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Enough, Already? Restaurant Market Tighter Than Ever

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Darrell Nevin has been at the commercial real estate game for about three decades. But lately, the managing director of the LeaseWright Commercial Team of Keller Williams Realty Centre, in Columbia, is seeing things he hasn’t seen.

By Nevin’s count, approximately 58 restaurants opened in Howard County during the past seven years, and 31 have closed. He added that 27 new locations have opened during that time that have added more choices to the local market for the consumer, but also intensified competition.
“This is extraordinary,” he said, “but with a strong economy and so many new developments, there’s so much more competition. This is capitalism at its best — and its most painful.”

Painful is the word, because Nevin is in the midst of a half-dozen renegotiations on behalf of restaurant clients and has succeeded in lowering their rents. “Landlords understand the risk that market saturation is placing on their restaurant operators, and know the impact that such vacancies have on the tenant mix. Just look at how Hickory Ridge Village Center has struggled since Luna Bella closed more than a year ago, for instance.

“So even in Howard County,” he said, “there is only so much disposable income.”

Footage Frenzy

The crux of this story, Nevin said, is the ever-increasing high rents for restaurant space is handicapping their chances of success.

“There are so many places closing and so many opening,” he said, citing Maple Lawn as an example. “Today, there are eight restaurants in Maple Lawn. There were initially three, and two of them have changed hands more than once.”

He then pointed to two prominent examples at The Mall in Columbia: Champps and UNO Pizzeria, which were replaced by the recently opened Shake Shack; Urban Plates, which is slated to open before year’s end; and The Walrus Oyster & Ale House, which is set to open in late spring.

Nevin said other factors include Columbia having more than double the retail square footage per person than the typical submarket, and the trend toward fast-casual restaurants by more cost-conscious and time-sensitive customers. That’s led to the rise of concepts that mimic chains like Chipotle or Panera Bread, or quick-stop offerings at Wegmans or Whole Foods.

“Restaurant operators know that diners vote with their feet,” he said, “and are always pressured to perform at the highest level to stay ahead of industry trends. Those who do are always the winners.”

About the Numbers

Owen Rouse, a senior vice president with Columbia-based Manekin LLC, offered his interpretation of Nevin’s numbers.

“If you ask the economic development people, they’ll tell you Howard County is the third wealthiest county in the country,” said Rouse, “but perhaps it should be termed ‘third least-poor county.’ By that, I mean there is not unlimited disposable income.”

“I don’t know if 58 is a lot of restaurant openings or if 31 is a lot to close. Those numbers, by themselves, hold little meaning,” he said. “I need to know the parameters by which this part of the market is being judged. And just because [a restaurant is] existing, that doesn’t mean it’s functional.”
Another by-product of today’s strong economy is the depth of the labor pool, “which is particularly thin in a wealthy place like Howard County,” Rouse said.

“It’s interesting to note that the rising tide of a good economy produces more competition that has, in turn, created mixed results in the restaurant market. The implication is that there is a finite size to that pie that had seemed to get bigger,” Rouse said. “However, it only got a little bigger.”
And he feels that’s raised more questions than answers.

“Why hasn’t Copeland’s [by the Columbia Lakefront] been backfilled by another operator, with a central location and the deck parking? And why did [area restaurateur] Foreman Wolf close Petit Louis [also at the Lakefront] and reposition it with Roman food? That’s another confluence of great location, excellent décor and superior management, yet Petit Louis wasn’t working to their satisfaction.”

And while he understood where Nevin was coming from with his observations about market size and rents, Rouse offered his own view. “I don’t dispute that American retail, per capita, is way out in front of the rest of the world, but I don’t think it’s linear,” he said. “I think some markets can withhold certain amounts of retail, while in other places the numbers are skewed by the presence of large malls or Walmart.

“There are three roadblocks to success in the restaurant industry,” he said. “Not handling the heightened competition, not knowing when to change menus and not evolving to accommodate market demand.”

What Blind Costs?

Joe Burdett is a tax accountant, but he’s also a former restaurateur who understands the pitfalls of the business.

“It’s sort of a three-headed monster,” said Burdett, who still works with many eateries. “The competition is fierce, and the mom-and-pop places don’t have the buying power of the big corporations.

