Where Have All The Restaurants Gone?
By Joni Williams, Condo Owner Magazine, Volume 18, Issue 4
Granted, there are plenty of restaurants open for business in Northwest Florida. But 2014 has seen an uptick of restaurants closing during peak season, despite the rebounding economy and a summer tourism season without unusual weather events or named storms.
While the dining industry can be volatile, many of the restaurants that closed their doors came as a surprise, given their notable status and the busy time of year. It’s not surprising when an eatery pulls out during the off season of winter. But closing during peak season when tourism is booming? This is a new trend, and a curious one at that.
After nearly 10 years, the Hard Rock Cafe in Destin Commons closed its doors in June, just as the 2014 summer season kicked off in full swing. Likewise, the Groovy Grouper Grill that occupied the former Blue Point space in Destin closed shortly thereafter, despite its prime location.
In May, Bud & Alley’s, which has been in business for nearly 25 years in Seaside, opened a sister location in Panama City Beach only to abruptly close it three months later, suffering what the owner called a “lack of volume.”
Messina’s, open less than a year, closed at the end of summer, despite being located in booming South Walton County and offering upscale fare that initially met with rave reviews from visitors and locals alike. Further west, Pranzo’s Italian Ristorante, a familiar landmark on Okaloosa Island for about 14 years, closed in mid-summer, as did nearby Nauti Girls in downtown Ft. Walton Beach area, after less than a year in business and despite aggressive marketing tactics that included live mermaids in full regalia.
More closures included the Pensacola location of the nationally renowned pizza and libations joint, Helenback. And in Navarre, an offshoot of Stinky’s Fish Camp’s, a well-known South Walton restaurant, shut down in February, just as Spring Breakers prepared to descend on the area.
While restaurants going out of business isn’t usually newsworthy, the number, timing and reputation of many of those that went under this year are, at the least, curious. And the biggest question is also the simplest: Why?
The Economy — A Double Edged Sword
Post-recession, the U.S. Economy has been deemed “strong” by analysts, particularly when compared to other industrialized nations. As testament, the housing market is not only rebounding but flourishing with both sales and values consistently increasing. Likewise, stocks, though cyclical, have generally been on an upswing, with the Dow Jones crossing the 17,000 mark in July for the very first time .
Unemployment in Florida is 6.3 percent, according to August numbers from the U.S. Dept. of Labor, lower than both Georgia and Alabama. In the panhandle, robust tourism and a strong military presence continue to buoy the economy with a steady source of revenue.
Typically, a sound economy boosts consumer confidence as well as discretionary income, which usually makes for a mindset conducive to spending, creating an ideal environment for the dining industry to thrive.
But a closer look reveals that while the indicators look good on paper, they don’t tell the whole story. Citing figures from the U.S. Census Bureau, the NRA (National Restaurant Association) said that the median yearly income of American households remained unchanged in 2011, 2012 and 2013, stalling at just under $52,000, while those earning less than $25,000 actually increased by one percent.
“It’s a sign of the times,” said area economist Dr. Rick Harper of the Studer Institute and the Haas Center for Business Research and Economic Development, discussing the fall out of middle-income consumers’ diminished spending power.
Conversely, according to the NRA, continuous gains in wealth by households in the higher income echelon explain why pricey restaurants, such as upscale steak houses, are faring well in the current economy. The rationale is that when diners in this income bracket eat out, they crave a highly enjoyable meal of exquisite quality and are willing to pay for it.
As Harper points out, it’s a trend that isn’t exclusive to the dining industry. “High end retail and low end retail are doing well,” he said. “But it’s the ones in the middle (such as mall department stores) that are most often struggling.”
Again, the reasoning isn’t complex. “Middle incomes are under some pressure right now,” Harper explained. “As a result, so is discretionary spending. For example, you have to spend money to buy gas for your car so you can get to work. But you don’t have to spend money on dining out.” The end result, he said, is when middle-income households are cutting non-essentials out of their budgets, dining out is an easy target.
At the same time, restaurateurs are faced with rising costs associated with escalating costs of real estate, employees and employee benefits, and food prices. Harper cited data confirming that the cost of proteins such as poultry, beef, seafood and eggs — typically the mainstay of menu entrees — have been steadily rising in recent times.
