There was a time when coffee houses like Starbucks (NASDAQ: SBUX) weren't just a pit stop, but rather a social gathering place. Customers would come to Starbucks, order their lattes, muffins, and assorted snacks, and congregate on couches while freelancers would set up shop with their laptops and stay put for hours, getting up only to use the restroom and refill their beverages.
In the age of coronavirus, however, the idea of sitting and lingering in a coffee shop is pretty much a joke. These days, consumers in need of a caffeine fix can really only hope to get in and then get on with their day. And while there's a strong chance customers will relish the idea of being able to set up shop in a coffee house once the pandemic is over, Starbucks is also banking on the fact that many will seek to forgo seating in favor of potentially faster, more efficient service.
It's with this in mind that Starbucks is opening a string of walk-thru locations that don't include seating. These stores will debut in major cities and will serve as the drive-through equivalent for coffee lovers who don't have cars (or don't wish to use them to fetch their morning caffeine).
With these new stores, customers will pre-order their beverages using an app and pay for their orders in advance. That way, they can then walk in, retrieve their purchases, and move on, allowing for a quick flow of foot traffic.
A strategic move
City real estate tends to come at a premium, and so by opening up walk-thru stores, Starbucks can cut its costs. The coffee giant can also capitalize on prime locations by offering additional stores where the price of a lease might otherwise be prohibitive in the context of full-blown stores. All told, Starbucks hopes to expand nearly 70% to 55,000 global locations by 2030. And smaller stores could be its ticket to achieving its goals.
As to whether other businesses will follow suit, that's yet to be determined, but some fast-food chains have already jumped on this particular bandwagon. Chipotle Mexican Grill (NYSE: CMG), for example, is rolling out its own digital-only stores that don't include seating for customers.
In an immediate post-coronavirus world, seating is likely to be a hot commodity as diners seek to enjoy their food and beverages in the company of others after months of not being able to do so. But in time, as life normalizes, the shrinking square footage model is likely to benefit a large number of food and beverage chains.
From a real estate investing standpoint, this shift is somewhat of a mixed bag. Less square footage means less rent for commercial landlords, but on the other hand, more stores mean more leases and added revenue that, collectively, could easily help landlords come out well ahead. All told, it's a good thing when any company seeks to expand and grow its physical locations, so investors may very well end up capitalizing on what could become a growing trend.