Supply and demand for hospitality venues
Considering supply and demand for hospitality venues is another critical step in the decision making process.
Have you considered the outer suburbs?
The inner suburbs, the ‘cool’ areas, are overrun by restaurants, cafes and bars.
The demand is high but so is supply. But in some under-serviced outer suburbs, the demand is high and there’s no supply.
People are there, with money, looking to eat out, but they have nowhere to go. If your concept is right, your chances of success are higher in the outer suburbs.
Just look at Peach’s Hot Chicken. They opened in Panmure, an area better known for pawn shops than dining, and now they have crazy queues out the door every single night. An excellent concept plus low competition has meant a much more profitable restaurant than if they had opened in the inner suburbs.
Rents
Not only is competition lower in the suburbs, so are rents.
A shop that costs you $80k per year in rent in an inner suburb, can cost $25k in the outer suburbs. That’s $55k in your pocket, immediately. The old real estate saying that you ‘make your money when you buy’ applies to leasing a space for a hospitality business too.
In an industry where margins are slim, lower rents can make a huge difference.
If you do $15k in sales per week, the lower rent means a drop in your annual rent percentage from 10% to 3% – an additional 7% of profit.
Post Covid-19 – There is going to be a lot less demand for retail spaces so you will have increased negotiating power with landlords. This could mean a long rent free period or a significant capital contribution from landlords.
You will also be in a good place to negotiate a ‘sale friendly’ lease i.e. a lease that will be attractive to future buyers of your venue (multiple rights of renewal, annual rental increases capped at CPI, no demolition clauses). Get in touch with me any time if you want me to explain these ideas.
There will be potential in failed venues. The financial and emotional impacts of a failed concept are nothing to be taken lightly. But at some point these venues and their unused equipment will need to be used again. This can be an excellent opportunity to open a venue, without the massive expense and risk that comes from setting up a kitchen from scratch.
Lastly, lower rents can mean bigger spaces. This allows more room for social distancing, if this ends up being a concept we have to continue living with for a while.
Supply and demand for hospitality venues is a very important consideration when you’re deciding where to set up shop so don’t miss this important step in your analysis and planning.
At Millé, we live and breathe hospitality. Our team have all worked in, owned, or managed restaurants, cafes, and bars. It is this invaluable perspective, combined with our industry specific design and construction expertise, that enables us to craft world-class hospitality operations with our clients.
If you need our help with graphic design, interior design or the entire fit out process, get in touch. We’ll be happy to help.
