According to a report published in 2020 by CHD Expert foodservice data analytics firm, independent restaurant operators “represent 68% of the total US restaurant landscape and maintain a unique competitive edge in the market.” Despite best efforts by national chains, independents outnumber chain restaurants “by nearly two to one”.
Most independent restaurant operators don’t have the years of experience, brand recognition, resources, or solid credit that comes standard with national and multi- national chains. More independent restaurant operators translates into more inexperienced (not to be confused with untalented) restaurant operators. And more inexperienced restaurant operators in the market means more risk for your restaurant portfolio.
But no matter the risk involved, brick-and-mortar restaurants aren’t going anywhere. They’re crucial to driving foot traffic (adjacent brick-and-mortar retail needs all the help they can get), providing amenities for office tenants in mixed-use developments, creating a sense of place at the property, and igniting economic prosperity and development in the surrounding submarket. Folks will always need to eat.
Hire a third-party restaurant consulting firm to set up your restaurant operators for success and to save struggling concepts – the ones worth saving – from going underwater. You can even bake the consulting fee into your tenant improvement allowance because you’ll know the investment will deliver a worthwhile ROI.
Landlords – whether we want to admit it or not – have their hands tied. Landlords specialize in real estate, not restaurant operations. And they’re at the mercy of the strange and sometimes tenuous landlord-tenant dynamic. A landlord’s advice to a restaurant operator on “how to run a restaurant” or “how build a strong brand and drive foot traffic” will fall on deaf ears – even if the advice of the landlord is sound. Few landlords are fortunate enough to have internal food and beverage folks who can provide structured guidance to the restaurant operators, but even they have to confront the limitations of their experience in restaurant operations and their knowledge of current trends and best practices.
For landlords, hiring a restaurant consulting firm like Blue Orbit could mean the difference between unpaid rent, messy evictions, unnecessary legal costs, bad press – all which damage the perception of the property and landlord – and increased foot traffic, higher percentage rent collections, favorable underwriting at sale, strong tenant relations, and so on.
Everyone has a unique due diligence process for evaluating prospects, during which the landlord assesses – in varied depth and priority – the operator’s track record, credit, initial budget, financing, business plan, fit in the property, etc. But because a landlord’s restaurant operations knowledge is likely limited, so is their ability to grasp the prospect’s potential and fit – or lack thereof – in a property.
Without tried experience in the restaurant industry, the due diligence process for any landlord will have holes. A restaurant consulting firm like Blue Orbit can fill these holes and weed out the bad seeds through an in-depth assessment of each prospect and their concept’s viability. Leveraging their experience and expertise in the industry, a restaurant consulting firm can increase the landlord’s likelihood of locking into a five-, seven-, ten-year lease with a strong restaurant operator who will drive traffic and value to the property over the long haul.
In dealing with inexperienced restaurant operators, landlords should be weary of taking the initial budget at face value. Without direction and guidance from an experienced restaurant operator, the initial budget is merely a back of the envelope estimate. All too often the prospect underestimates capital required, calling for a sliver of what is actually needed to successfully launch and operate the concept, unwittingly dooming the concept from the start.
Every detail of the concept should be scrutinized in order to determine a realistic, conservative budget needed to successfully launch, incubate, and operate the restaurant. A good restaurant consulting firm begins each new concept with a profit model. This model considers start-up costs (architecture, construction, interior design fees, FF&E, installation, training, sales and marketing, technology, dishware, seating, uniforms, food cost, etc.) and operating mechanics. These estimates become the foundation of the business plan and lay the groundwork for how the restaurant – and therefore, the landlord – will create and sustain success.
For the landlord, the takeaway of seeing a profit model is two-fold: it provides a vision for how the restaurant will remain a healthy tenant over the duration of the lease and it gives clarity around the use of the tenant improvement allowance. Unlike an office tenant who might use their allowance to create a comfortable environment for its employees (who then go out and generate revenue for the firm), the physical environment of a restaurant directly correlates with the immediate ability to generate revenue. The build out, kitchen layout, machinery and equipment, seating, décor, etc. can either bolster or hinder the restaurant’s ability to operate efficiently and effectively. So the highest level of scrutiny should be applied to the use of a tenant improvement allowance in restaurants.
For some restaurant operators, they only need guidance from consultants at inception. For many, they require further expertise and support: from collaborating with designers, architects, and equipment experts to developing operating systems, engineering menus, determining pricing, and hiring and training staff. The restaurant consulting firm becomes a lifeline over the lifetime of the restaurant – from launch (and/or recovery) to restaurant sale.
What happens when an existing restaurant operator begins to struggle? The property – and therefore the landlord – becomes burdened with high accounts receivable balances, write-offs, nominal percentage rent collections, evictions, legal costs, and potentially bad press. Then the co- tenants begin to struggle because foot traffic is down and perception is bleak, which can ignite a deadly domino effect across the property.
The root of the issue may be simple or it may be complicated. The concept may be able to recover or perhaps it has hit the end of the line. Rather than continuing to write off bad debt or triggering an eviction, engage a restaurant consulting firm to perform an operations assessment. Bad management or a poorly conceived/executed marketing strategy might be the root cause, but each restaurant should be seen as a patient. It’s impossible for anyone to correctly diagnose said patient and provide the right prescription without first becoming a credentialed medical professional. It’s possible that the patient just has a scratchy throat and needs a lozenge to get back on their feet. It’s also possible that the patient has a deadly disease and has four months to live. Either way, engage a professional restaurant consulting firm to diagnose the situation – and then allow them to prescribe the right medicine.
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