By: Carol Tice
Perhaps nothing symbolized the economic downturn like the sight of an empty, closed restaurant. Eateries have been shutting their doors steadily since 2009…until now.
The NPD group recently reported that after a long slump, the new restaurants have begun to open. Most notably, nearly 1,000 new independently owned restaurants opened over the past year.
Is this a cause to hope for economic recovery…or are these first-out-the-gate restaurant owners doomed to fail? Though the economy is certainly in better shape than it was in 2009 — the survey found that while the industry expanded by .5 percent, consumer spending on restaurant dining rose 1 percent in the past year.
That may not sound like much, but you’re talking about a $632 billion industry here. If the growth in consumer restaurant spending continues, perhaps these new eateries are jumping in just in time to rise the wave of increased restaurant use.
On the downside, existing restaurant operators aren’t optimistic that their industry is rebounding. The National Restaurant Association’s monthly Restaurant Performance Index sank to its lowest level in nine months, despite rising same-store sales. More than three-quarters of the operators surveyed said they don’t expect economic conditions to improve in the near term.
There are some definite pros and cons to opening a new, independent restaurant right now. The positives:
- Cheap real estate. Commercial real estate values continue to be down the drain in many markets, making this a great time to either buy a building for cheap or land an affordable lease.
- Prime locations available. Vacancies abound, including in high-traffic and high-visibility locales and popular malls. Once recovery is more solidly underway, these will get snapped up fast, so moving now locks you into a good spot — and in restaurant, location is everything. I’m reminded of this every time I stroll into the near-empty restaurant tucked away on the second floor of my local mall.
- Landlords ready to help. Many landlords are desperate to fill empty spaces, and are making generous deals to help with build-outs.
- Underserved markets. Some markets have seen so many restaurant closures that there is pent-up demand a new restaurant could capitalize upon.
- Anti-chain sentiment. In our increasingly buy-local culture, there is a distinct and growing segment of the population that favors independents over chains. Serve dishes that feature locally grown ingredients, and you can offer something unique most chains can’t provide.
There are still substantial challenges for new, independent restaurants, too, besides the still-uncertain economy.
At the top of my list: Rising food prices. Independent operators can’t buy in the sort of volumes the big chains can muster — the type that command substantial price discounts. High prices for corn, beef, and other staples right now make it difficult for a one-location restaurant to price competitively and still make a profit.
The other threat: The big restaurant chains are growing, too, and fast. The NPD study showed chains opened 1,888 restaurants in the same time period that indies added under 1,000. Among the big quick-serve restaurant chains in growth mode are Subway (872 new openings last year), Little Caesar’s (305), Jimmy John’s (199), Five Guys Burgers & Fries (182), and Chipotle Mexican Grill (150).
When big chains see opportunity, though, that usually means they’ve done the market research and there’s money to be made.
Smart independent operators who know how to turn a profit will do well making their move now — before everybody figures out we’re past the bottom and Americans are ready to eat out again. But less experienced operators could find themselves crushed between high food prices, growing chain competition, and an economy that may continue to falter.