White Castle just opened its second restaurant in Arizona, located in Tempe. And while this doesn’t necessarily constitute huge news in a consistently and rapidly growing industry, it does highlight the draw of what has become a very sexy market for restaurant chains. Indeed, the entire Sunbelt has experienced tremendous growth in the industry, following material population movement in the U.S.
According to the most recent U.S. Census Bureau data, the Sunbelt region accounted for 75% of total U.S. population growth throughout the past 10 years. Arizona had the fourth fastest growth from 2021 to 2022, behind just Texas, Florida, and North Carolina.
In addition to following consumer growth, Arizona also touts its low cost of doing business as a draw for companies. According to the Arizona Commerce Authority, the national average of per capita income going to taxes is 9.9% versus 8.4% in the state. Arizona ranks as the ninth cheapest state to start a business, according to data from Simplify LLC and recently reported by The Street.
For White Castle, these benefits have provided an opportunity not before seen in the company’s 102-year history. It made its debut in Arizona – Scottsdale – in 2019, the chain’s first location to open west of the Mississippi River. The location set opening day records and caused the restaurant to trim its operating hours to better prepare for the influx of customers, according to Restaurant Business.
In an email to Nation’s Restaurant News, White Castle Vice President Jamie Richardson said the Scottsdale location continues to be among the highest volume restaurants in the 350-unit system, adding that Arizona is “an area of focus.” He did not disclose a specific unit target for the state.
“The great welcome we’ve received so far reinforces our belief that there is great potential to satisfy cravings here, and we’re continuing to look for new sites,” he said.
Richardson believes much of the chain’s success in Arizona comes from lifelong fans who have moved to the state from its core Midwestern markets. About 60% of Arizonans were not born in the state, and many came from Illinois, Michigan, Minnesota, or Ohio.
That said, Arizona isn’t the only market experiencing a massive influx – of both residents and restaurants. Much of the Sunbelt area is as well, and with much success. White Castle planted its flag in Florida in 2021 and that Orlando restaurant quickly became the top performing restaurant in White Castle’s system.
Portillo’s, which went public in 2021 and now includes nearly 80 locations, is planning most of its new openings outside of its core Midwest markets in favor of the Sunbelt, specifically Texas, Central Florida and Arizona. Those markets have so far outpaced average system sales.
“The bulk of our growth is Texas, Florida, Arizona – all states with significant population growth,” Portillo’s CEO Michael Osanloo recently told analysts. “We are repurposing capital to states with transaction tailwind and we will be a beneficiary of that, along with all the other restaurant companies in that market.”
McDonald’s also sees plenty of room to grow in the Sunbelt. Earlier this year, CEO Chris Kempczinski said the shifts that have happened with people moving to the south “isn’t reflected in our footprint.”
“There’s a number of places around the U.S. where we are significantly underdeveloped relative to where the population exists today,” he said. “That opens up a whole bunch of development opportunities for us to after.”
This is certainly not a new trend. The Sunbelt migration began in the 1950s and accelerated in the 1980s. That trend has continued and, according to the Economist, 12 of the 15 fastest-growing cities in the U.S. are in the Sun Belt. Of the top 50 zip codes that saw the largest increases in new residents since the start of the pandemic, 86% were in Texas, Florida, and Arizona.
These markets are likely to remain a target for restaurant growth for the foreseeable future. According to data from Moody’s Analytics and Clarion Partners Investment Research, the Sunbelt now holds about 50% of the national population. That number is expected to increase to 55% by 2030.
Contact Alicia Kelso at [email protected]