A Portillo’s Beef Bus in Kissimmee, Florida.
Source: Portillo’s
When Chicago-based Portillo’s enters a latest market, it sends its “Beef Bus” ahead of time, slinging its hot dogs and Italian beef sandwiches to latest customers for weeks, introducing them to the brand and whetting their appetites before a latest restaurant finally opens.
Recently, the Beef Bus has been making loads of trips to the Sun Belt.
“Texas, by itself, has grown more people in the last decade than eight midwestern states that now we have a presence in combined,” Portillo’s CEO Michael Osanloo told CNBC. “So it’s form of a no brainer to go where the growth is.”
The chain’s sales are “way stronger” in Texas, Arizona and Florida than in midwestern states comparable to Indiana and Wisconsin, in accordance with Osanloo. Portillo’s opened its first location in Texas somewhat greater than a 12 months ago. In its first 12 months, the location generated $13 million in sales, the restaurant akin to a $1 billion box-office hit.
While the exact states included in the Sun Belt can vary, the name refers to the southern third of the U.S. known for its sunny weather. In recent times, the region has seen booming population growth, setting it other than the Northeast and Midwest. The trend accelerated during the Covid-19 pandemic as consumers sought more room, warmer weather, fewer government restrictions and cheaper housing in cities comparable to Charlotte and Phoenix, which count amongst the most populous in the U.S. together with Texas cities comparable to Houston and Dallas.
Resulting from that shift in population, restaurants are actually trying to the region to drive sales. Smaller chains are expanding into the Sun Belt earlier, quite than the Midwest or Northeast. For more mature firms comparable to McDonald’s, it means accelerating latest restaurant growth in areas where it’s now underrepresented.
“We all the time say that retail follows rooftops, so once you’ve got lots and plenty of people moving to an area, there’s plenty of demand,” said Justin Greider, senior vp of Florida retail for real estate firm JLL. “Combined with the overall increase in consumer spending towards restaurants we have seen, it’s type of the perfect storm to create a extremely ripe environment from loads of restaurant groups who need to be here.”
It is not only restaurants trying to the Sun Belt for sales growth. Fort Value-based American Airlines is updating its routes to reflect the population shift, executives said Monday at an investor event. Macy’s has been opening smaller stores in suburban strip malls, starting in the Dallas and Atlanta areas. Real estate investment trusts comparable to Phillips Edison & Company that invested in the region earlier have seen the southern migration boost their shopping centers.
Golden arches meet golden rays
As the third-largest restaurant chain in the U.S. by variety of stores, McDonald’s cannot be accused of ignoring the Sun Belt, nevertheless it has been slower to select up the trend and saturate those growing markets.
“In our U.S. markets, our store counts have grown much slower than the population in the fastest-growing areas,” McDonald’s Global Chief Customer Officer Manu Steijaert said during the company’s investor day in December. “We do have a major opportunity to right-size that ratio.”
McDonald’s is aiming to open 900 latest restaurants through 2027 in the U.S. Most of those locations shall be concentrated in Florida, Texas, Arizona, Georgia and North Carolina, in accordance with JPMorgan.
“What we have seen is due to the scale that they have already got. That adaptation to grow in the Southeast has not been quite as proactive,” Greider said, speaking about McDonald’s.
But other chains have been quicker to see the opportunity in the Sun Belt. Greider named chicken chain Raising Cane’s, Chipotle Mexican Grill and Starbucks as three firms which have been focused on growing their footprints in the Sun Belt even before the pandemic.
Along with well-known chains, Greider has also seen restaurants with chef-driven name recognition traveling south from Latest York and Chicago.
“In the back half of [the pandemic] and post Covid, we saw various full-service and chef-driven restaurant groups which have really pushed hard into the Sun Belt, because they’ve seen that is not only where there’s great opportunities for growth, but where their existing customers have been relocated,” Greider said.
For instance, Latest York City’s celebrity hotspot Carbone, owned by Major Food Group, opened a location in Miami in 2021 and one other in Dallas in 2022.
Chains see opportunity in warm weather
For regional chains trying to expand nationwide, the Sun Belt also presents a possibility to grow their footprint with customers who already know the brand.
For instance, 89-year-old chain Friendly’s has largely stuck to the Northeast since its founding in Massachusetts in 1935. Under a latest owner, the chain is finally trying to expand beyond the Mississippi River.
Brix Holdings acquired Friendly’s in 2021, several months after the company filed for Chapter 11 bankruptcy protection. At the time, Friendly’s had greater than 100 locations, down significantly from its footprint of 850 restaurants in its heyday.
The chain’s sales are growing again, in accordance with Brix Holdings CEO Sherif Mityas, making it an opportune time to expand Friendly’s footprint.
“More strategically, from a growth perspective, we wish to begin moving west,” Mityas said.
A lot of Friendly’s customers grew up with the brand in the Northeast before moving all the way down to the Sun Belt. Plus, the chain is best known for its ice cream, making warmer climates a greater business environment than the Midwest.
Warmer weather can be one reason why coffee chain Dutch Bros. is betting on the Sun Belt.
“Greater than 80% of our business is cold [drinks], so we discover that warmer markets do higher — but that does not imply we would not do well in Minneapolis or the Great Lakes region or the northeast, but we’re just staying out of those for now,” Dutch Bros. CEO Christine Barone told CNBC in a January interview.
The chain is planning to open 150 locations this 12 months, most of which shall be in Texas and Southern California. In the next 10 to fifteen years, the company goals to operate at the least 4,000 locations, with a footprint that appears like a smiley face across the U.S., starting in California, dipping all the way down to Texas and back as much as Virginia.
Higher for business?
The region’s fame as friendly to businesses has also played a job in its rise. Seven of the top 10 states in CNBC’s America’s Top States for Business in 2023 were in the Sun Belt.
Although there are some notable exceptions, comparable to California with its upcoming hike on fast-food wages, states comparable to Texas and Florida have touted their lower taxes and lax regulation to lure firms. For 2 consecutive years, Texas has been home to the most Fortune 500 firms, supplanting California and Latest York.
“Along with the population growth dynamics, many states in the Sun Belt region have ‘friendlier’ business environments which might be also appealing to restaurant operators,” said Kevin Schimpf, director of industry research at Technomic. “[That means] things like fewer restrictions on franchising, lower labor costs and fewer red tape on latest business developments.”
That is a part of the appeal for Friendly’s, which wants franchisees to run the latest locations.
“From an entrepreneur perspective, and a business perspective, the Sun Belt is basically growing faster than the remainder of the country,” Mityas said.