Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Restaurants Are So Fucked

medium.com

Post reply on HN
Print view View original

11–20 of 498 posts

Re: Why Restaurants Are So Fucked

#11

Post by jariel »

The article kind of misses the point, it's not 'margins' it's about the variability of costs.

If a restaurant has x% less business, they can buy x% less 'proteins' and x% fewer servers.

But they are screwed on the fixed costs, which is mostly rent.

The thing is, these are not normal conditions. Real-estate owners everywhere are as worried as anyone about their business.

If restaurants and other such businesses start collapsing - they will take a whole chunk of businesses with them - and maybe even risk the viability of some banks.

If one major bank has been doing stupid things, like Bear Sterns, and collapses, it could take the whole system down.

(Don't want to chastise but HNers could develop a stronger appreciation for how all of this stuff is connected and there are some really scary outcomes from this economic meltdown)

So - there might be a kind of reckoning.

Restauranteurs could legit approach landlords and say: "If my rents stay the same, we go bankrupt, you won't see a dime, and you will not rent this place for a year, and when you do, it will be for 20% less"

That's a credible premise.

In other words - the property is really worth a lot less.

So it's hopefully an opportunity for some hard bargaining.

Re: Why Restaurants Are So Fucked

#12

Post by nickff »

This post misses the forest for the trees. The reason for the low margins in the restaurant business is the lack of differentiation. Their products are largely commoditized, so they have no competitive advantage or market power. Peter Thiel discussed this in a lecture for YC, where he said that you can work very hard to make the best restaurant in a city, but it doesn't give you much pricing power, because the second best is still pretty good.[1]

[1] https://www.youtube.com/watch?v=3Fx5Q8xGU8k

Re: Why Restaurants Are So Fucked

#13

Post by jariel »

nickff wrote: post #12

This post misses the forest for the trees. The reason for the low margins in the restaurant business is the lack of differentiation. Their products are largely commoditized, so they have no competitive advantage or market power. Peter Thiel discussed this in a lecture for YC, where he said that you can work very hard to make the best restaurant in a city, but it doesn't give you much pricing power, because the second…

The issue is not 'why they have thin margins' - the issue is their inflexible operating ability mostly due to fixed costs, specifically rent.

If restaurants had 20% margins they would still be facing collapse.

Rent is a huge portion of costs vis-a-vis most other businesses that can be run 'anywhere' whereas restaurants need prime locations.

Re: Why Restaurants Are So Fucked

#14

Post by sieabahlpark »

nradov wrote: post #4
thinkingkong wrote: post #3

Restaurants are fucked but the underlying costs associated with real estate are insane. Where I live, treasured restaurants close at a regular cadence due to rent hikes. Nobody can afford to run a restaurant at the prices being charged here. The end result is a cocktail that is $25 or a pint thats $10. High real estate prices are essentially forcing every commercial space to become a chain restaurant unless they can…

The bizarre thing is that even before the pandemic I've seen popular Bay Area restaurants close down due to huge rent increases and then the spaces are still vacant years later. I don't understand what commercial landlords are thinking?

Opportunity cost, don't want to get stuck with low rent when you may be about to get a high value renter

Re: Why Restaurants Are So Fucked

#15

Post by nickff »

jariel wrote: post #13
nickff wrote: post #12

This post misses the forest for the trees. The reason for the low margins in the restaurant business is the lack of differentiation. Their products are largely commoditized, so they have no competitive advantage or market power. Peter Thiel discussed this in a lecture for YC, where he said that you can work very hard to make the best restaurant in a city, but it doesn't give you much pricing power, because the second…

The issue is not 'why they have thin margins' - the issue is their inflexible operating ability mostly due to fixed costs, specifically rent. If restaurants had 20% margins they would still be facing collapse. Rent is a huge portion of costs vis-a-vis most other businesses that can be run 'anywhere' whereas restaurants need prime locations.

If restaurants had much better margins, they (or their owners) would have bigger rainy day funds. There are lots of businesses with large fixed costs.

Re: Why Restaurants Are So Fucked

#16

Post by OnlyOneCannolo »

ryanchants wrote: post #9
nradov wrote: post #4

Earlier quoted context omitted.

The bizarre thing is that even before the pandemic I've seen popular Bay Area restaurants close down due to huge rent increases and then the spaces are still vacant years later. I don't understand what commercial landlords are thinking?

This happens all the time in Chicago too

And small towns too. What matters is growth. If landlords see growth and the opportunity for charging more rent, they'll take it.

Re: Why Restaurants Are So Fucked

#17

Post by ckluis »

nradov wrote: post #4
thinkingkong wrote: post #3

Restaurants are fucked but the underlying costs associated with real estate are insane. Where I live, treasured restaurants close at a regular cadence due to rent hikes. Nobody can afford to run a restaurant at the prices being charged here. The end result is a cocktail that is $25 or a pint thats $10. High real estate prices are essentially forcing every commercial space to become a chain restaurant unless they can…

The bizarre thing is that even before the pandemic I've seen popular Bay Area restaurants close down due to huge rent increases and then the spaces are still vacant years later. I don't understand what commercial landlords are thinking?

This makes sense in aggregate. If you have 100 properties and raise the rent 10% on all of them and only close 5 locations... you're better off on average and actually just added additional rentable units to your inventory.

Re: Why Restaurants Are So Fucked

#18

Post by talentedcoin »

People love food, but eating out at restaurants to the extent that happens in the modern world is a historical aberration. It’s not just other restos you’re competing with but a home-cooked meal too.

I get the sense from the tone taken here that this owner is going to be in trouble down the line. It’s good to be passionate but their objectivity is clouded. The restaurant with the really expensive donair is indeed likely to find itself in trouble ...

Re: Why Restaurants Are So Fucked

#19

Post by nickff »

talentedcoin wrote: post #18

People love food, but eating out at restaurants to the extent that happens in the modern world is a historical aberration. It’s not just other restos you’re competing with but a home-cooked meal too. I get the sense from the tone taken here that this owner is going to be in trouble down the line. It’s good to be passionate but their objectivity is clouded. The restaurant with the really expensive donair is indeed lik…

Home-cooked meals are actually the aberration. Back in the old days (before the 1950s), the poor didn't have kitchens, hence the proliferation of street foods such as pizza and their ancient Roman antecedents.

Re: Why Restaurants Are So Fucked

#20

Post by troughway »

> Wolf Down (quick serve German Street Food)

And yet looking at the picture attached I wondered "That layout looks like something cliche out of Ontario". Was not surprised to find out it's in Ottawa.

Not that changing decor in the current climate will do much, but for heaven's sake, why do so many of these places recycle the same stripped down, soulless interiors in that province?

To the article's point, doing any back of the napkin (sorry) math on average rental pricing per sqft, number of employees and so on, would give you a ballpark number that is borderline insane, and would make you wonder how majority of these restaurants can afford to stay open (hint: they can't).

My theory, which is not a theory so much as it is fact, is that there is a lot of dirty money laundering happening through these small "boutique restaurants". I don't see this discussed anywhere.

Post reply on HN