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Why Restaurants Are So Fucked

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Re: Why Restaurants Are So Fucked

#101

Post by Digory »

AnimalMuppet wrote: post #6
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…

> High real estate prices are essentially forcing every commercial space to become a chain restaurant... How? Is rent lower for chain restaurants? Do they charge more than non-chain for the same food? And they still have the franchise fees on top of the same costs as the non-chain restaurants. How are chain restaurants surviving and others not? I'd expect what nradov describes: That the space stays empty.

Margin. McDonald's average profit margin for the past five years has been 23%.

Sometimes they increase margin on price. But more often, they do it on labor and cost of goods. McDonalds takes no-skill workers, applies its systems, and spits out 5 billion cheeseburgers at five nines consistency. And then it buys in quantities that move world markets, unlike your locavore restaurant.

Five Guys will have lower margins, but still be 4-10x the margin of a one-off restaurant. Same for Cheesecake Factories, and all the Darden-owned restaurants.

Re: Why Restaurants Are So Fucked

#102

Post by lstamour »

bistro wrote: post #42
virtualritz wrote: post #41

Amazing. 11 USD for a döner! A döner is between 2.5 and 5.0 EUR in Berlin (roughly 2.75 to 5.5 USD). That's takeaway or eat in at a place with a few tables but w/o table service. Meraba, which uses high quality organic meat from the region, comparable to the quality of the protein stated in the article, asks 4.5 EUR. A whole plate is 10 EUR.[1] If order to your doorstep it's 6.5 EUR.[2] [1] https://www.top10berlin.de…

Not a huge difference, but it's actually 11 CAD, so closer to 7 EUR.

Though tax is on charged separately in Canada, so probably closer to 8 EUR. I’ll admit, in Canada, assuming you’re in a busy part of town, I’ve gotten used to the idea that a fulfilling meal out costs $15-25. The only way I’ve been able to reduce prices further than that is to use a service like MealPal or stack discounts from credit cards and app cash back to get another 10-12% off or so. Not to say there aren’t cheaper places to eat at, but I’d have to drive a bit of a distance to get there. Land/rent really is too damn high everywhere “walkable”... The cheapest places in town are always the ones that have been there “forever” or have the smallest, sketchiest locations, but still have lineups around the block, or they’re simply fast food with coupons.

Re: Why Restaurants Are So Fucked

#103

Post by tehlike »

IAmGraydon wrote: post #92
Waterluvian wrote: post #87

I think this can all be collapsed into a very simple explanation. Almost everyone has a kitchen in their home and practices being an amateur chef every day. What else does everyone practice almost every day at home that has higher margins? Restaurants are competing with a baseline price of homemade meals. Most other businesses aren't competing like this.

Most restaurants aren’t just selling food. They’re selling the experience.

Most neighborhood restaurants aren't really selling the experience. To be honest, I only go because taste is good, and I don't want to invite people over.

Re: Why Restaurants Are So Fucked

#104

Post by culturestate »

sokoloff wrote: post #76
greedo wrote: post #27

Earlier quoted context omitted.

Your local McDonalds sure is paying for TV advertising, in two ways. One is through franchise fees for national advertising, and the second is through co-op advertising in a region where franchisee's pool their advertising dollars. The only reason fast-food franchises are better commercial tenants is because they're usually better capitalized than bespoke restaurants. (McDonalds franchises also don't worry about rent…

How do they “not worry about rent”? The local franchise pays rent to the parent company.

I think their point is that most McDonald's franchisees in the U.S. don't need to be concerned about sudden, drastic rent increases because they aren't beholden to a third-party commercial landlord - McDonald's is their landlord, and thus is unlikely to boot them out just to lease the space at a higher rate to e.g. Burger King.

Re: Why Restaurants Are So Fucked

#105

Post by _nalply »

djrogers wrote: post #55
Melting_Harps wrote: post #46

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? If its anything like what I saw in Boulder, most are held by large companies (TEBO) who can write off the losses come tax year because they have other more profitable locations/site…

> most are held by large companies (TEBO) who can write off the losses come tax year because they have other more profitable locations/sites. That’s not how taxes and “write-offs” work. You deduct your expenses from your income, and pay tax on a percentage of what’s left. Having more income is always better than having more expenses.

You can game taxes.

I learnt about two ways, but I am sure there are many more. First you can manage the losses of selected businesses of yours such that you break the tax progression and second if you own the property you rent to yourself (this means to your company) such that the deduction of rent leads to a higher reduction of taxes than the increase by the rent income.

Re: Why Restaurants Are So Fucked

#106

Post by blueblimp »

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…

What I don't understand is that restaurants seem very well differentiated to me. I have a significant preference for the food of some restaurants over others, and I'm not remotely a foodie.

The medium post seems to be arguing for charging $12 for the example Doner instead of $11. It could just be that I'm relatively price-insensitive, but if I'm choosing between meals at two different restaurants where one costs $11 and the other $12, the decision is being made by which meal I'd prefer eating, not by the $1 difference.

If we're talking a 2x in price, then sure, that can sway my decision. But the article is not talking about such big differences.

Re: Why Restaurants Are So Fucked

#107

Post by IAmGraydon »

mark-r wrote: post #88
triceratops wrote: post #50

> Drinks for instance cost us more than at the grocery store — but we can’t exactly go get 20 cases of pop per day, so we don’t have much choice. I didn't understand this. It may not be feasible to buy 100 cases of pop at a regular grocery store, but isn't Costco/Sam's Club set up for that? I do think it comes down ultimately to real estate prices. Major metros in North America have gradually become unaffordable for…

Landlords, like any other business, are out to maximize their profits. Their goal is to capture 100% of the profit of businesses that rent from them. Given that the mechanisms for doing this are very crude, there's a chance that they could be getting 101% or more and that spells death for your business.

A landlord’s goal is to capture 100% of their tenants profits? That’s quite a misinformed statement. Their goal is to create sustainable, long term income on their investments. Taking everything they can from their tenants would not foster sustainability. I’m also really curious about your last sentence. Can you elaborate?

Re: Why Restaurants Are So Fucked

#109

Post by ip26 »

duxup wrote: post #70
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…

Yeah I wonder about the real estate situation. There is a retail development near me that sat largely empty for years. They kept it up and clean, but word was the prices were sky high. It still has a huge number of vacancies ... we're talking 5+ years after it was built. Meanwhile other retail places had shops closing, word was the rent kept climbing. I almost want to suggest that the local city come up with a concep…

Maybe they haven't got it exactly right, but this shoe seems to fit rather well: https://www.strongtowns.org/journal/2017/11/27/the-paradox-o...

In summary, lowering rents to market price lowers the value of the building and makes the project insolvent.

Re: Why Restaurants Are So Fucked

#110

Post by cma »

christiansakai wrote: post #68

In my opinion. In here (NYC), food quality compared to big cities in Asia (at least that's what I know, both from 3rd world countries Asia and 1st world countries Asia) are way better than here in NYC. It is crazy how bad food quality in NYC for its price. It is so bad that I almost feel like there is a conspiracy between restaurants in the city that goes on like this: restaurantA: "Hey you know, we can make good foo…

This video is funded by he American government so I'm not sure how biased it is, but it shows a cost cutting measure (gutter oil):

https://www.youtube.com/watch?v=zrv78nG9R04

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