Too Many Restaurants in Chicago’s CBD
2018-06-25
After operating a restaurant for two decades, the owner of Bistrot Zinc said earlier this month that she had decided not to renew the lease at 1131 N. State Street. Bistrot Zinc is not alone – Blue Frog 22, Roy’s, Emilio’s Tapas, Merlo on Maple, Rosebud, Bistro Voltaire, Yu Choy and many others all have closed locations in The Loop, River North, Gold Coast and Streeterville areas, over the last few years.
Some of the restaurants may have been a candidate for Gordon Ramsay’s “24 Hours to Hell & Back”, however many of these closings are actually due to a highly competitive restaurant industry, increased rents, high capital costs, shortage of qualified labor and the trend for large size establishments.
Many of these closings are due to oversaturation of full-service restaurant options. (RE)Meter has found that, after four years’ continuous increase, the number of restaurants in the 42nd Ward which comprises The Loop, River North and parts of the gold coast of Chicago, peaked in 2015 and decreased in 2016- a 46% increase in the number of full service restaurants competing for revenues and operating profits!
In addition to restaurant closings, total market revenues, gross profits and EBITDAR have all contracted! EBITDAR, a measure of operating profit and rent affordability, stands for earnings before interest, income taxes, depreciation/ amortization and rent.
Historically, when industry revenues and operating profits contract, establishments fail or exit the market place. There are simply too many restaurants competing for the same revenues and operating profits to survive.
With the fall of both the number of restaurants and market revenue and profits, there is another indication of a saturated market in terms of per establishment revenues and profits. Revenue and gross profit per establishment have also gone down from 2015 to 2016.
Landlord’s should be cautious leasing to full service restaurants and given the local industry’s economic health. Alternative uses should be considered.
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