Clustering Restaurants Together Pays Off for Operators | Food Newsfeed
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DRG Concepts

Taking a chapter from Chicago’s Magnificent Mile, DRG Concepts focused on developing downtown Dallas into a dining destination: Starting with Dallas Fish Market in 2007, followed by the Dallas Chop House and Wild Salsa—all on the same block

Consciously Clustering

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For restaurant groups and chefs, positioning restaurants together in a defined area offers real estate benefits in addition to the readily understood operational advantages.

By Daniel P. Smith Real Estate

Multiple times each day, Shane Covey exits Upstate Craft Beer and Oyster Bar, his intimate, 28-seat restaurant in New York City’s East Village neighborhood, and steps onto 1st Avenue. Amid the stream of taxis, bicyclists, and pedestrians, Covey strides to the intersection of 1st Avenue and 6th Street. He crosses 6th and veers left. 

About 180 feet down the sidewalk, Covey arrives at his destination: Edwin & Neal’s Fish Bar, the new seafood restaurant he opened earlier this year.

While it might seem odd, even illogical to some, for a restaurateur to operate two seafood spots within steps of each other—and to do so in one of the nation’s most expensive commercial real estate markets—Covey stands unfazed, even if those same questions pestered him as he readied the 55-seat Edwin & Neal’s for its January debut.

“I could’ve easily put Edwin & Neal’s a borough or two away, and it could’ve done just fine,” Covey admits, “but then it wouldn’t have been my restaurant. I have to physically be in the building, touching customers and staff, and seeing their faces.”

Covey, who lives “just up the block” from his two restaurants, says he carefully distinguished the concepts from each other. Where Edwin & Neal’s features five different fish each day alongside craft cocktails, Upstate serves up to 25 types of oysters, craft beer, and little else. Where Edwin & Neal’s—carefully designed to be a more fan-friendly destination—accommodates large parties and reservations, Upstate is a casual, first-come, first-served operation that diners visit before, as Covey puts it, “getting on with their night.”

And Covey wouldn’t have it any other way, seeing myriad advantages to having his restaurants located nearby. “Sometimes, I’ll literally walk customers back and forth between the restaurants,” he says.

The idea of restaurant groups, chefs, and other forward-thinking operators clustering their restaurants together in a specific area is far from a new phenomenon, particularly given the operational benefits leadership can squeeze out of the arrangement. Eateries can easily swap labor, inventory, promotions, and even diners on an as-needed basis. But, for many operators, the real estate strategy behind the decision is gaining traction.

Around the Corner, Down the Block

Within one block in downtown Dallas, DRG Concepts claims three full-service restaurants—Dallas Fish Market, Dallas Chop House, and Wild Salsa—as well as one fast-casual concept, a Dallas Chop House spin-off called Chop House Burger.

DRG Concepts founder Mike Hoque says he was inspired to cluster his restaurants together after visiting Chicago and studying the concepts and locations of Lettuce Entertain You Enterprises (LEYE), the celebrated Rich Melman–led group that owns more than 100 restaurants, including heralded concepts like Everest and Tru. 

While dining on the north end of Chicago’s Magnificent Mile near the city’s Water Tower Place mall, Hoque noted the plethora of LEYE concepts within an arm’s reach, including spots like Mity Nice Bar & Grill and Wao Bao sitting inside the high-end retail destination.

“And if it was good enough for Lettuce Entertain You, I thought it would probably be good enough for me, too,” Hoque jokes, before returning to a more reflective tone. “It seemed a smart and wise strategy that would allow us to build our infrastructure, and feel and touch our customers rather than diluting our efforts by opening restaurants all over the place.”

Upon returning to Dallas, Hoque tailored LEYE’s development strategy to his own business plan and the downtown Dallas marketplace. In 2007, he opened the first of his downtown Dallas eateries, the high-end fresh seafood Dallas Fish Market restaurant located inside the city’s historic, 100-year-old Kirby Building. By 2010, he had opened both Dallas Chop House and Wild Salsa on the same Main Street block. Today, all three restaurants are thriving.

“We understand our clientele because we see them day after day,” Hoque says. “We know who they are, what they need, and can bring it to them at any of those three restaurants. I’m not so sure we’d have the same level of perspective if our stores were scattered around Dallas.”

So successful has the clustering development strategy been for DRG that Hoque plans to open two more restaurant concepts by the end of 2017 on the same downtown Dallas strip. He is also replicating the clustering strategy in downtown Fort Worth, Texas, where he has already opened a Wild Salsa and a Chop House Burger.

“From a real estate perspective, having multiple units in the same area is completely advantageous,” Hoque says. “We get a deep sense of what the neighborhood needs, the traffic, and the footprint, so rather than wasting our energy all over the place, we can focus in on one area and use our time wisely.” 