“But even more so is the cost of commercial real estate,” he said. “If you’re not buying real estate, that’s the biggest problem,” he said, adding that the cost is “at least high $20s per foot to lease. And no one will lease to you for less than five years, with escalating rents roughly every year of 2.5% to 3%. And know that food trucks are doing well, due to controlled overhead.”

Some restaurants may do a great job and have great food, Burdett said, “but they’re horrible at crunching numbers and understanding the blind costs. The food is only 25% of their overhead, which now also includes the sick leave bill, which is very hard on small employers.”

And Columbia isn’t the only submarket with issues. “Waugh Chapel is more overloaded than Columbia. Some of those places have to give away coupons to get people to show up,” he said. “Then the first thing you have to do, if you’re struggling, is raise prices.

But despite the challenges, Burdett said, the indies can make it. “In fact, small indies (like Columbia’s Wecker Hospitality Group) are starting to open multiple locations, so their buying power improves.”

Tony Foreman is owner of Foreman Wolf Restaurant Group, which also owns multiple locations. He said he’s the “odd person” on both sides of the issue.

“Petit Louis Bistro has done fine, but not as well as I thought it would. Just dropping a restaurant out of the sky doesn’t necessarily work, but I’m not one to drop out at the first sign of turbulence,” he said. “We’re changing our menu because I’ve spent four years becoming more connected to the people of Howard County,” he said.

Foreman Wolf’s new Roman-style offering, Lupa, will open in March. So it’s onwards for the new venture, turbulence be damned.

“I started in this business in 1979, and it’s always been volatile, by nature,” he said. “I’ve operated several restaurants with a company and owned six [with the other five in Baltimore City] during the last 25 or so years with Ms. [Cindy] Wolf. We’re not willing to go five for six.”

Today, Foreman better understands what the locals want. “They want great quality and a beautiful environment, with accessibility. People in Howard County work hard and are not up for being challenged at dinner.”

The Ops Side

Steve Wecker and brother Rob own and operate The Iron Bridge Wine Co., in Columbia, and the Mutiny Pirate Bar & Island Grille, in Glen Burnie; now, Wecker Hospitality Group is preparing to debut two new offerings this spring in Downtown Columbia’s One Merriweather building: Cured Table & Tap and Eighteenth & Twenty-First, a Prohibition-style supper club.

But Wecker knows success on this go-’round will be more of a fight than it was when he and his brother opened Iron Bridge back in 2003, when “the demand for dining was more than the capacity; now it’s the opposite,” he said.

In the interim, “plenty of people have gotten into the business who simply shouldn’t have,” he said. “There are some wonderful people who simply open concepts that are bad ideas. They haven’t researched the market, paid attention to developing trends and looked at the competition. The concept isn’t just about what the owner wants; to be successful, it needs to be about what the public wants.”

Then comes the actual operation of the entity. “When I consulted, I’d ask people about their food and alcohol costs. And they don’t know what they were,” Wecker said. “We do inventory every month. We have a scale and weigh everything. One time our scale broke, and we asked other taverns if we could borrow theirs; three of them didn’t have one. They don’t do inventory.”

Management at Wecker’s establishments also has weekly meetings to review sales and determine food costs. He also has an Oracle app on his phone so he can check what’s going on, in real time.

Being Aware

Then, there are the daily dramas of the industry.

“Some owners are never on-site and don’t see employees walk out the back door with their food, money and liquor,” he said. “Most of our staff have been here for 10-to-15 years and, because they are invested in our success, they would never allow anyone to violate that trust that we have.”

It all comes down to being aware of what’s really needed to succeed. “We’re not brilliant, but we get the little details. Not everyone is a good fit for this industry,” Wecker said, adding, “There should be a prerequisite license testing for people who want to enter it, because without a good plan, it’s a fast way to lose your life’s savings.”

Wecker offered his bottom line on how to approach opening a new restaurant.

“We did a full business plan for the new places. Food, labor, demographics, location, mock [profit and loss] statements, electric, etc. It’s a million and one things,” he said. “If what’s necessary to succeed isn’t clear at the end of the proposal, don’t talk yourself in to it. The best thing to do is to forget it.”