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Why Restaurants Are So Fucked

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Re: Why Restaurants Are So Fucked

#161

Post by [deleted] »

mark-r wrote: post #93
Digory wrote: post #83

Earlier quoted context omitted.

And yet I'm not sure it's a smart deal to be a commercial landlord. These "Retail space per capita" graphs have been eye-popping for awhile.[0] The landlords that win seem to be the landlords who play the political subsidy and tax games, not just good developers. [0]

My favorite is the landlords that refuse to lower their rents to attract tenants. They got a loan to buy the property, and the loan is backed by the revenue potential of the property. If rents decrease, the revenue potential also decreases and the lenders require the property owners to make up the difference. It produces a huge incentive for a property to go unrented at a high price rather than rented at a low price.

[deleted]

Re: Why Restaurants Are So Fucked

#162

Post by stock_toaster »

supernova87a wrote: post #137

I'll make another observation about the landscape of restaurants. You may notice that in Europe, Asia, the demographics of restaurants are noticeably different from the US. There are far more hole-in-the-wall mom-and-pop restaurants in those places compared to the US, running a small and seemingly profit-thin but subsistence restaurant for the neighborhood. Think of a suburban neighborhood in Madrid or Rome, where a…

Maybe food trucks will just become more pervasive. They _were_ pretty common in portland for a while, but not sure how many of them will survive. ;_;

Re: Why Restaurants Are So Fucked

#163

Post by bobthepanda »

supernova87a wrote: post #137

I'll make another observation about the landscape of restaurants. You may notice that in Europe, Asia, the demographics of restaurants are noticeably different from the US. There are far more hole-in-the-wall mom-and-pop restaurants in those places compared to the US, running a small and seemingly profit-thin but subsistence restaurant for the neighborhood. Think of a suburban neighborhood in Madrid or Rome, where a…

Where I live in Seattle, there is a lot of new dense neighborhoods going up. And many of these large apartments have ground-level retail, which is supposed to be that urban planning magic sauce for walkable neighborhoods.

The problem is, most of these retail spaces are actually vacant, despite massive job and housing growth. But why? Because the retail spaces are simply too large. These spaces are big enough to seat 100-200 people, but most restaurants, even popular ones, will not seat that many people most of the time, so they end up paying rent on real estate that is not being fully utilized the vast majority of the time, and then they go belly up because they can't afford the rent.

One recent trend that has kind of taken us back to the roots of small restaurant square footage is the food hall, where many small setups share one large communal seating area. Another is the food truck, with no seating, minimal rent costs, and the entire operation fits in a parking space. There is a great irony when I've been to a food truck serving food out of the parking lot of an under-occupied strip mall, because the strip mall spaces are simply too large.

It also doesn't help that mom-and-pops are not exactly the most attractive tenants for commercial lending; better to ink a long-term contract with a sure bet like a bank branch or a national chain.

Re: Why Restaurants Are So Fucked

#164

Post by chii »

Digory wrote: post #101
AnimalMuppet wrote: post #6

Earlier quoted context omitted.

> 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, b…

sounds like to me that one-off restaurants' owners want to be artisans and craftsman, not running a business. It's like an engineer who values good code and high quality engineering, but is beaten out by massive outsourced labour that optimizes for business value.

Re: Why Restaurants Are So Fucked

#165

Post by kevindong »

ChefboyOG wrote: post #28
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?

Lease length also factors into this a bit. In NYC, for example, a lot of restaurant leases are 10 years long with an option to renew for another 5 at a new rate at the end. Each year, the rent increases by a percentage (3ish is common). For a 30% increase, locked in for at least 10 years (assuming the restaurant survives), landlords are willing to let a property sit vacant for a while.

> For a 30% increase, locked in for at least 10 years (assuming the restaurant survives), landlords are willing to let a property sit vacant for a while.

The thing that puzzles me is how willing landlords are to let properties stay vacant. I live in NYC and all of the newer high rise apartment buildings in my neighborhood have retail spaces at the ground floor and usually a few floors above the ground floor also for retail/commercial use. As far as I can tell, almost every building has utterly failed to get any tenants in the ~5 years since the buildings have been built.

Re: Why Restaurants Are So Fucked

#166

Post by opo »

mark-r wrote: post #115
IAmGraydon wrote: post #107

Earlier quoted context omitted.

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?

The goal is to maximize income, and the maximum you can get sustainably is 100% of your lesee's profits. If you take less then you're leaving money on the table. If you take more than that (e.g. 101%) they will inevitably go out of business. If you guess wrong and drive a place out of business, your hope is that the next tenant is more profitable and can handle the overhead. Chain restaurants are typically pretty goo…

>...The goal is to maximize income, and the maximum you can get sustainably is 100% of your lesee's profits.

If you hypothetically take 100% of the profits of the renter, they won't be in business long term. There likely will be a gap between when they stop paying rent and you are able to evict them. There will also likely be a gap between that point and when you get a new renter, particularly when your rent is so high.

I agree that the goal is to maximize income, but trying to take 100% of the profits of the renter is not a way to maximize long term income.

Re: Why Restaurants Are So Fucked

#167

Post by chii »

mark-r wrote: post #115
IAmGraydon wrote: post #107

Earlier quoted context omitted.

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?

The goal is to maximize income, and the maximum you can get sustainably is 100% of your lesee's profits. If you take less then you're leaving money on the table. If you take more than that (e.g. 101%) they will inevitably go out of business. If you guess wrong and drive a place out of business, your hope is that the next tenant is more profitable and can handle the overhead. Chain restaurants are typically pretty goo…

> the maximum you can get sustainably is 100% of your lesee's profits.

only if there's a monopoly on real estate. I find that unlikely.

Re: Why Restaurants Are So Fucked

#168

Post by kevindong »

8f2ab37a-ed6c wrote: post #58
teddyh wrote: post #54

> It’s very simple: let’s reset our expectations and restore respectable margins. If restaurants in general raise their prices, what’s to stop landlords from doing the same and raise rents to match?

Or, who's going to pay $15 or $20 for a sandwich? Most people will pass.

As an occasional thing, I'd probably buy a $15-20 sandwich if I really like it. As a daily or even weekly thing? No.

Re: Why Restaurants Are So Fucked

#169

Post by lmm »

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…

> I almost want to suggest that the local city come up with a concept that somehow would encourage actual occupancy. Granted that could be complex but it seems a real waste to have these spaces empty / taking up space with high rents where maybe some business could try to run if rents were lower...

Land value tax. Shift away from taxing the value of buildings and towards taxing the value of the land they're built on; that way you encourage appropriate and efficient development / land use.

Re: Why Restaurants Are So Fucked

#170

Post by meddlepal »

8f2ab37a-ed6c wrote: post #58
teddyh wrote: post #54

> It’s very simple: let’s reset our expectations and restore respectable margins. If restaurants in general raise their prices, what’s to stop landlords from doing the same and raise rents to match?

Or, who's going to pay $15 or $20 for a sandwich? Most people will pass.

That's not that far off from what some sandwich shops are already getting in Boston at least.
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