Tiny stores make me happy: Tracking revenue per square foot

A recent conversation with Peter D’Amelio, Chief Operating Officer for Matchbox Restaurant Group, at the Industree “Cracking The Code: On Food & Beverage Industry Technology” event in Washington, D.C., got me thinking about feet. Not the kind you put in shoes, but the square kind, as in revenue per square foot.

As the former president of The Cheesecake Factory, Peter D’Amelio knows a lot about the concept – he’s managed big on both sides of the equation, revenue and square footage. He approaches the metric in a way I had not encountered, and it occurred to me that square footage is the great equalizer across various restaurant formats, revealing true real estate efficiency.

According to D’Amelio, the key is to grow the bottom line faster than the top line, which can be accomplished by increasing revenue without increasing square footage.

My mind immediately went to the opportunities online and mobile ordering provides, and how they can help to create the “infinite dining room” of off-premise sales – the ultimate in revenue per square foot. Of course, the rush toward off-premise sales is hardly news. But today’s technology and changing demographics enable leading restaurant brands to deploy new strategies that no longer focus on the “numerator” in this equation, but the denominator, shaving off square feet.

The best example is Chipotle. A recent Restaurant Finance Monitor report ranked Chipotle the most profitable among publicly traded companies at $840.69 per square foot. Other fast casuals pale in comparison. Panera brings in $548 per square foot, and Zoe’s Kitchen draws $534.54 per square foot (as of its IPO). Quick-service falls even farther behind. Wendy’s tops the list at $504.67 per square foot, and Burger King brings in $392.27 per square foot.

I’d remembered marveling at Apple’s gorgeous retail cathedrals when they first came onto the scene. How could they possibly make enough revenue to support such jaw-dropping architecture and finishings and in such prime real estate locations? As it turns out, Apple is doing this revenue-per-square-foot thing right, with a notable average of $4,551 per square foot, according to a recent Forbes article. The next closest retailers are Murphy USA (a gas station and c-store chain) at $4,221 per square foot and Tiffany & Co. (the high-end jewelry chain) at $3,043 per square foot. Then again, luckily for customers, few restaurant products cost iMac or diamond-ring prices.

But Chipotle continues to set the standard for restaurants. The restaurant group constantly improves, illustrated by its Q2 earnings call, when Chief Financial Officer Jack Hartung reported that Chipotle plans to build “really, really small, scrappy” stores, which will focus on serving takeout (i.e., off-premise) customers. Hartung reported that takeout sales now represent two-thirds of Chipotle transactions, up from 50 percent in 2000. He added, “I think that the seating component of what we do has become a little less important … now that the brand has been more established … we aren’t as concerned about someone coming in and not getting ‘the full Chipotle dining experience’ or being part of the restaurant atmosphere.”

The bottom line is that leading restaurant brands are growing their top lines with off-premise sales, while shrinking their real estate costs to improve revenue per square foot and profitability. If Chipotle’s experiment proves successful, one can imagine the industry following suit, swapping high-capacity dining rooms for high-production kitchens. And someday, one can imagine a world with more off-premise dining than on-premise, where restaurants scale production capacity up or down to meet demand. That’s perfect revenue-per-square-foot efficiency, and it’s coming soon to a restaurant near you.

Photo provided by Pixabay.