The Urban Urge

Several suburban chains are trying their luck in downtown sites

By Shari Goldhagen, Special to R&I -- Restaurants & Institutions, 2/15/2003

Another in a steady stream of new restaurants opened in New York City’s red-hot Chelsea neighborhood last November. The sleek, glass building housing the Italian eatery is the product of a construction team that worked alongside the Landmarks Preservation Commission to incorporate existing area architecture while including design elements of ristorantes and cafes in Italy’s most sophisticated cites.

No, this stylish spot isn’t the latest vehicle of a celebrity chef or a well-connected restaurateur, but is instead the urban prototype of Olive Garden, an Orlando, Fla.-based chain that historically has set up shop in population-dense suburban locales rather than pricey urban settings.

The Manhattan deviation from Olive Garden’s Tuscan Farmhouse design is just the beginning, according to company president, Drew Madsen. In the next year, urban units are planned for Philadelphia, Chicago, Minneapolis and Baltimore.

Where typical Olive Garden interiors are intended to evoke rural Italy, the New York City unit “introduces a new design that maintains the warmth and authenticity of urban Italy,” Madsen says. “These restaurants will blend into neighborhood streets and reflect the character of the area. No two locations will look exactly the same.”

The prototype’s untraditional exterior gives way to a more familiar interior. The dark wood elements found in Olive Gardens across the county and the chain’s moderately priced Italian fare remain in place, comforting touchstones for regular guests.

Yet not all things inside remain the same. Wine displays and racks feature more prominently, according to spokeswoman Mara Fayerman. And that wine isn’t for decoration either. In an effort to compete with the exhaustive wine lists of Manhattan restaurants, the Chelsea Olive Garden offers selections not available at suburban and smaller-city locations: 56 imported and domestic wines in all, 42 by the glass.

With 507 units, Darden Restaurants’ Olive Garden is the leader of the Italian segment. It is not abandoning its free-standing farmhouses, however. Twenty traditional units are planned for 2003, and Fayerman says they’ll be scouting more urban locales as well.

THE NEW URBANISM
One of casual dining’s pioneering concepts, T.G.I. Friday’s, originated in Manhattan, but development quickly shifted to suburban areas where sites were more plentiful and less expensive. Now, competitive congestion in outlying areas and revitalization of central cities (the population of Chicago’s downtown area increased 34% between 1990 and 2000, for example) are again making urban locations worth consideration. Atlanta-based Hooters of America also is thinking downtown, last month unveiling a unit in central Washington, D.C. And Applebee’s Neighborhood Grill & Bar, whose “Eatin’ good in the neighborhood” advertising slogan lays claim to its suburban domination, is showing that it, too, isn’t above occasional jaunts into cities.

Overland Park, Kan.-based Applebee’s International, which owns about 25% of the chain’s 1,500 locations, has two urban outposts under construction in Minneapolis—one in a mixed-use area of theaters and restaurants; the other centrally situated on the University of Minnesota campus—according to Jim Kirkpatrick, vice president of real estate and construction.

Applebee’s franchisees are expanding into Los Angeles and the densely populated downtowns of New York City’s boroughs, with new developments under way in Queens and Brooklyn. Applebee’s CEO Lloyd Hill recently told Investor’s Business Daily that its Times Square restaurant has annual sales of $9.5 million, better than four times its system average.

Center-city expansion “is on an opportunistic basis with us,” Kirkpatrick says. “Both the company and our franchisees will move in if we see a great opportunity in an urban market.”

Downtown locations often are more difficult to negotiate, making opportunities tougher to identify. Topping the list of challenges is the cost of rent in urban markets, which often is significantly greater than in suburbs, Kirkpatrick says, though premiums vary by city.

“Sometimes the differences in rent between [central-city and suburban locations] aren’t that great,” says Michael Beyard, senior research fellow for retail and entertainment at the Urban Land Institute in Washington, D.C. “In a lot of midrange cities, rent in the high-end suburbs is almost as expensive as rent downtown. If there is higher [customer] traffic in the central city, the difference easily is made up.

“In the largest cities—New York, Chicago—downtown rents are going to be significantly higher, but those cities attract a lot of tourists, a prime market for chains.”

Controlling overhead is especially important for casual-dining concepts, which strive to keep check averages from ballooning much past $20.

“One thing that keeps us from getting too invested in some downtowns is our commitment to keeping menu costs low,” Kirkpatrick says. “Some city locations will have slightly higher prices, but we’ve built our reputation on being reasonably priced and we don’t want higher rents to compromise that.”

TINY FOOTPRINTS
Pricey leases aren’t the only obstacles. Downtown, chains often are forced to compress operations designed for large free-standing spaces into less square footage. This is a problem faced by Dallas-based Brinker International, owner of Chili’s Grill & Bar, another chain cautiously paying a visit to the city.

“Most of our suburban and small-town locations are free-standing structures we build or may be the cap in a small shopping center,” says Brinker spokesman Tim Smith. “Downtown and city locations are sometimes more difficult because we’re often working with existing buildings where we can’t control everything from the ground up. In those cases we always have to find buildings that will work for us.”

Fast-casual chains such as Denver-based Chipotle have been more easily able to mix urban and suburban locations because their concepts often can use sites smaller than casual-dining chains are able to profitably consider. But casual dining can’t concede city centers to the fast-casual challengers, forcing midscale concepts to rethink how to make urban sites workable.

Smith says Brinker developers calculate everything from traffic patterns and parking to area office hours before considering an urban development.

“If the central city empties out after 5 p.m., it might not be the best place for us to open a downtown location,” he says. “We might do better in the surrounding areas of the city, where people go in the evenings. There’s a demographic formula we have. We aren’t going in blind.”

Still, Brinker plans to open shop in metro areas of Chicago, New York City and Fort Worth, Texas, next year, adding to a successful location recently launched in central Denver. Signaling its intentions to locate downtown as well as near suburban shopping centers, the chain’s recent television advertising campaign closed with a shot of a very narrow, very citified Chili’s—not the free-standing one-story structures familiar to most patrons.

“It’s not as though it’s a plan we have to move away from suburban and town locations,” Smith says. “But we are considering urban locations as well, and those ads highlight that.”

One company that makes no excuses for its cross-pollination plans for city and suburb is Minneapolis-based Buca di Beppo. In late 2002, the Italian chain cut the ribbons on a unit in a crowded Philadelphia theater district and plans to follow by opening in Philly’s suburbs, says Randy Lopez, vice president of marketing.

“We really are mixed in our upcoming developments,” Lopez says. “There are pros and cons to both urban and suburban for us.”

The chain is opening a second location in Chicago and has downtown units in Minneapolis and Seattle, as well as Philadelphia, among its 82 restaurants. One factor figuring into Buca’s multifaceted development plan is that, unlike Olive Garden’s Tuscan Farmhouse design, Buca has no set architecture and always moves into an existing building, according to Lopez.

“Our mission is to set up something like an old-time supper club,” he says. “You’ll know it’s a Buca when you get inside, but the buildings themselves are already part of the neighborhood.”