Why are so many Boston restaurants closing?
Sometimes it seems as if all of Boston’s restaurants are closing.
L’Espalier, home of the extravagant tasting menu and one of the best cheese carts in town. Durgin-Park in Faneuil Hall, a bastion of Yankee cooking for nearly 200 years. Erbaluce, named the best Italian restaurant of 2018 by Boston magazine. Cultivar, which brought a farm-to-table sensibility to a downtown hotel. The announcements land one after another, a series of gut punches to those who care about dining and the health of small business in this town. Why are all these restaurants closing? Why now?
“OK, here’s the silver bullet. This is the exact reason. Are you ready?” said Bob Luz, president and CEO of the Massachusetts Restaurant Association. “There is no one reason. It’s a confluence of events, and it’s going to shake up what we know out there.”
Of course, there are the obvious factors: Rents are high and climbing, tastes are fickle, the business is an all-consuming grind. But the truth is that every closing is different, with its own special stew of never-entirely-knowable factors. Each restaurant has its own story.
In the case of L’Espalier, in late December chef-owner Frank McClelland told the Globe he was closing after 30 years of ownership because “the lease is up, and I don’t really have the desire to continue to do this and renew.” He was working on something new, he said.
With Durgin-Park, a changing dining market and a shifting business strategy were the deciding factors. Michael Weinstein, chief executive of parent company Ark Restaurants, cited a host of reasons: an increase in the minimum wage, insurance premiums, and other operating costs; Faneuil Hall’s diminished appeal for locals vs. the Seaport’s increased pull; the rise of home delivery and meal kits; changing tastes; the inability to raise prices enough to balance the equation.
“This is painful to close it,” Weinstein said. “We have people who were working there forever. We probably did a lousy job of managing it. We were under the impression that people did not want it to change.” Attempts to update the menu upset the core clientele without attracting new customers, he said. And then there were the shareholders to think of.
Ark Restaurants is moving away from expensive markets such as Boston and New York, gravitating toward places it sees as more business-friendly, such as Alabama, South Florida, and Las Vegas. “I don’t know how long I’m supposed to subsidize something so people can reminisce,” Weinstein said. “I’ve been doing it for three years, we’ve been trying to figure this thing out, and it doesn’t fit our business profile anymore. . . . If somebody said to me today, ‘Durgin-Park is available, you can buy it for $1,’ it would not fit our business profile.”
Erbaluce, on the other hand, was doing very well when it closed, according to chef-owner Charles Draghi: “We ended at the top of our game, kind of like an athlete retiring after a Super Bowl, which Brady will never do.”
This closing is a tale of development. Draghi and partner Joan Johnson opened the Bay Village restaurant in 2008 with a 10-year lease and the intention of buying the building. But the economy crashed, and they never quite got a down payment together. In the meantime, 20-story towers began to rise among the brick rowhouses of Boston’s smallest neighborhood.
The new owner of Erbaluce’s building is redeveloping it into condos. Construction would have put the restaurant out of commission for two years, Draghi estimated, and they would have had to hand back their city-issued beer and wine license.
“If we wanted to come back, we would have to get a full liquor license for half a million bucks, and we can’t afford that.” Then, too, rent was likely going up, and the function space that helped Erbaluce get through slower periods was being eliminated.
Different closings, different stories. But what these restaurants all have in common is the market in which they operate. Part of the problem is Boston itself. In 2019, the city isn’t always hospitable to small, independent restaurants.
In fact, the number of restaurants closing isn’t that different than usual. It’s the type of restaurants that is changing, says Tom Clark, president of restaurant development and construction company Ashling. Now the places closing are ones everyone has heard of. “Maybe it’s the high end’s turn,” he says.
Clark founded Ashling in 2003. “When we started, we did a tremendous amount of one-off chefs. I used to love working for people like West Bridge,” a Cambridge restaurant that closed in 2015. “They were risking everything in life savings. The heart-and-soul, mom-and-pop type places.”
This year, out of about 20 openings, he expects few if any will be independently owned. “It’s not their restaurants, it’s not their money. People are building these places for them. Everybody in Boston that thinks something is not a group is misled. Everything is a group. The one-off chef can’t afford to sign these leases anymore.”
Rent is a major factor . Michael Staub, restaurant-development consultant and principal of Group M Inc., said if rents continue to increase at a minimum of 3 percent a year, but business revenues do not, then it can be hard to impossible for a restaurant to keep up.
“Restaurants look at rents as a percentage of sales, not just as a dollar amount. You used to want to be in the 6-8 percent range of sales. Now it’s closer to 9-10 percent.”
There is also a labor shortage in restaurants across the country, driven in part by low unemployment. In Boston, the problem is exacerbated by the sheer number of restaurants, and the rate at which they are multiplying: In the Seaport alone, 59 new places opened in the last five years, according to Luz of the Massachusetts Restaurant Association.
Keeping restaurants adequately staffed is a constant struggle for operators. Minimum wage is going up, an oft-cited burden: from the current $12 an hour to $15 by 2023, and from $4.35 to $6.75 for tipped employees. In reality, Luz said, most restaurant employees already make more than the minimum. Restaurateurs and workers tend to use the number as a gauge: If it goes up $1, pay should too.
“Over a nine-year period, minimum wage will have gone from $8 an hour to $15 an hour, when all is said and done. That’s nearly double,” Luz said.
In a full-service restaurant, most employees are tipped. “The entire business plan for restaurants is built on two-thirds of the staff working at subminimum wage, and they are the highest earners.” At a more casual place, they might make $25 an hour, up to $50 an hour in higher-end restaurants, he said: “That wage has gone up 157 percent in that same time frame.” There are other new costs, too, associated with medical care, sick leave, and family leave.
This in a business where the average profit margin may be 3 to 6 percent. “If you’re doing a really good job, 95 cents of every dollar goes to pay costs,” Luz said. “That’s the ones doing really well. Not everyone is doing really well.”
All of these new restaurants mean a new level of competition. The city’s population is growing, but not as quickly as the number of places to feed it. This includes restaurants as well as prepared foods from the grocery store, meal kits, and home delivery. (Luz referred to it as “thinning the herd.”)
Blame it on the Internet. Developers keep building, and they can’t anchor their projects with Tower Records or Borders or other retailers digital commerce has killed off. But we still can’t get restaurant meals via Amazon — at least not yet. (Cue the drones.) Each office or condo construction project brings with it more places to eat.
For someone with entrepreneurial spirit, the restaurant business is easy to get into. But it’s also easy to fail at. “Anybody can get in, but that doesn’t make you a good operator,” Staub said. “A lot of these younger operators don’t have the experience or business acumen to take on this kind of responsibility.”
There are plenty of other factors at work: politics, tourism, changing tastes.
“When Donald Trump got [elected], that cut our business in half. Most of our business is foreign tourists, and they’re all boycotting the US,” Draghi said. “If I did another place, we would focus on prepared meals to go and some delivery stuff. A few good salads, a handful of pastas, a couple of soups. People want to eat simpler and lighter. The days of the white-tablecloth restaurants are gone.”
All is far from gloom and doom. Nationally, the industry saw its eighth consecutive month of growth, with same-store sales up 2 percent in January, according to TDn2K, which tracks the service industry. Luz pointed out that the average person continues to spend more to eat out than in: In the mid-’70s, Americans spent 24 cents of every food dollar outside the home. Today that number is up to 52 cents.
But if restaurants don’t change, there will be more closings yet to come. “All the stakeholders involved in restaurants — owners, staff, landlords, investors, customers — need to understand that it’s more expensive to operate,” said Staub. “Everybody needs to recalibrate their expectations for this business.”