Shopping for Retail Synergies
Independent operators, restaurant groups, and emerging chains find eager partners in real estate developers on a mission to create dining-driven destinations.
Wine Not Hospitality CEO Luke Johnson could have chosen to put his new restaurant, Kinfork, anywhere in the Chicago area.
A suburban Main Street.
A busy thoroughfare lined with strip malls.
A freestanding pad in the shadow of a hotel, across from a convention center, or next to a towering office complex.
All fine options in their own right, Johnson reasons, but none held the allure of Woodfield Mall, one of the nation’s largest shopping destinations with nearly 300 retail, dining, and entertainment options under its immense charcoal-colored roof.
Amid the 2015 holiday shopping season’s rush, Johnson opened Kinfork in the Schaumburg, Illinois, mall anchored by retail powerhouses Lord & Taylor, Macy’s, and Nordstrom.
The 400-seat restaurant, which inhabits some 13,000 square feet in the mall’s northwestern corner, sports a camping theme and spins out classic American dishes from its 11-foot-wide wood-fired grill—entrées diners can savor alongside moonshine, smoked peanuts, and s’mores.
“I think people are ready for something new, and we’re trying to deliver it,” says Johnson, who developed Kinfork with input from the Simon Property Group, one of the world’s leading retail real estate enterprises and Woodfield’s well-heeled owners.
Johnson first encountered Simon executives when they visited the Rack House, Johnson’s single-unit, barbecue-themed concept in nearby Arlington Heights, Illinois. Admiring the restaurateur’s style and operational acumen, Simon personnel encouraged Johnson to put his next full-service concept at Woodfield Mall.
Johnson happily obliged.
“They want to refresh and are banking on new things,” Johnson says of Simon, “and I saw a huge opportunity with tremendous upside.”
While major retail centers like Woodfield have long been the domain of national full-service brands like The Cheesecake Factory and P.F. Chang’s, as well as an assortment of well-established quick-service players, mall developers and owners are increasingly recruiting trendsetting full-service independents, boutique restaurant groups, and celebrity chefs in an unrelenting quest to establish a point of marketplace differentiation, enhance discoverability, and appease an ever-swelling consumer appetite for experience-driven destinations.
“It’s happening across the country and in all different types of markets,” International Council of Shopping Centers spokesman Jesse Tron confirms. “It’s not necessarily a move away from national names, as much as a more keen interest in newer concepts.”
Since the recession, Cameron Mitchell Restaurants executive vice president David Miller has observed that restaurants have transitioned from being a secondary consideration at major U.S. malls to become the primary thought.
“Mall owners recognize that great restaurants can drive traffic,” says Miller, whose Columbus, Ohio–based group operates 12 distinct concepts and 26 restaurants, including some in retail centers. “When a given restaurant brings in 2,000 to 3,000 patrons each week, mall ownership recognizes that value.”
The Village of Merrick Park in Coral Gables, Florida, features Brasserie Central, a Parisian bistro headed by award-winning Chef Pascal Oudin; in San Antonio, The Shops at La Cantera hosts Whiskey Cake Kitchen & Bar, a contemporary farm-to-fork concept from Texas-based Front Burner Restaurants, the force behind the fast-growing Twin Peaks chain; and last summer, crews began work on a restaurant-friendly $500 million expansion of Westfield UTC, one of San Diego’s premier shopping destinations. Alongside a newly built Nordstrom and the center’s “premium first-to-market fashion brands,” Westfield’s resort-inspired transformation will include The Pointe, an outdoor dining space that is expected to include restaurants from celebrity chefs, farm-to-table eateries, and new-to-market concepts. (This is in addition to other notable features, such as a 15,000-square-foot event space aimed at hosting private functions, TV premiere parties, and red-carpet events, as well as an additional 241,000 square feet of retail space.)
As diners become more sophisticated and retail centers become hyper-focused on consumer experiences that will distinguish them from the pack, Tron says inventive full-service eateries will continue to play a prominent role.
“Let’s not kid ourselves, food plays a huge part in creating a unique experience and environment that brings people in,” he says. “The bread and butter of these shopping centers rests in creating a culture and an atmosphere that allows them to be a centralized community touchpoint.”
A more diversified, dynamic tenant base blends regional and local brands alongside the traditional national names. Such a mix delivers variety, Tron continues, and helps create a connection point to consumers that reflects the local scene.
“A lot of these owners want more balance,” he says.
Adam Schwegman, vice president of leasing in the Eat Drink Group at General Growth Properties (GGP), which owns 120 retail centers across the U.S., including landmark shopping destinations such as Water Tower Place in Chicago, the Grand Canal Shoppes in Las Vegas, and Ala Moana Center in Honolulu, confirms as much.
“At our properties, we’re trying to be the preferred gathering space in each community, and food is important to that mission,” Schwegman says. It’s why, he continues, GGP is eager to land first-to-market concepts and innovative independents, particularly homegrown concepts.
While the national brands retain their importance and, in fact, perform well at GGP’s best properties, Schwegman says the local and regional operators “become a tipping point,” and these are concepts that GGP intently pursues, even to the point of cold calling prospective restaurateurs when its team sees a compelling match.
“We are always actively recruiting [and have] a team that focuses solely on food,” Schwegman says.
