% of all new stores will have drive-thru service in 2021. Other restaurants like Shake Shack, Panera Bread, 7-Eleven and Pizza Hut have also announced plans over the past year to adopt drive-thru for the first time or to expand their offerings.

SeeLevel HX CEO Lisa van Kesteren said she believes an evolution is coming where more restaurants will be embracing the drive-thru model. Her market research firm releases an annual report that ranks the drive-thru performance of restaurant chains across the country.

“These restaurants that aren't traditionally fast foods necessarily are now having to come up with these different ways to compete, because they don't have dine-in,” van Kesteren said. 

For more traditional dine-in restaurants looking to do drive-thru, it isn’t about competing directly for quick-service restaurant business, but rather, competing on the grounds of easy accessibility. 

Fidelis Realty Partners Leasing Director Matt Brock said that since the onset of the pandemic, he has been getting plenty of calls from traditional sit-down restaurants, telling him that their delivery and to-go businesses have gone through the roof. Many are looking at drive-thru options, though high demand is making it difficult for tenants to find a suitable space.

“I think everybody is looking for an option right now. A lot of people are finding that that's kind of a unicorn, to find a 1.8K SF, 1.6K SF drive-thru. There's just not a lot of options out there,” Brock said.

Brock received a call earlier this year from a tenant in one of the outparcel buildings at Fidelis’ Westplace Marketplace in Summerwood, situated in northeast Houston. The tenant’s drive-thru traffic volumes were so high that they wanted to lease another space in the building to install a second kitchen just for drive-thru and takeout orders.

“That kind of order was taking up so much traffic in their parking lot that they wanted to find another location within the shopping center to be able to service those types of calls,” Brock said.

Some quick-service restaurants are taking the drive-thru concept one step further: getting rid of dine-in options completely. Major chains like Wendy’s and Starbucks are working on concepts that focus exclusively on drive-thru, takeaway and delivery, with limited or no dine-in options.

Alvis said he has heard of major restaurant chains looking into building new drive-thru-only stores in the Houston area. Those stores would be cheaper to build and operate and could take up a smaller footprint than a typical restaurant with drive-thru service. 

“I think we're going to see some of the major fast-food brands considering drive-thru only, and building them,” Alvis said.

For retail developers, incorporating drive-thrus in the design of outparcel buildings for new retail centers is now an essential selling point. Fidelis is developing a new H-E-B-anchored retail center in Willis, north of Houston, and every outparcel building at that development is being marketed with drive-thru capability, Brock said.

Alvis said that in almost every case where NewQuest is designing a multi-tenant retail development, two drive-thrus on opposite sides of the building are now being considered. It can be a tricky proposition from a traffic congestion standpoint and is highly dependent on what kind of tenants are involved.

“It has to be assessed on a case-by-case scenario. It depends on who the tenant is. That scenario doesn't work for two high-volume drive-thru users,” Alvis said. 

In addition, developers are turning their attention to existing retail properties. Alvis said NewQuest is looking at available corner retail spaces and evaluating whether it might be possible to go back in and add a drive-thru line. The challenge mostly comes down to available space, as it can require at least 12 feet of additional width to accommodate a drive-thru.

“It becomes cost-prohibitive if you need to eliminate square footage of the building to do it. Then it doesn't work. But generally, all you really need is some space to make a drive-thru line, and then cut a hole in the side of the building,” Alvis said. 

Brock said he’s also seeing retailers add two drive-thru lanes, where in the past, they might typically only have one. Site plans crossing his desk are increasingly having double lanes where traditionally there would be a single lane. And while he hasn’t seen a triple-lane drive-thru in Houston yet, restaurant chains like Burger King are already experimenting with that idea.

The popularity of drive-thrus is expected to persist in sprawling, car-dependent markets like Houston, even once vaccinations have been widely distributed and people return to their normal lives.

“I think it's here to stay. I think that there will be a little bit of a bleed at some point where some people start going back to dine-in. But I don't think that that's going to hit the fast-food restaurant the way it will some other types of kind of sit-down places,” van Kesteren said.

Brock said that if people want a proper dine-in experience, they’ll make an effort to do that, but for time-crunched workers and families, drive-thrus will remain a convenient option.

“I don't think the need or desire for quick-service-oriented retailers and restaurants are going to go anywhere,” Brock said.

CORRECTION, MAY 6, 2:25 P.M. CT: A previous version of this article misspelled Austin Alvis’ last name. This article has been updated.