Rising rents mean that restaurants could experience serious profitability problems if sales fall.
There’s no doubt that the proliferation of fast-casual chains in recent years has intensified competition—especially when it comes to finding prime real estate.
Back in March, Nation’s Restaurant News reported that because these concepts are all looking for remarkably similar sites, demand has allowed landlords to drive up the price many chains pay in rent. According to Nation’s Restaurant News, lease rates have risen 10 to 15 percent when compared to the previous year. At the time, many believed that these rising rents could cause serious profitability problems if sales fall.
Now, as a result, same-store sales have slowed. According to Nation’s Restaurant News, publicly traded chains, on average, reported same-store sales in the spring that were 179 basis points slower than the previous quarter. Traffic is also down 2.8 percent across the board—that’s a major loss of customers.