Restaurants, like marriages, are a big risk. You’ll find studies quoting a range of conflicting statistics and factors. But the common denominator is that the failure rate is high. And yet, because the heart wants what it wants, that doesn’t stop anyone from doing either. The reasons for failure in both scenarios are pretty similar — inexperience, lack of planning, and undercapitalization.
A new restaurant can reasonably predict many of its first-year expenses, the tens or hundreds of thousands allocated to rent, renovation, inventory, food, and labor costs. But it is much more difficult to predict revenue, because competition is deadly fierce. Yes, product, quality, location, and marketing all play a role in potential sales. And competition usually improves a service. But there are just too damn many restaurants out there.
At last estimate, there were 660,755 restaurants in America and 329 million people. That’s one restaurant for every 497 people. If that seems like plenty of customers per business, consider that the average Applebee’s has 225 seats.
To keep their engines running, large chains and franchises eat up the majority of dining clientele. And chains, operated by corporations whose boards of directors expect constant expansion, keep growing. Fast food franchises are often owned by people with no hospitality experience, but dentists and real estate agents who have identified that there are enough customers at the intersection of Main Street and Offramp Boulevard to support a Pizza Hut or a Wendy’s. They’re a much less risky investment. It’s worth it to first-timers to pay the upfront franchise fees and 5 percent of gross sales to buy a proven successful concept. The result of this, however, is a market saturation by chains and franchises that makes the odds so stacked against the kind of independent restaurateurs we love to champion.
“When I look out at suburbia,” restaurant consultant Nycci Safier Nellis said, “I see these massive new real estate city centers, every 5 feet.”
While Nellis doesn’t believe that all chains are a threat to independent restaurants, one segment of the market is.
“These fast-casual restaurants — Cava, Sweetgreen, Panera, &pizza. There’s so many. They’re fast. They seem hip. They’re economical. They seem healthy,” Nellis said. “Because it’s such an inviting alternative, the fast-casual trend is the one that causes more damage for small local restaurants than anything else.”
And yet, some places defy this trend. Crescent Hill in Louisville is just such a neighborhood.
“This stretch has developed into the most interesting restaurant row in the city,” Kentucky food writer Marty Rosen said. “There are about three dozen places that serve food along that strip, and not a single chain or drive-through. Everything is locally owned.”
Over about 3 miles of Frankfort Avenue, you’ll find pizza, sushi, gumbo, craft beer, coffee, and every other edible morsel you’d expect in a lively, urban area, with no trace of an Applebee’s, Subway, or Starbucks.
“It’s remarkable, especially in contrast with the much-heralded Bardstown Road restaurant area that has a reputation as the city’s culinary center,” Rosen said. “Bardstown has some signature places, but it also has a large and growing collection of chains with drive-throughs, which for me are a defining attribute of a degraded dining district.”
So why does a stretch of road in Louisville have so much independent entrepreneurship, versus the chain ownership found everywhere else? Are locals doing something differently? Something about the road construction? Influence of zoning laws on architecture?
Tom Owen, an archivist for the University of Louisville and former member of city council, said all those factors make the neighborhood a bulwark against the homogenizing tide of chain restaurants.
To understand how, Owen goes back to the 19th century, when both of these commercial corridors were turnpikes, private toll roads beyond the limits of the old city. Back then, there were taverns and inns along the turnpikes, which provided access to the rural hinterlands of Kentucky.
Starting in 1870, streetcars carried people over these roads, mule-drawn at first, later replaced by electric trolleys. This transportation hub enabled the first subdivisions in Louisville, transforming farmland along the turnpikes into housing. These were comfortable, middle-class suburbs, made all the more desirable in 1899, when the government acquired the private roads, eliminating tolls.
By 1948, the city had traded streetcars for buses. But during the trolley’s tenure, commerce had cemented along the turnpikes — grocery, variety, hardware, etc. — particularly at the intersections where the streetcars stopped. This, in turn, increased density along these corridors.
From the 1950s to the 1980s, Kentucky experienced a declining population and economic disaster, plus the working-class flight to the suburbs common to most North American cities.
But it was less so on those Frankfort and Bardstown corridors, which bounced back quickly and, by the 1970s, were gentrifying.
“Beginning in the ’70s and ’80s, there got to be a mystique among younger people, for older neighborhoods,” Owen recalled. “These are older, Victorian neighborhoods. At 30 years of age, I had a hankering for something Victorian. Older. With storied architecture. With stained glass windows and front porches.”
Along with gentrification came even more density and commerce, so much so that by the 1970s, people in the area were adding onto their front yards, transforming private homes, built in the 1910s, into restaurants. All of this helped Frankfort and Bardstown become regional destinations.
Culture and policy have evolved to protect what is unique and desirable about this neighborhood. Since 1990, a design overlay district has required any substantial renovation on Bardstown to conform to traditional design. This hasn’t applied to Frankfort. But the city invested in parking spaces, sidewalks, and streetscaping. And the vibrancy of the area, enjoyed by locals, regional visitors, and tourists, has spurred residents to fight to protect it.
“Well, people get in a pissing contest every time there’s construction,” said Owen, who represented Bardstown during this period. “The neighborhood wins some and the developer wins some. I would say that Bardstown Road and Frankfort Avenue have been at least 75 percent successful in preserving key aspects.”
Most cities have a neighborhood with a story like this. The challenge for residents who want to foster this kind of independent restaurant culture is how to go about it.
“Often we think that type of commerce we see on a corridor happens somehow organically,” said Jennifer Keesmaat, CEO of The Keesmaat Group, an urban design consultancy, and former chief planner for the City of Toronto. “But it’s often deeply embedded in policy. Whether or not you get a chain that has a very large footprint, or a small mom and pop shop, has a lot to do with the underlying zoning.”
For example, to stop large companies from buying up multiple storefronts and knocking down walls to build giant stores, local governments can pass zoning regulations that prohibit the assemblage of retail properties. This makes it impossible for a big-box store to buy three storefronts, knock down the walls, and build a bigger store. Cities can incentivize small businesses through tax exemptions. To preserve a traditional esthetic, design overlay district rules can limit the height of buildings, or prevent developers from extending stores to the edge of the sidewalk.
“Planners have spent the past 20 years talking about the importance of Main Street retail to neighborhood vitality, said Keesmaat. “And I think there’s an opportunity to flip the switch and to talk about food as a community-building device. You don’t achieve that by accident. You need policy. If you’re not intentional about having small-scale retail…you’ll get the larger-scale chain. Because they will find that market.”