Quick-Service Dining Competes For Prime Expansion Space Despite Elusive Profits

The quick-service restaurant sector has never been more crowded, with a wave of buzzy upstarts clashing with industry giants in a fight for customers with increasingly strained wallets.

The battle for market share is squeezing margins and forcing operators to narrow expansion plans as they struggle to boost store-level profitability.

The increased competition has QSRs clamoring more than ever for premium spaces, driving absorption and rents amid a mixed retail backdrop.

“Everybody wants the same thing. Everyone wants that special corner or to be in that A-plus shopping center in the suburbs, and they don't want to settle,” said Neil Seth, a Cushman & Wakefield executive director focused on retail space in New York City. 

Quick-service restaurants have expanded by 2.1M SF over the last year, leaving the vacancy rate at 1.3% at the end of June, the tightest availability of any retail category besides convenience stores, according to Marcus & Millichap.

The segment has seen asking rents climb 7.3% year-over-year, the fastest growth rate among retail categories tracked by M&M. QSRs have also seen positive net absorption every quarter going back to at least 2000.

Meanwhile, competition has increased. A new cohort of brands is leveraging social media buzz to expand and challenge companies that have dominated the space between sit-down dining and fast food known as quick-service dining. 

Office workers being pulled back into urban cores by attendance mandates are breathing new life into spaces that struggled to draw customers in the work-from-home era. In the suburbs, a lack of new retail development has kept occupancy tight. 

The most sophisticated brands aren’t just targeting a city or neighborhood — they are after the specific corner that their research shows has the greatest earnings potential.

“The best spaces, the competitive spaces, there's a premium to them right now. The big groups are willing to pay,” Seth said.

Second-generation spaces in top spots are especially popular. 

The jockeying for space from quick-service restaurants is offsetting weaker demand in other parts of the retail sector, with roughly 20% of retail leasing activity this year coming from restaurants, bars and coffee shops.

Demand from quick-service and fast-casual restaurants helped the broader retail sector notch positive absorption for the first time this year in the third quarter, JLL reported.

Retail leases, especially those for quick-service restaurants and fast food, are frequently triple-net deals, meaning they push taxes, insurance and maintenance costs on to the tenant.

That means operators locking in a lease at a new or recently renovated retail center — the properties that are in demand today — face not only high rents but also high operating costs, further escalating costs to expand.

“In a lot of the markets, the triple-nets are more than the actual base rent numbers,” said Anjee Solanki, national director of Colliers’ retail services and practice groups. 

Those higher costs eat into already slim margins. 

Chipotle opened 202 new company-owned stores and closed eight locations this year through September, bringing its total location count to 3,916. More stores are set to open in the fourth quarter, and company executives want to open as many as 370 new stores next year. 

Still, its stock plummeted by more than 20% at the end of October after the burrito-maker cut its same-store sales forecast and trimmed its revenue outlook for the third time this year. 

The cost of beef, Chipotle’s largest commodity, has ballooned because of tariffs, but the brand has held back from passing all of the increased costs on to customers as it fends off competition from insurgents like Cava and Sweetgreen.

“While the move will pressure margins, we think it's the right thing to do,” Chief Financial Officer Adam Rymer told analysts on Chipotle's earnings call at the end of October.

But would-be patrons are also facing possible economic strife. U.S. consumer confidence fell to a six-month low in October as shoppers grew more worried about inflation and the job market. A growing divide between high earners and the rest of the country is leading to what economists have described as a K-shaped economy, in which wealthy consumers are upbeat while optimism fades for everyone else.

The economic landscape has led the core consumer base for quick-service operators to tighten their spending and make decisions based on perceived value. 

“There’s a line in the sand. You get above $17 or $18 for lunch and people start saying, ‘I’m not sure I’m going back to that place,’” Seth said. 

The more modestly priced chains are performing better in this environment, especially in suburban and secondary markets. More premium offerings are finding more success in the urban cores of gateway cities, major population centers where the return of well-paid office workers has reignited demand for ground-floor retail. 

“It's more competitive than it's ever been in these major metro areas that have seen the office pop come back from Covid,” Seth said. 

Some of the newer entrants into the quick-service space are leveraging external capital sources to fuel their growth as they try to simultaneously stake a claim and protect their bottom lines.

Mediterranean chain Cava says it is opening more than 60 restaurants in five states this year after adding 58 locations in 2024. The trendy chain has a 1,000-store target by 2032. Sweetgreen has grown to more than 250 locations and is pushing into the suburbs of the cities where it already operates. 

Cava and Sweetgreen funded their rapid expansions through initial public offerings in 2021 and 2023, respectively. Neither is profitable today, and both brands have lost more than half their value on the stock market this year. 

Salad and Go used private equity backing to open a new store every week in 2024, reaching 140 locations this year before announcing 41 closures in September.

Noodles & Co., which offers bowls with everything from ramen to spaghetti and meatballs, followed a similar arc. After pushing into the South in 2023, it announced 32 closures in August, launched a strategic review in September and reported a $9.2M third-quarter loss earlier this month.

“Their products are very competitive,” Seth said. “The amount of people is not really changing, and the amount of total bowls being sold is not changing, so you're slicing up the pie a little bit more.”

The same competitive pressures are reshaping the coffee segment, where high rents and changing consumer trends are forcing the sector’s largest brand to rethink its footprint. 

Starbucks announced it was closing more than 430 locations and renovating 1,000 other stores as its same-store sales slipped 2% year-over-year in the third quarter. It is a notable pullback for the brand and part of what CEO Brian Niccol, who joined Starbucks in September 2024 after leading Chipotle, said was a renewed focus on store aesthetics. 

The pivot comes as Starbucks faces higher coffee bean costs because of tariffs and loses market share to new and growing brands. Foot traffic at coffee chains overall was up 1.4% in the third quarter from the prior year, but visits to Starbucks fell by 1.7% and same-store visits were down by 5.2%, according to Placer.ai. 

Dutch Bros Coffee, which is looking to double its store count by 2029, saw an 8.8% increase in customers thanks to its expansion, but its same-store visits also fell in Q3. 7 Brew, which has gone from 14 locations in 2021 to more than 450 across the country this year, has boosted same-store visits by nearly 20% while rapidly growing its store count.

But even as Starbucks shutters stores, it is committed to opening locations in markets where it sees a compelling opportunity. In a K-shaped economy, operators are chasing resilience.

“They still want the new shiny Starbucks, and they still want to expand in certain markets,” Solanki said.