Malls are using new restaurants to draw consumers as shopping centers reinvent themselves

Editor's note: This is the third story in a three-part CNBC series on the future of America's malls, as developers transform the spaces to add new retailers, experiences and even apartments. Read the First And second parts.

Shopping centers used to be the destination for the busiest stores. Now they are home to the most popular restaurants.

The slow death of department stores and the rise of online shopping have hurt American malls, especially over the past decade. According to Coresight Research, their number of once-essential malls has fallen from a peak of 2,500 in the 1980s to around 700 today.

But now many in the retail industry say rumors of the mall's demise have been greatly exaggerated. Many Gen Z consumers prefer to shop in person and love the mall experience. Creative solutions from developers have transformed empty department stores into homes, bringing consumers even closer to the shops.

And landlords are dedicating more square footage to restaurants and bars, which have become bigger draws to shopping malls.

“It's been a big change,” said David Henkes, senior director at Technomic, a market research firm focused on the restaurant industry. “It used to be that shopping would drive people to the mall and then you might go for a bite to eat. In many ways, that has been turned upside down. Now, dining will drive people there, and then you” I hope they do some shopping while they're there are.”

Yelp found that 17 of the 25 most popular mall brands, based on consumer interest, were restaurants, according to a report published in October.

Ten to 20 years ago, restaurants accounted for only about 5% to 10% of the general rental space in shopping centers managed by Brookfield Properties, according to Chris Brandon, the food and beverage retail company's senior vice president of leasing. That typically includes a food court and several full-service restaurants. That has changed in recent years.

“It's increased incredibly over the last five to 10 years,” Brandon said. “In some of our malls we are seeing 20% ​​to 30% of the total [general leasing area] are committed to food, and that's 100% by design.”

Brookfield's portfolio of 129 shopping centers includes Tysons Galleria in McLean, Virginia; Christiana Mall in Newark, Delaware; and First Colony Mall in Sugar Land, Texas. The mall's restaurant tenants include more than 540 full-service eateries and approximately 2,000 fast-casual restaurants.

More than half a century ago, New Jersey's Paramus Park Mall opened a second-floor food court, becoming the first example of a successful mall food court in the US. Ten years later, food courts had become an important part of the American shopping center, fueling the expansion of chains like Sbarro, Mrs. Fields and Auntie Anne's helps.

Full-service chains such as the Cheesecake factoryTGI Fridays and California Pizza Kitchen also became mainstays of the mall.

But those household names are no longer the only options for shoppers. Nowadays, shopping centers offer a much wider selection of dining options and refreshments, from regional restaurants to local chefs and emerging bubble tea chains.

“What malls are looking for tends to be more high-end, what we might call a 'contemporary casual' restaurant,” Henkes said. “It's not necessarily fine dining, but it's a little bit better than just traditional casual.”

These modern, casual eateries offer upscale options like Korean barbecue, steakhouses or sushi. Although prices vary, a meal at these new retail restaurants will likely cost more than $30 per person, if not more.

For James Cook, head of retail research at property firm JLL, expanding the number of dining options offers a familiar but still elevated experience.

“The distinction I make is that I don't necessarily dress nice when I go to a mall,” he said. “This is a restaurant where I could pay more money but not necessarily feel like I have to wear a suit jacket or something like that.”

The pandemic also made malls more attractive to restaurateurs.

During lockdowns, operators saw their traffic disappear. Even as consumers returned to dining out and commuting, restaurants in central business districts still struggled to attract diners given the new hybrid workforce and other changes in consumer behavior. But malls recovered.

“Even today, pedestrian traffic to suburban malls is back above pre-pandemic levels, while in cities and downtowns pedestrian traffic has not returned,” JLL's Cook said.

That foot traffic also appeals to emerging chains that want to expand quickly. Restaurant companies love Sweet green and Mendocino Farms have opened new locations in shopping centers to increase their sales and brand awareness.

“The one thing our locations can provide is scale, and scale very quickly. If they were used to doing X in their food truck, now they're doing X times two or three,” Brandon said.

For example, according to Alison Lin, head of restaurants at Yelp, Din Tai Fung, a Taiwanese restaurant chain, has emphasized shopping centers for its U.S. expansion. According to the chain's website, upcoming locations will open at Scottsdale Fashion Square in Arizona and Brea Mall in Southern California. Din Tai Fung ranks second in Yelp's report on the most popular retail brands by consumer interests. (Din Tai Fung declined to comment).

As shopping centers dedicate more space to food and beverages, food courts have been supplemented with a newer, more luxurious alternative: food halls.

Like food courts, food halls offer a range of dining options, usually from stalls, with general seating available once guests have purchased and collected their food and drinks.

But unlike food courts, the halls tend to offer more expensive options, usually touting ties with local chefs and promising more interesting cuisine than that of a food court. While a food court sells dishes from national chains, food halls typically stick to local vendors who have few locations.

“A food court is meant to give you a hamburger, fries or a slice of pizza so you can shop at the mall longer,” Cook said. “A food hall is part of the experience.”

There are often several vendors in food halls. But Eataly is one exception.

The Italian chain sells itself as a trip to Italy, without a plane ride. The large locations have full-service restaurants; craft groceries; quick service counters selling gelato, pizza and espresso; along with cooking classes. Eight of Eataly's 13 U.S. locations are in shopping centers, with more to follow next year.

Eataly's North American CEO Tommaso Bruso joined the company last year after 20 years in the fashion industry, where he led leading retail brands such as Benetton and Diesel.

“People go to the mall to shop, but they also go for a cultural experience,” Bruso said, adding that Eataly has found success with consumers both inside and outside of malls.

But food halls have not won over everyone. Brandon said food courts have performed better for Brookfield's shopping centers. He pointed to Chick-fil-A and Panda Express as two tenants that typically see strong sales in food courts. In 2023, the average annual turnover for a mall location of a Chick-fil-A was $4.5 million; The chain's top-performing mall restaurant brought in nearly $19 million in annual sales, according to franchise documents.

Even with more competition than ever for shoppers, The Cheesecake Factory has managed to stay on top. And it shows how restaurants can help a broader shopping center.

The chain, known for its extensive menu and towering columns, was ranked No. 1 on Yelp's Mall Brand Report.

It has been a difficult year for the company. Like many restaurants, the chain has struggled to attract diners, many of whom have pulled back on restaurant spending. In the latest quarter, the company's same-store sales grew just 1.6%. Activist investors have also pressured the company to spin off its smaller brands, such as Northern Italy. (The Cheesecake Factory declined to comment.)

Still, the company is outperforming the broader casual dining category, based on metrics from industry tracker Black Box Intelligence.

Cheesecake Factory shares are up 43% this year, surpassing the S&P 500's gain of 27% over the same period.

While fellow retail chains like California Pizza Kitchen and TGI Fridays have filed for Chapter 11 bankruptcy in recent years, the Cheesecake Factory has escaped the same fate.

And it may even have helped the landlords' finances. According to a 2023 report from Moody's Analytics, enclosed malls with a Cheesecake Factory location are more likely to be current on their loan payments. Author Matt Reidy, director of commercial real estate at Moody's, said this was more likely the result of the company's strong performance. site selection, instead of cheesecakes saving a mall.

Still, Reidy said one of the restaurant's locations helps. And Brandon from Brookfield agrees.

“My goodness, are they productive. It's pretty incredible what they can do, and they are a valued partner of ours. We have dozens of leases with them, and we really appreciate them as a tenant,” he said.

Correction: This story has been updated to correct the spelling of Benetton.