Seattle-based Chef Ethan Stowell shares a similar tale, though he confesses he is less interested in the clustering strategy and far more invested in putting the right concepts in the right locations.


Chef-driven Concepts Cluster in an Incubator

In Denver’s Lower Highlands neighborhood, a different kind of restaurant clustering is happening at Avanti Food & Beverage. A nod to the rising wave of food hall–like concepts in markets across the country, the 11,000-square-foot former warehouse features seven chef-driven restaurant concepts, including fine-dining quality fare from tenants like Farmer Girl and Bixo.

Avanti co-founder Patrick O’Neill says the goal is to offer chefs—many of whom are willing to enter avant-garde spaces as a counter to high startup costs—an opportunity to test a concept at a more cost-effective rate, generate exposure in a dynamic environment, and, eventually, graduate onto a brick-and-mortar space, something Farmer Girl recently accomplished with the opening of a restaurant in Boulder, Colorado. 

The individual eateries inside Avanti sign 1- to 2-year leases, and need only worry about the food. O’Neill’s team owns and operates the development’s two bars, both of which supply craft beer and artful cocktails, and the Avanti team handles the utilities and front-of-the-house costs, including servers throughout the space who are trained to offer beer and wine pairings with dishes from each of the seven eateries.

“The chefs can focus on what’s happening within their walls,” O’Neill says. The Avanti model, O’Neill continues, positions operators to show a lender or future landlord a tangible profit-and-loss statement and a more thorough business plan when eventually pursuing a brick-and-mortar space to open their concept.

“It would be shortsighted of us if we didn’t want these guys to go out and be successful,” O’Neill says, “so incubating these concepts and sending them out into the world is important to us.”

 

In Seattle’s Ballard neighborhood, Stowell has four eateries lining the community’s main thoroughfare, the aptly titled Ballard Avenue. Staple & Fancy, an upscale Italian-inspired eatery, was the first to open, debuting in August 2010. In subsequent years, Stowell launched Ballard Pizza Co., Bramling Cross, and Marine Hardware, a 22-seat eatery located immediately adjacent to Staple & Fancy.

“Ballard [Avenue] has been good to us. It’s as simple as that,” Stowell says. His group, Ethan Stowell Restaurants, owns and operates 12 restaurants throughout downtown Seattle, including those clustered on Ballard Avenue.

While Stowell acknowledges he could have put his new concepts anywhere in the Seattle area, he never gave that idea much thought. He had established inroads in the Ballard neighborhood, embraced its energetic vibe, and scored loyal customers with each subsequent restaurant. “Location, location, location,” Stowell says. “We knew the customers and felt we had an opportunity to capitalize with our regulars.”

In the Short North Arts District of Columbus, Ohio, Cameron Mitchell Restaurants claims three restaurants on the same High Street block. The first of this trio to open was Marcella’s, an upbeat Italian concept that launched in 2007. Five years later, The Pearl, an upscale tavern, opened down the block. The Guild House followed in 2015 and sits across the street from The Pearl.

“Marcella’s was doing well—getting per-square-foot numbers that made it one of the busiest restaurants we had—and the Short North Arts District was going through a wonderful redevelopment that was very encouraging,” Cameron Mitchell Restaurants president David Miller says of his decision to double-down on opening restaurants in the burgeoning Short North area.

For Miller, an existing, high-performing restaurant and direct, first-hand familiarity with the neighborhood made opening additional restaurants in the immediate vicinity a no-brainer. “We saw what was happening, so this wasn’t rocket science to us,” he says. 

The Case for Clustering

Since the recession, many developers and landlords have been clamoring for spirited restaurant concepts, often favoring restaurant groups with multiple concepts and proven experience to minimize their own risk. Whether the developers are looking to fill spaces in a lifestyle center, a mixed-use development, a shopping mall, an office complex, resurgent urban neighborhoods, or even a casino, property owners have increasingly come to realize that restaurants play a prominent role in an area’s vitality—and many developers have been active in making pitches.

“Great restaurants attract foot traffic and help developers sell other things, such as apartments, retail, and office space,” Miller says.

Increasingly, the developers of upscale shopping and lifestyle centers are seeking partnerships with celebrated chefs to create dining destinations that will replace the stereotypical food courts with clusters of high-quality eating options. On the outskirts of Washington, D.C., Tysons Corner Gallery Place is slated to debut the Isabella Eatery in 2017, compliments of Mike Isabella Concepts. 

The eponymous food mecca is expected to be a 42,000-square-foot, 10-concept cluster of restaurants that Chef Isabella says will likely include “a coffee shop, an ice cream parlor, the company’s fast-casual Greek concept, a Spanish tapas place, a cantina, a Mediterranean raw bar, and our full-service Graffiato concept.”

