Why More Restaurant Brands Are Embracing Modular Buildings

During a conversation with Smalls Sliders CEO Maria Rivera earlier this year, she said she believes that “modular is the future.”

Indeed, the reason her company is targeting ambitious growth is because it’s leveraging 800-square-foot modular shipping container units manufactured elsewhere and then shipped to their location. Once a plot is prepared, Smalls can open a restaurant on top of it in as little as eight weeks. It takes less than a half hour to get the restaurant from the truck to being fully built.

 

Speed-to-market is an attractive benefit to modular development, especially given construction and permitting delays hindering much of the industry. Sticky Bird President Brandon Howard said his company’s recently opened modular location in Wichita, Kansas – through a partnership with Lange company’s ModuAll – allowed his team to move quickly and bring the product to a new city faster.

“This makes it easier to experiment in different markets and bring a taste of something different to new communities like Wichita,” he said.

 

Domino’s franchisee Ty Turner also recently opened two such units in Arkansas through a partnership with Safe & Green Holdings subsidiary SG Echo.

“I’m impressed with how fast we were able to get up and running with Safe & Green Holdings’ modular solutions,” Turner said in a statement. “The process was efficient and cost-effective, and I appreciate the speed at which a store can evolve from an idea on paper to fully functioning and operating.”

In a release, Domino’s stated Turner’s two single-module stores are serving as a proof of concept for future stores and, since then another Domino’s franchisee – Noble Food Group – has teamed up with SG Echo subsidiary with plans to open three single-module units in Oregon.

That said, speed-to-market is just one of the benefits cited from those adding modular to their portfolios. In a statement, Kenneth Guevara, Domino’s senior manager of U.S. development, touted modular builds’ affordability and lower environmental impact than a typical build, for instance. Meanwhile, Rivera said the unit economics are “ridiculous” (in a good way).

“It’s very efficient because you don’t have a lot of labor overhead and you have controlled food costs,” Rivera said.

Blenderz, a relatively new acai concept from NextBrands, is targeting expansion in part through modular formats. NextBrands Chief Development Officer Megan Rosen said the company is embracing the model for several reasons, including cost efficiencies. A Blenderz modular unit’s labor line runs between 17-20% of gross sales, versus brick and mortar, where labor tends to run between 21-25%, she said.

“Also, the cost of utilities is significantly less, not only because of the smaller footprint of the building itself, but because the size of the equipment is smaller. You can expect your utilities in a container to be 35-40% lower than a traditional building,” Rosen said.

Because of these cost efficiencies, Rosen said the concept better allows franchisees with lower net worth the opportunity to invest in themselves and their own business.

“Additionally, real estate is more prevalent,” she adds. “Traditional brick and mortar real estate is hard to find, often comes with an expensive lease that would reduce our profit margin greatly, and costs associated with bringing the space up to brand standards. Our modular concepts can go in undeveloped parcels, parcels of big box retailers, and territories where expansion is usually overlooked.”

To be sure, modular stores built from shipping containers are certainly not a new concept in this industry. Taco Bell built a shipping container store at SXSW in 2015, for instance, while Starbucks has been embracing the model since around 2018. That said, more companies are starting to embrace modular models because the list of benefits has become more attractive in this persistently pressured and unpredictable environment.

Checkers/Rally’s has started to experiment with modular formats, for example, while Biggby Coffee and Quiznos have also tested the waters. Even independents like Kao Bar and Grill in Miami and Cargo House Pizza in Ashland, Kentucky, are embracing the model.

We’re likely to see more of these types of restaurant formats across the board – from pizza, burger and chicken to acai and coffee – as the demand for modular buildings has noticeably increased, according to Joe Robertson, brand manager at Lange. Roxbox, a modular construction company specializing in shipping container and modular structures, is also experiencing a “huge amount of interest,” Chief Growth Officer Davin Burkhart said at the recent Texas Restaurant Association Show.

“Speed is the biggest ‘why’ we’re seeing, especially now with delays to get to market. (Modular) is 20-to-50% less construction time because we can build the site concurrently with the factory build. That efficiency appeals to a lot of QSR brands and we’re seeing an increase in demand because of it,” he said.

Roxbox CEO/founder Anthony Halsch added that such builds are “lower cost and lower risk,” which is also appealing.

“If it doesn’t work, we just unhook it and exit the site,” he said. “Otherwise, it’s all the same – same product, same equipment, we’re still in code. It still includes everything you need to run the business; the building just shrunk.”

Rosen adds that consumers don’t notice a difference other than the absence of indoor dining, which is becoming more common anyway, regardless of format.

“In fact, customers may notice a faster speed of service given the streamlined efficient kitchen layout and smaller footprint,” she said.

Blenderz recently opened its first modular format, located in Mio, Mich., with many more to come as the company targets ambitious growth via franchising. Based on her experience so far, Rosen echoes Rivera’s prediction that modular is the future.

“The real estate needed for modular restaurants is more plentiful and flexible,” she said. “Restaurants now need to cater to convenience, whether that be delivery, pick-up, drive-thru or walk-up. End cap units with a drive-thru come at a heightened rental price and other areas where you would go in-line are hard to find. I absolutely agree (this is the future).”