There's a Massive Restaurant Industry Bubble....

Epicurean Exploits - Food and Recipes
21

lalo looks great. how was it?

22

Yaacov - I agree this problem has been around for awhile however what is current is the growth of restaurants. It blows my mind that the # of restaurants in San Francisco has grown from 3,600 to 7,600 granted most are probably fast food type places the growth is still significant in big cities. I just can’t understand why so many new restaurants keep opening.

23

Overall very good and a fun place. Loud music, lively atmosphere and lots of playful dishes. The best were the Pollo Asado and the Vegan Chicharrones

24

This sums what I was trying to get at above, but it’s not a new problem, as said.

The “newness” of the problem might be banks and individual investors propping up the opening of these small chef-owner spots due to some combo of speculation (hey, these things seem popular!), availability (there aren’t many small, high end places in XYZ city!), and self-interest (I love eating out more now, so why not have some sort of vanity investment?!).

I actually agree with calling it a bubble because it’s like any other bubble: speculators prop up an industry, the market gets oversaturated (and likely overleveraged) and there’s a severe dearth of subject matter expertise within the community that owns/runs it. Any shift in demand, even slight, causes a ripple effect, potentially monstrous.

And the Golden Age, if defined as chef-owners with little-to-no business expertise opening quaint 20-tops in small cities at a rapid pace, is absolutely on its way out. That’s being shown in most markets, no?

25

i can’t find great backup for those numbers - and as you mention - it’s impossible to tell what’s competing with AQ, etc., in this number. What I can tell you is that what the NRA lists as fine dining, is down just a few points.

26

Is this data publicly available? I’d like to see how “fine dining” ranks in smaller (100k-500k) cities on a Y/Y basis.

27

sorry, misspoke, NPD, not NRA. NPD calls it “fine dining” which isn’t really helpful for this thread as the level to achieve that definition is rather low.

there’s some high-level growth info here… http://www.restaurant.org/News-Research/Research/Forecast-2016

28

Agree completely plus:

  1. no risk of driving overserved and
  2. with my renovated kitchen, cooking is done with me, my family and/or guests conversing while drinking a nice wine. A most enjoyable experience
29

I agree with this in smaller cities. I went home to Buffalo and was shocked to see the prices at high end restaurants. Many entrees were over $50.

I do not however agree with this in larges cities where competition has kept prices lower. A recent meal at Aska was $145 for 10 courses tax and tip included for a two star Michelin restaurant and was better than a meal at Per Se or any number of places that charge 3-4x.

30

Like many other instances before this, the word “bubble” isn’t appropriate. Sometimes that’s just an editor trying for a flashy, clickable headline, but here the author actually carries that torch for a bit. The fact that this is being shared widely and so many are signing on to it is a good indication there’s no actual bubble. I see no euphoria that would drive oversupply. Instead you see lots of awareness of fundamental drivers. No bubble.

What is entirely possible though, as the author later backpedals toward, is a shift in format, especially for big cities. I think you’ll see more shared spaces, pop-ups, chef counter only seating and other approaches mitigating labor or rent. That’s not a bubble, it’s just a shift. It can mean more creative, better service, more elaborate and better quality just as often as it can mean the opposite.

I absolutely agree with Yaacov: Smaller cities are the big winner here. You can travel to anytown USA–Cleveland even!–and now get great coffee, great beer and well made, fresh food. The model may change a bit in SF but (and I have to smirk a bit because) they did that to themselves with laws and regulations driving costs up. Small and smaller town America is better than it’s ever been.

31

Is it time for me to reread Future Shock?

Careers are temporary, marriages are temporary, home are temporary, technological advances are relegating humans to a secondary role in the workforce; we can all sit at home and the world will come to us. :astonished:

32

Doesn’t anyone think that the huge runup in rents is the prime issue causing this issue?

The lack of ability or willingness to build new or rebuild anything seems to be a proximate reason for a lot of business failing so quickly?

33

I can’t think of any of significant that are gone after less than one year. There were some high profile closings - La Belle Vie, which was in 2015 but was a long time landmark, as well as Saffron, Heartland, and Piccolo were notable. Saffron cited rising rents as their reason, and but Heartland owned their building and simply decided to do something else. I don’t know that the market is a in bubble, but it’s definitely fully saturated. We’ve also got plenty of high profile openings, so it’s not surprising to me that we’re on a bit of a one-in, one-out basis. It is tough to stand out anywhere though - if you’re thinking you can do a chef driven restaurant with 6-8 small plates, 3 salads, 6 entrees (pork, beef, salmon, chicken, pasta/veg, dealer’s choice) and some uninspired desserts, that just doesn’t cut it anymore unless the food is truly exceptional. You can see this in some of the newer hits around here - Upton 43, with their modern Nordic theme, and the upcoming “Souix Chef” with a Native American theme.

34

Yes rent is definitely the biggest part of the problem.

35

[smileyvault-ban.gif] [swearing.gif]

36

I disagree that it’s not a bubble, at least on the basis you are using to discredit the term. I think the euphoria, as you and my MBA texts repeatedly used in its definition, can be seen in the funding of these small restaurants. Many restaurants pop up with owners that have no mind to run a business on the back of speculative investors and/or loan-happy banks. If you don’t think there’s an oversupply issue in many cities of the restaurant types you’re naming, I guess we will disagree. But, if there is oversupply based on speculative private investors (as I think there are in many markets), that’s pretty much a textbook bubble. Doesn’t have to be tulips to be poppable!

37

actually, it’s the complete opposite. rent is the one factor that can be controlled and negotiated in advance. landlords will always want the “best” rent - and that usually means the highest. so, a restaurant owner knows this and then signs a long-term lease and knows precisely what her fixed cost is now, and in the future until the end of the lease. the problem is - and all the literature backs this up - signing that “expensive” lease and THEN figuring out what the business will be.

38

You think? Rent might be the biggest lever currently (fixed cost fluctuation can be hard to manage in a margin-thin business), but mismanagement of finances, and/or a poor understanding of the operational value chain & demand are really the culprit, no?

I think (please correct me) this was the basis for Yaacov’s business model and, frankly, I think he’s on the money.

Would some of these places stay in business longer if rents were static? Sure. But any number of other fixed or variable cost levers could cause the same shift. It’s the lacking business fundamentals that get any small business, be it wine or food or whatever.

39

Tom - precisely. And to complete the circle, just as restaurants don’t have a right to stay in business, neither do landlords have a right to charge what isn’t sustainable for their tenants. I invite anyone to take a stroll along the length of Bleaker street from West 10th south and into SoHo. There are an insane amount of empty storefronts. This is not some edgy neighborhood, this is the heart of the West Village. It’s mixed use so there’s retail and restaurants, etc. Easily one of the most coveted neighborhoods to live in and shop. So, yes, of course, the status quo is extremely challenging for restaurants - likely more so than in the past in certain cities or neighborhoods, but how long until some of these landlords realize that they may be the 9th “For Sale” house on the block?

40

and by the way, please, please, please don’t take my posts here as callous. I have many friends in this business and they are some amazing people - passionate, talented, etc. And of course, I love to eat in this city and others. But it is extremely difficult without the proper resources to sustain a real business. It was always rare and it seems that at least in Manhattan proper, it’s just about prohibitive unless you’re an extreme outlier. But I also think it’s a near term challenge. And it’s also the singular thing I’m trying to help solve, personally.