The David Burke Group, based in New York City, is also in the process of creating a similar project that will be called Craveable Market. “We are re-concepting the idea of the traditional food court into an upscale food market that will bring high-end hospitality to consumers who are going to the [upscale] malls and lifestyle centers,” says John Murray, COO of David Burke Group. 

Street Smarts

While shopping centers find that the right mix of restaurants will motivate customers to spend more time in the property, urban areas also rely heavily on restaurants to create dynamic destinations where people will choose to work, live, and play. “When people are developing an area, they’re asking themselves how they can have the best food and beverage available because they know that means better chances for success,” explains DRG Concepts’ Hoque.

Adds Hoque: “When people are developing an area, they’re asking themselves how they can have the best food and beverage available because they know that means better chances for success.”

North Carolina restaurateur and developer Marty Kotis says restaurants feed off one another, and consumers and restaurateurs alike enjoy the energy a collection of ambitious restaurants brings to an area. “Vibrancy leads to vibrancy,” says Kotis, who has two restaurants, a brewery, and a movie theater with a foodservice component—all within the same area of midtown Greensboro.

And as developers reach out, many operators stand eager to listen, knowing they will gain some operational benefits from clustering restaurants together, have an opportunity to establish deeper roots in a given community, and, in many cases, score more favorable real estate deals and land better locations given their on-the-ground positioning.

In Seattle, Stowell’s success with Staple & Fancy and Ballard Pizza Co., as well as his growing culinary reputation in the Emerald City, motivated the owners of 5205 Ballard Avenue Northwest to contact Stowell about putting an eatery in their vacant storefront, a former wine shop. “They flat out said to us, ‘You’ve done good stuff on Ballard Avenue,’” Stowell says. “They knew we ran a professional business and were good community members.”

Upon visiting the space, Stowell saw the potential of the century-old, single-story brick building and the two sides struck a fair deal. That 5205 storefront then became Bramling Cross, Stowell’s inventive gastropub that favors local beers and ciders alongside fresh seafood.

“Landlords don’t want a hassle or a headache or a questionable concept,” Stowell says. “They looked at us as a safe bet, knowing that they could lose tens of thousands of dollars if the business they put into the space went south.”

Stowell reminds that there is so much more to structuring a business than someone wanting a space and agreeing to pay a specific rent. “Track records and relationships matter,” Stowell adds. “We want to be in vibrant neighborhoods and in good buildings with fair landlords, which is something we’ve been able to accomplish on Ballard, especially as we’ve gotten to know more and more people through the years.”

In Dallas, Hoque has found that his success on Main Street with three different concepts has proved helpful when he’s found himself sitting at a table with other neighborhood landlords discussing a potential deal for a new restaurant location. His track record has positioned him to land the spaces he wants at fair terms.

 “When landlords see we have success right down the street, that’s encouraging to them. They feel we’re a proved jockey and are more confident working out an aggressive deal with us,” Hoque says. “For a growing restaurant enterprise like ours, that’s a really wonderful thing.”


Clustering Considerations

When opening a new restaurant, Seattle restaurateur and chef Ethan Stowell says it’s his job as a business owner to be confident, but also skeptical and nervous. That mindset certainly rings true when restaurant groups like Ethan Stowell Restaurants and Cameron Mitchell Restaurants investigate going deep with units in a concentrated area. Two questions worth asking: 

Will I be able to develop additional brands within this area in a way that makes strategic sense?

When a restaurant group decides to cluster units in a given area, Cameron Mitchell Restaurants president David Miller says the company must not only be mindful of differentiating its concepts from its other units in the area, but also differentiating from other restaurants in the immediate vicinity. Otherwise, he says, “You’re splitting the pie too many ways.”

With clustering, one great benefit, Miller notes, is that a restaurant group has “more slices of the pie,” and that helps limit direct competition in the immediate area. The more property one has, the less that’s available to other like-minded concepts. “You certainly don’t want to cannibalize your own restaurants [by clustering in a specific area],” Miller says, “but having more units in an area will also give you a little more control over the local scene as well. You have to develop with this in mind.”

Who are my core neighbors?

In December 2008, J.P. Morgan Chase laid off more than 3,400 workers from banking giant Washington Mutual’s downtown Seattle headquarters. That recession-era ripple hit Ethan Stowell hard. After seven years of operating one of downtown Seattle’s most celebrated eateries, Union, an upscale restaurant in the shadow of the 42-story WaMu Center, Stowell sold the restaurant in 2010. Had he clustered more restaurants together in the downtown area around Washington Mutual’s headquarters and bet on a never-ending flood of white-collar workers and expense accounts, Stowell acknowledges, the damage could have been even more severe.

This fall, restaurants around the The Dome at America’s Center in downtown St. Louis, the former home of the National Football League’s Rams franchise, will await their fate after the Rams’ decision to leave St. Louis for Los Angeles. A decision made well beyond each restaurant’s control is one that certainly threatens to send ripple effects throughout each respective business.