RENT, LEASE, OR BUY – THE SIGNIFICANCE OF RESTAURANT LOCATION

RENT, LEASE, OR BUY – THE SIGNIFICANCE OF RESTAURANT LOCATION

Was it Ellsworth Statler who, a generation ago proclaimed, “The three most important elements of success are location, location, location,” or was it the British real estate tycoon named Lord Harold Samuel who died in 1987? In either case, those in marketing of any type have long proclaimed that location is one of, if not the most important attribute of a successful business or a valuable property.

There is little question that visibility and an already established clientele base sets the stage for success, but it never guarantees it. Restaurants are, in many cases, an enigma when it comes to this rule of thumb. Yes, there are many – in particular, the chain operators, who will not invest in a site that doesn’t fit the formula for a “great” location. This is why you’ll consistently find the major brands clustered together. The research has been done, the volume of traffic is there, the socio-economic demographic is a match, entrances and exits are easy to manage, and the area is properly zoned. If the operator is willing to invest, then this must be the place where they build. But, is this always the formula that works?

An Olive Garden and P.F. Chang’s will always be easy to find. Look for the mall or high traffic access road with plenty of parking and you will likely find these brands as well as every other significant concept that a community can possibly support. To place these restaurants elsewhere would not make economic sense.

Along come private entrepreneurs: chefs with a vision, restaurateurs with a formula for success and in both cases a need to keep occupancy costs (rent, lease, mortgage, utilities, property taxes, etc.) in check. Spending a few minutes with a calculator it is not difficult to determine what the operator can afford to spend on location. “I know I should follow the golden rule and look for the property with established traffic, high visibility, plenty of parking, easy access and other reasons for people to be there, but I can’t afford it.”

Restaurants are magnet operations, especially in today’s world of consumers who are infatuated with food and beverage and creative chefs. These magnets are frequently used when a developer or landlord is seeking to gentrify an area that has fallen into disrepair. Now, this is an area where a restaurateur can afford to build. These gentrification projects may take years or even decades to work, but many do. That terribly seedy area suddenly becomes a cool place to be. The restaurant has started to build a niche trade that will, over time, evolve into a market for unique shops, remodeled high end apartments and condos, more attention from local police departments, landscaping and lighting and an upbeat flow of hip people who have reclaimed the area as their own.

The restaurateur and chef, or chefs over time, have suffered through the tough battle. Building trust, creating an innovative concept, enhancing their image, attracting and retaining an attentive and competent staff, drawing attention from the local press and the food community and now, finally, they are beginning to reap the rewards. A restaurant with a reputation, a chef with a brand, and a supportive group of clients who came initially because of the food critics review, but now return time and time again for the experience. Ah, the restaurant is beginning to make money and everyone is proud.

Meanwhile, the community around the restaurant is starting to come alive and thrive. The shops are busy, taxi drivers are no longer leery of venturing into the area at night, vendors are clamoring for the business that the restaurant has to offer, and everything seems just right.

This story happens time and again in cities across the United States. Large cities and small towns all can point to areas that have experienced a rebirth that began with a restaurant willing to take a chance and unable to afford building in an another area that might have been a sure bet.

To those marketers of the golden rule I ask: “Did the restaurant make the location or did the location make the restaurant?” How many people ever heard of Yountville, California before Thomas Keller took a chance on The French Laundry and eventually Bouchon, Bouchon Bakery and Ad Hoc? Once created, where is the value? Is it the location, the brand that the chef or restaurateur has created, or is it something else? Can the magic simply be replanted somewhere else with the same end results? These are questions that cannot easily be answered.

So, where am I going with this train of thought? When restaurants resurrect an area they have, in my opinion, earned the right to be there and enjoy what they helped bring to fruition. A successful restaurant is much more than simply a place to dine. A successful restaurant is the heartbeat of a neighborhood and this heart cannot simply be transplanted to another part of town with the expectation that it will be accepted. Time and again this is attempted with resulting disappointment or failure.

We have all seen this unfold in our communities. A great restaurant with a solid following decides to move a few blocks away with disastrous results. Years of hard work, patience and a bit of angst have now taken a turn from success to failure.

A recent trend, especially in large metropolitan areas pressing through urban renewal, is landlords and developers raising restaurant rents in gentrified areas; areas that those restaurants helped to rebuild. Rent levels are no longer workable for restaurant operators. Many landmark restaurants are now finding themselves in the market for alternative locations. The question is, can they re-create the magic in a different area. Will their brand carry enough karma to hit the ground running?

This has happened with Bobby Flay at Mesa Grill, the original Aquavit and most recently – Union Square Café. Profit, of course, is a primary measure in business and one could argue that we cannot and should not limit a landlord’s opportunity to improve their bottom line if the market exists for tenants with deeper pockets. But, like the Yountville example, where would these neighborhoods be without the heartbeat that a restaurant creates, and how will the neighborhood, let alone the restaurant survive when one is removed from the other?

To rent or lease is to be always vulnerable to fluctuations in fees. To buy is, in most cases, out of reach for private restaurateurs. There is no real answer to this dilemma. It is, after all, part of the challenge of operating a restaurant and building a brand.

Danny Meyer is a brilliant restaurateur as is Bobby Flay. They will certainly survive and move on, but those epic restaurants may not. Will Mesa Grill work as well in another section of New York? Can Union Square Café separate from Union Square and still maintain the dynamic personality that has been created in its current location for the past few decades?

I wish them well and although my visits to New York are few and far between, I will miss them as I remember. The communities that they helped to build will not be the same.

Take a moment to view this article offering more details on the dilemma that is faced by Danny Meyer and Union Square Café.

http://www.nytimes.com/2014/06/24/dining/union-square-cafe-joins-other-victims-of-new-york-citys-rising-rents.html

PLAN BETTER – TRAIN HARDER
Harvest America Ventures, LLC
http://www.harvestamericaventures.com
Restaurant Consulting, Training and Coaching

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*PICTURE TAKEN BY: Kristin Parker – Kristin Parker Photography
https://www.facebook.com/KristinParkerPhotography

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