Five years ago, husband-and-wife entrepreneurs Braden and Yasmin Wages chose to open their first restaurant, Malai Kitchen, in Dallas’ West Village, opting for a unit in the hip lifestyle center over a traditional neighborhood location.
“For our first venture, a place like West Village was extremely intriguing,” Yasmin Wages says. “Rather than trying to get people to try our business on the street, we had a built-in crowd right here.”
“We viewed it more as a safety net than anything else,” her husband adds.
The Wages felt West Village offered their new concept substantial visibility and an iconic location that would elevate its brand image. After all, Braden Wages reminds, we’re all judged—at least to some extent—by the company we keep.
Indeed, the appeal of a major retail center location can be mighty for restaurants. A first-rate mall property or upscale lifestyle center delivers an identifiable address, brand exposure, foot traffic, and crossover discovery, not to mention that most A-level properties are vibrant spaces run by owners committed to maintenance and modernity.
“The sheer number of customers you’re able to attract, including higher-end customers, and the longer duration many of these guests stay at the center is certainly a draw,” Tron says.
That reality alone sparked Johnson’s interest in Woodfield Mall. “We have an opportunity to reach a lot of people here and if we put out the right product, then we can really do some big numbers,” Johnson says, though he readily admits he cannot depend on mall traffic alone.
In addition, retail centers can offer restaurateurs a less intimidating experience than buying real estate as well as a partner invested in the property’s long-term health. Schwegman says GGP seeks a winning alliance, understanding that charismatic, high-performing restaurants elevate the profile of its retail properties. As a result, GGP will craft creative deal structures and work with its operators to make sure the restaurant business is equipped to succeed, from both a personnel and financial standpoint.
“We want a win-win for both sides,” Schwegman says. And for the most ambitious, growth-minded restaurant entrepreneurs, a retail center location can deliver another appealing benefit: a platform to spur growth.
“We can point to national names that started in retail centers,” Schwegman says, naming The Cheesecake Factory as one established national brand that largely grew through the mall environment.
There are, however, some tradeoffs with a retail center location.
Being an independent operation in a sea of national names at Woodfield Mall, including the likes of The Cheesecake Factory and Texas de Brazil, gave Kinfork’s Johnson some early pause.
“Are people going to choose the safety of a national chain versus something new?” Johnson says. “That was certainly a concern of mine.”
It created additional pressure to develop the right concept, Johnson says, though those concerns began to evaporate as the Kinfork concept and design came together. “I believe we’ve got a winner here,” he says.
Once in the mall, pressing challenges can arise and persist. From facility aesthetics and hours of operation to the conduct of security personnel, Braden Wages acknowledges that some operational aspects are beyond his control.
Parking, for instance, has been something the Wages have “struggled with since day one” at West Village. While the couple has encouraged its employees to park farther away and has also monitored where valets park cars, the Wages feel limited to the extent to which they can solve the problem. “It can be a frustration,” Braden Wages says. “In some respects, you’re forced to buy into the developer’s vision.”
With its mall locations, Cameron Mitchell Restaurants has learned some lessons over the last two decades. In 1999, the restaurant group opened Ocean Club at the Easton Town Center, a newly built indoor/outdoor retail complex in Columbus, Ohio. The restaurant, Miller says, suffered from poor exterior viewpoints and significant barriers to entry, and the operation merely trudged along while paying a premium price for the location. “Things weren’t going the way they needed to go,” Miller says.
In 2006, the restaurant group remodeled the restaurant, including the addition of a terrace, outdoor entrance, and exterior façade, and rebranded it as Mitchell’s Ocean Club. Sales nearly doubled.
“The remodel wasn’t the only reason for the strong increase in sales,” Miller says, “but it was a huge part of the success story. It showed us the elements we needed to have in place.”
Miller says his team has learned that mall-based restaurants must be mindful of their neighbors, particularly at properties still under development where a developer might, in a rush to fill spaces, chase any paying tenant rather than delivering on a promised vision.
“You’re often working on these deals two years out, and things can morph,” Miller says. “You have to be careful and have the proper protections in your leases.”
Such complexities, Miller confesses, have made Cameron Mitchell Restaurants a bit lukewarm on future retail center locations. For the restaurant group to consider a mall or lifestyle center location today, Miller says, the company has to “be in love” with the property and with what it offers. Expectations include a high density of its target income levels, multiple traffic drivers, such as a unique theater space or luxury hotels, and quality-minded neighbors.
“A lot of pieces of the puzzle need to be in place, and, if they’re not, we’d prefer a street location,” Miller says.
And not to be ignored, financial considerations certainly hover over every decision, especially as leading retail centers typically carry higher real estate costs. “When you’re paying premium prices, you need to do premium volume,” Miller reminds.
While the Wages found the base rent at West Village comparable to some of the street locations they investigated for Malai Kitchen, they do acknowledge that the fees for common area maintenance, which cover elements such as security and property upkeep, certainly add up. Not enough, however, to push the Wages elsewhere or force them to write off future mall-based spots. In fact, the couple was on track to open its second Malai Kitchen in January—at another Dallas-area retail center, Park Village, in Southlake.
“The synergy you can get from other restaurants and retailers, the pedestrian environment, it all elevates the experience of the restaurant as a place to see and be seen,” Braden Wages says. “That’s something tough to pass up.”