Why Pop-Up Restaurants On Wheels Could Be A Boon To The Retail Sector

As competition heats up in the restaurant business making it more difficult for food-loving entrepreneurs to thrive in the industry, food trucks are offering a viable alternative.

Low barriers to entry and high consumer demand, particularly in dense areas such as New York City and Portland, where foot and bike traffic are high, have proven to be a boon for these restaurants on wheels, and the retail sector as a whole in the U.S.

“There’s certainly been some evolution and I think that evolution has been happening across pop-ups in general. I always refer to food trucks as the restaurant pop-ups. So what’s happened is the institutionalization of pop-ups. They started out as these cool rogue startup ventures, but they’ve really been adopted more by these mall players, restaurants and REITs, and brands are starting to incorporate them into their offering,” CBRE Head of Retail Research Melina Cordero said.

Cooking Up A Trend

The food truck industry has managed to grow an average 7.9% annually since 2011 and now brings in an estimated $2.7B in revenue, up from $650M in 2014, according to the U.S. Chamber of Commerce Foundation.

For cities that encourage food trucks like Portland, Denver, Orlando, Philadelphia and Indianapolis, these businesses have proven to help fuel economies.

“Food trucks are a significant and rapidly growing part of the economy of cities. As of 2016, an estimated 3,700 food trucks roamed the streets of American cities, providing jobs for more than 13,000 people,” University of Toronto professor and Director of Cities Richard Florida wrote in a recent article.

Portland ranked top among the cities in which to operate a food truck in the U.S., thanks in part to the fact that the city specifically included a plan to incorporate mobile food vendors in its 2009 Economic Development Plan. The city decided to do this because it felt the vendors promoted growth in the downtown core while simultaneously preventing blight.

As the food truck industry has grown, so too has the business sector. Between 2011 and 2015, the business sector in Portland grew 8.2%.

Feeding Traffic To Retail Spaces

In addition to providing jobs and contributing to the local economy through permit payments, licensing fees and general vending practices, food trucks can also help struggling retailers.

Instead of including a traditional food court in its mall, Trinity Leeds, a super-regional mall in the U.K., decided to incorporate food trucks into its new concept. The idea worked well for a number of reasons: it offered a variety of food options to consumers, it provided agility for landlords because the trucks could be easily switched in and out depending on performance and the vendors were found to draw in more customers and tourists alike.

“So as the trucks performed or didn’t perform, [Trinity Leeds] would switch them out. And then they made that an event, switching them out with cranes. So it ticked a couple boxes in terms of placemaking and driving traffic, but also allowed agility for the landlords in bringing in new tenants and mixing up the tenant mix to adapt their offering and tenants to what people wanted,” Cordero said.

In other cases, landlords have benefited by offering seed money to particularly successful operators that have been situated outside of malls.

This was the case at Trinity Groves in Dallas, where a developer decided to provide food truck operators space to run their businesses.

“The developer took up a bunch of up-and-coming successful food truck owners that didn’t have the capital to sign a 10-year brick-and-mortar lease and provided them with a space. He had all the food trucks lined up and what he was doing was [running] a kind of incubator. So the ones that performed well, he would give seed money to and the ones that didn’t were [kicked] out,” Cordero said.

Driving Growth In The Restaurant Sector

Similarly, food trucks offer potential growth for the restaurant industry.

“We reached out to the National Restaurant Association and it is pretty positive on food trucks. The reason is they see food trucks as a softer entry point to the restaurant industry. In a lot of places, like D.C. and New York, for example, you’ll see a lot of trucks graduate up to brick-and-mortar and a lot of established restaurants will start food trucks as a catering service,” U.S. Chamber of Commerce Foundation Research Director Lawrence Bowdish said.

Chic-fil-A is one such example of an established brand branching out into the food truck business, something Cordero said is starting to happen more frequently.

“The bigger trend I would say is established brick-and-mortar restaurants supplementing their real estate with food trucks. It gives them a chance to test new recipes, new markets, but is also [great] for marketing. If you have something in downtown L.A. and there’s an event going on in another part of the city, you can go and set up a food truck to drive people to the actual brick-and-mortar [location],” Cordero said. “Brands are really looking to test out new concepts, especially with flexible concepts and I think food trucks and pop-ups are a really important part of [doing that].”

Regulations Take A Bite Out Of A Burgeoning Industry

In some cities, strict regulations on public health and safety, proximity bans and expensive permits have made it difficult for food truck entrepreneurs to succeed or even get started, according to a new report by the U.S. Chamber of Commerce Foundation.

“I think it’s definitely going to be a trend that is growing, but we don’t know with the [number] of regulations if there’s an artificial ceiling that these cities have placed on these food trucks. That's [truer] in a place like Boston or D.C. that have lottery systems. Those places have established really firm barriers to entry,” Bowdish said.

Boston, Washington, D.C., San Francisco, Minneapolis and Seattle all fell to the bottom of the list as being the most difficult cities in which to operate a mobile restaurant in the U.S. Chamber of Commerce study.

Boston, in particular, has a number of rules that aim to protect brick-and-mortar establishments by requiring any products being sold in food trucks not compete with restaurants within 100 feet. To ensure operators abide by this rule, they are also required to purchase and install a GPS tracker and are monitored. Annual fees to operate a truck at lunchtime during the week are also more than $14K. In the most populated areas, that number is more than double.

Such regulations are putting the food truck industry at risk. So much so that growth is expected to be only 0.4% per year from now through 2020 and the industry could face complete extinction after that.

Still, Bowdish remains hopeful about the future of the food truck industry and the role it could play for commercial real estate, cities and residents across the country.

“They’re an important part of the economy. We want to make sure cities and counties and states can really help them thrive,” Bowdish said.