Chain invasion: Tourist-driven economy ideal for fast-food restaurants

The grand opening of White Castle at the Best Western Plus Casino Royale on Tuesday, Jan. 27, 2015, on the Las Vegas Strip.

White Castle opened its doors on the Strip at the end of January, then had to shut them less than 24 hours later because staff couldn’t keep up with the frantic demand of 4,000 burgers per hour. The recent arrivals of White Castle and Shake Shack — and others such as Chick-fil-A and possibly Cracker Barrel on their heels — could be a sign that restaurant chains from other U.S. regions are more willing to gamble on Las Vegas.

“In general, I can tell you that Las Vegas is a great place to do business and that the tax structure is favorable,” said Jace Radke, a spokesman for the city of Las Vegas. “Many national chains have long called Las Vegas home, and there are always more looking to locate to our city because of the growth of the community and the world-famous Las Vegas brand.”

Until recently, there were valid reasons for chains to stay away.

“In its heyday years, it was probably too expensive,” said Ryan Mathews, founder and CEO of Detroit-based Black Monk Consulting. “Also, it’s a bit counterintuitive: Gamblers had access to essentially free or heavily discounted food every time they turned around, and conventioneers had planned meals at events. As for the pure tourists, most folks don’t leave home to discover things that remind them of home. And during the building boom, labor was at a premium. So on paper, it wasn’t an idea that made much sense.”

Another reason was logistics.

“Distribution for chain restaurants is very important,” said Katherine Jacobi, president and CEO of the Nevada Restaurant Association. “It costs a lot of money to rail or truck things across country, and a lot of them are based back East. You can’t fly food or goods anywhere; it’s just too expensive, so it didn’t make any sense for them.”

In years past, too, Nevada’s highways were less able to handle the necessary truck traffic, Jacobi said, and only one rail line comes to Las Vegas. Also different is the city’s vibe.

“Vegas was primarily a gambling town,” said Jeffrey Bank, CEO of Alicart Restaurant Group, which brought Carmine’s to the Forum Shops at Caesars in July 2013. “Now, it is a vacation town.”

Why now?

Restaurant chains are coming now because of all the factors that make Las Vegas Las Vegas.

“Chains are like water — they follow the path of least resistance and seek their own level,” Mathews said. “Many urban and suburban markets are simply hyper-saturated with food chains, so growth will follow concentrations of populations deemed underserved.”

Indeed, Mathews calls Las Vegas “perfect” for chains such as Shake Shack and White Castle.

Click to enlarge photo

The new Shake Shack at New York-New York.

“The population is fixed and transient, made up of service workers seeking fast, convenient, inexpensive meals; heavy gamers who may be down on their luck; tourists looking for a familiar touch of home, especially for the kids; and conventioneers who need to eat but may not be interested in fighting the food lines in the casinos,” Mathews said. “It’s amazing it took them this long to see the potential.”

“Vegas delivers traffic,” said John Andrews-Anagnostaras, president of Las Vegas- and Shanghai-based food service consultancy Landmark Design Inc. and managing principal of International Fabrication Specialists, which builds advanced-technology food trucks and trailers. “In 2014, there were 41,126,512 visitors here. This is in a city of just over 2.1 million inhabitants. Not many other cities in the nation can match these statistics. Over 43 million mouths to feed, if we add the locals. That is a lot of traffic.”

Beyond that, setting up a business in Las Vegas “is probably the easiest in the nation,” said Andrews-Anagnostaras, “and there is no personal tax. Also, Las Vegas has a labor force accustomed to hospitality, and one that is easy to train. Housing costs are still low, and there is housing available.”

But what Andrews-Anagnostaras calls the key factor is “the Great Recession is just about over, and (chains) are looking at areas with high people concentrations, which makes Las Vegas an obvious target.”

“Las Vegas is a very strong market, and while gaming revenues may be down, dining is up,” Bank said. “The Shake Shacks and White Castles of the world are feeding the masses, who are looking for cheap food fast, and there are millions passing through Vegas each year.”

“The real answer to ‘Why would chains start coming here?’ is: Why not?” said Steve Nachwalter, principal of the global Nachwalter Consulting Group in Las Vegas. “I think the real allure of familiar chains branching out is the diversity of the people here. I’m from the East Coast, so I think White Castle is a great idea. I’m sure there are people from the South who can’t believe there is no Waffle House here. My wife, who happens to be Egyptian, still can’t believe we have a glass pyramid with the brightest light that shines into space but no Egyptian restaurant.”

Nachwalter said tourists and locals alike “will agree that only good can come from a familiar chain serving comfort foods. It’s nice to have a meal that reminds us of where we came from, the times we shared with friends, and the good memories of spending time with people we like. Vegas is the perfect place to welcome its visitors and reminisce with their locals. I say, when are they bringing Roy Rogers’ chicken here?”

Until recently, many chain executives were afraid to come to Las Vegas, “thinking that when people come here they just want to dine at their hotel,” said Joy Rosen, a veteran Las Vegas restaurateur and caterer who now works as a public relations representative. “But they want to try new things. I think the tone of Vegas now is changing, bringing a lot more families, and that’s what these chains cater to.”

Beyond that, Rosen said, “There is no state tax, so chains have to realize they’re going to get one of the biggest tax breaks of any state. To me, that’s the key — and that the amount of people who come through this city is more than probably any other.”

Assuring success

So what should the city do to make sure the new arrivals are successful?

“They have already done it,” Andrews-Anagnostaras said. “There are plenty of world-class architectural and engineering firms, at reasonable costs. Getting plans through the planning folks, including the Southern Nevada Health District, is easy, with plenty of experienced contractors to build anything.”

“Keep the room rates low, as that is the White Castle/Shake Shack customer base,” Bank said.

Not everyone is optimistic. Barry Minkin, a futurist and global management consultant, believes restaurant chains — and other businesses in Las Vegas — are about to take it on the chin because of economic factors.

“Las Vegas will suffer a downturn due to a poor economy, more competition from other gambling venues and a severe water crisis that will limit building,” Minkin said.

Most national chains will not be able to thrive here, he said.

“The best locations within a mile of mid-Strip are already taken,” Minkin said. “There will be opportunities in the many mall foods courts, however. Fast food will continue to take a larger share of the eat-out budget as both in-state and visiting retirees and lower-income people try to stretch their shrinking discretionary dollars.”

Short of economic paralysis, however, the picture looks good.

“You can’t guarantee success in a free market,” Mathews said. “That said, there are the usual tricks municipalities play to spur development: tax abatements; recruiting businesses to come to Vegas; fast-tracking building applications; simplifying the regulatory and inspection processes; developing ‘turnkey’ solutions to dealing with local, county and state government; and designating urban renewal zones.”

Nachwalter is confident the chains will thrive.

“If you are successful in your market, then you should be in any market,” Nachwalter said. “Delicious is delicious. Fun is fun. If you give a kid a Lego in any part of the world, whether he speaks English or not, he will know how to use it. Some things don’t have to be taught or voted on. If you have a great product, the world will figure it out.”