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Restaurant's rent (as % of sales) question?


DTEJD1997
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Hey all:

 

I'm doing some analysis on a small group of restaurants.

 

One of the main things I'm trying to figure out and evaluate is their rent as a percent of sales.

Specifically, if that is lower than their competitors and how it will effect their profitability going forward.  If I correct that they are paying a good rate on their rent, that might be small competitive edge?

 

This is JUST RENT to occupy their locations.  Not insurance, utilities, taxes, labor or any other costs at this time.

 

I'm looking at a chain's rent that is higher than 3% of sales, but LESS than 4%.

 

I think they've got a good thing going, but want to check/verify this with other investors who may have more experience/knowledge.

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I’m no expert but I do know and consider friends, several very prominent people in the NYC restaurant space. 10% is the consensus but that’s apparently a number my guy says is low because the minimum wage increase is a torpedo that most haven’t yet accounted for.

 

I would think Detroit is a very different market though.

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I found Danny Meyer's book "Setting the Table" very interesting for thinking about the restaurant business. He has obviously been very successful. He notes in one place that a great lease is a big key to a successful restaurant. He suggested aiming for 1 days average sales for monthly rent as a goal. That suggests to me your 3-4% is probably in the ballpark of being very good.

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I found Danny Meyer's book "Setting the Table" very interesting for thinking about the restaurant business. He has obviously been very successful. He notes in one place that a great lease is a big key to a successful restaurant. He suggested aiming for 1 days average sales for monthly rent as a goal. That suggests to me your 3-4% is probably in the ballpark of being very good.

 

During the time that Denny Meyer's operated in NYC, retail rent has gone through the roof.  When you sign a restaurant lease from 10-20 years ago in NYC, it becomes a huge asset.  That's why you see people simply closing up shop when their lease run out in NYC despite having booming sales.

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I found Danny Meyer's book "Setting the Table" very interesting for thinking about the restaurant business. He has obviously been very successful. He notes in one place that a great lease is a big key to a successful restaurant. He suggested aiming for 1 days average sales for monthly rent as a goal. That suggests to me your 3-4% is probably in the ballpark of being very good.

 

During the time that Denny Meyer's operated in NYC, retail rent has gone through the roof.  When you sign a restaurant lease from 10-20 years ago in NYC, it becomes a huge asset.  That's why you see people simply closing up shop when their lease run out in NYC despite having booming sales.

 

Union Square Cafe no longer being in Union Square is one of the best examples of this.

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Hey all:

 

I'm doing some analysis on a small group of restaurants.

 

One of the main things I'm trying to figure out and evaluate is their rent as a percent of sales.

Specifically, if that is lower than their competitors and how it will effect their profitability going forward.  If I correct that they are paying a good rate on their rent, that might be small competitive edge?

 

This is JUST RENT to occupy their locations.  Not insurance, utilities, taxes, labor or any other costs at this time.

 

I'm looking at a chain's rent that is higher than 3% of sales, but LESS than 4%.

 

I think they've got a good thing going, but want to check/verify this with other investors who may have more experience/knowledge.

 

3-4% as a percentage of sales is insanely low! If your restaurant is located at a good location (indicative of good sales) rent is going to be around 10-15%, and depending on a few factors it may even be higher. Just take a look at the 10-k's of companies like CAKE, CMG and the like and you'll find that they spend about 25% of sales on rent+utilities+insurance+other.

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