• Returning Office Workers Anchor Sweetgreen Expansion, Boosting Retail Property Use

    To get a sense of the importance of employees returning to the workplace on property types beyond office buildings, look at the effects on salad chain Sweetgreen.

    The pandemic left Sweetgreen's Outpost program to wilt, but the company is quickly reassembling the corporate delivery service as workers head back to their desks and return-to-office plans revive the company's urban markets. The fast-casual company based in Los Angeles is planning to leverage its rebounding Outpost business to support growth in major cities across the United States, all part of a broader goal to open as many as 1,000 restaurant locations before the end of the decade.

    The program offers a unique spotlight on the national office market's recovery. At its height in the days leading up to the pandemic's outbreak in early 2020, the salad chain had more than 1,000 locations spread across corporate campuses and downtown office towers to deliver food to packed workplaces. Once the worsening COVID outbreak sent employees packing, business for Sweetgreen's corporate delivery program all but evaporated.

    Sweetgreen officials said in a call with analysts that since the start of the year it has added nearly 100 Outposts, which lets workers of participating companies place orders and pick them up in their office buildings for no delivery fee. At the same time, it is planning a substantial suburban expansion to cater to population growth and ongoing work-from-home trends. By the end of the first quarter that ended March 31 Sweetgreen said it was operating just shy of 580 Outpost locations.

    "As the world has opened up and people are getting back to work, we're seeing a lot of excitement from businesses that want to bring Sweetgreen in as an amenity," CEO Jonathan Neman said of the Outpost program on the call. While the program is rebounding, he said, it is "very, very early in that recovery. People are still getting back to their normal routines, but we're pretty encouraged by the acceleration in the number of businesses signing up."

    Average office use across the country is now accelerating beyond 43%, according to Kastle Systems, a security company that analyzes employee keycard access in more than 2,500 office buildings it services nationwide. San Francisco, New York, Los Angeles, Chicago, Austin, Texas and Washington are quickly rebuilding their daytime office worker populations after hitting severe lows in the early months of the pandemic. New York City posted its largest weekly gain in office use since the start of the pandemic in the week ending April 27, and office use rates in the city are above 37% for the first time since March 2020.

    Office Leasing Momentum

    Leasing activity across the country is also slowly rebuilding momentum, and after three consecutive quarters of positive growth, office vacancy now averages about 12.3%, according to CoStar data.

    With major companies calling employees back to the office, the salad chain is gradually restarting its paused Outpost locations and rolling out new ones as employers look for ways to entice workers. In San Francisco, companies including J.P. Morgan, Sephora, Nasdaq, Gensler, Levi Strauss & Co. and Okta have reactivated or added new Outpost stations.

    “That’s where we’re seeing a lot of growth today — more and more employers looking to use Outpost and subsidize it as a benefit in replacement of what they used to have as a chef and a full staff,” Neman said.

    Sweetgreen had previously focused its new-store strategy on dense, professional markets on the East and West coasts. With the pandemic triggering widespread geographic and sociological shifts, however, the salad chain is looking at suburban growth.

    With plans to open at least 35 restaurants in 2022, Sweetgreen said 90% of its development pipeline is focused on the suburbs in an effort to expand its customer base and capitalize on the fast-growing pool of remote workers that no longer commute into the office every day. The eight Sweetgreen locations that opened in the first quarter were in suburban and residential markets, Neman said, and future locations for 2022 will pop up in areas such as Minneapolis, Indianapolis, Detroit, San Diego and Tampa Bay.

    The company's focus on suburban growth echoes a broader trend among restaurateurs and retailers as many shift away from dense, downtown corridors due to the pandemic and its fallout. Foot traffic in cities has struggled to regain the level of activity seen prior to March 2020, as many customers have permanently relocated to more spacious suburbs. That shift also triggered increased demand for offerings such as delivery, drive-thru and pick-up.

    Remote Worker Demand

    Delivery platform DoorDash, for example, has been one of the biggest winners of the pandemic. Its share of the national food delivery market has jumped to 57% compared to less than 45% two years ago, according to market research firm YipitData, and its strengthening is largely attributed to investments it made in expanding its suburban delivery network.

    DoorDash’s revenue jumped 35% year over year to nearly $1.5 billion in the first quarter. The growth is a sign that even though restaurants are reopening and offices are coming back to life, a large population of customers are sticking to their homes — many of which are now in the suburbs.

    Sweetgreen is also tailoring some of its marketing to remote workers who want their employers to pick up the tab. It recently sent out an email that told workers about its employer credit program that companies can use to set up daily tabs for work lunches.

    Sweetgreen's first-quarter revenue climbed 67% year over year to $102.6 million. Same-store sales shot up by 35% compared to a 25% drop for the first quarter in 2021.

    With its renewed focus on suburban locations, Sweetgreen is also testing some new store models that could dictate its direction as it evolves beyond the pandemic. SweetLane, Sweetgreen's experiment with drive-thru formats, is slated to open its first location in Illinois within the next year. The chain is also testing out its first pick-up kitchen, where customers can place orders online through an app or a third-party provider and pick up food in a smaller spot with no front-line ordering or inside dining rooms.

    The pick-up only option means Sweetgreen can benefit from lower operating expenses and smaller footprints and help boost its digital service business, which accounts for about two-thirds of the company's total orders.

    Source: www.CoStar.com