Passing the costs on to consumers may seem a logical solution to keep a restaurant out of the red, but in the current economy, this tactic can backfire. “There is a certain point at which consumers will not pay a higher price,” said Harper, explaining diners’ demand for affordability.
Added to this, a healthy economy drives competition up, as more entrepreneurs opt to get into the restaurant business. “There is what’s called a ‘low barriers entry,’” Harper explained. “All you have to do to open a restaurant is find a space, rent some kitchen equipment and staff up.” And regardless of how successful a new competitor is, it’s bound to have an effect on established restaurants, said John Comer, CEO of the family-owned Southern Restaurant Group in Destin.
“There’s more business to be had but there’s also more restaurants that come in,” he said of the current favorable economic climate. “Typically, when a new restaurant comes in, they’ll cut into business to some degree even if they’re not successful.”
Even though the restaurant group owns a string of successful restaurants with remarkable longevity, such as The Back Porch and Pompano Joe’s, Comer acknowledged that the current market is “tough.” Restaurateurs, he said, are facing continuously rising food and employee benefits’ costs such as health care, and increased competition from privately- and chain-owned establishments. “It’s just a historically expensive time to operate a restaurant right now,” he said, summing up the local industry.
Looking at the panhandle as a whole, year-over-year restaurant sales have historically been on an upswing for more than a decade, according to statistics compiled by Harper’s economic center. But the past year, he said, though sales were increasing, the momentum in the Florida panhandle has slowed somewhat, despite the strengthening economy and a thriving tourism industry.
“While no county is showing sales decreases, it appears that the rate of sales growth (in the restaurant industry) is slower in 2014 than it was in 2013,” Harper said, summarizing the data. Added to this, the numbers reveal that despite a push to market the area as a year-round tourist destination, the panhandle remains defiantly seasonal when it comes to restaurant patronage, particularly in Okaloosa, Walton and Bay counties. Restaurateurs seem to understand that if they aren’t hitting their financial goals in the summer, they can’t depend on the winter months to make up the difference. The immediate solution may simply be to shut down sooner rather than later.
Bugs in the System
While not desirable, increased competition and rising food and employee costs are at least expected variables in the food industry. However, 2014 presented another speed bump in the road to dining success with a dramatic increase in emergency restaurant closures by Florida’s Department of Business and Professional Regulation (DBPR), which is responsible — along with the Health Department in some instances — for determining if a dining institute poses a health risk.
District 6, which encompasses Escambia, Santa Rosa, Okaloosa and Walton counties, experienced 32 and 34 closures in fiscal years 2011-12 and 2012-2013 respectively. But for fiscal year 2013-2014, that number jumped to 58. The DBPR said that in the current fiscal year, which began July 1, there have been 10 closures. However, that number only accounted for emergency closures occurring through Sept. 1 and at least two more occurred before the month’s end.
The main reason for the emergency closures appears to be roach infestation, according to the DBPR reports, and sometimes, evidence of rodents. Although each emergency closing most often proves to be temporary — pending a successful re-inspection usually conducted by the state within a day or two of the closure — at least a handful of restaurants found the fallout from these publicized events impacted their business so severely, they permanently shut their doors.
For example, it’s said that after an emergency closure by the DBPR in early May, Pranzo on Okaloosa Island wasn’t able to recover lost business upon its re-opening and wound up shutting their doors for good shortly thereafter, despite being in business for 14 years.
“You go from having business that’s picking up every day to some days bringing in only $100 for an entire day,” said Gabrielle Woodward, describing the fallout from an emergency closure. Woodward owned Old Hag’s Cafe in Ft. Walton Beach when it was issued an emergency closure for roach activity in March. She claims the inspector paid a surprise visit immediately after a pest control company had conducted a routine treatment of the eatery, which actually caused an increase in visible roach activity.
“I don’t know how you count scurrying bugs,” she said. She was adamant that she kept her restaurant extremely clean, going so far as to scrub the crevices “with a toothbrush.” As testament to her high standards, she pointed to several equipment repairmen who became regular customers at the cafe “because they knew how clean it was.”
But like most restaurant operators, Woodward doesn’t deny the presence of insects, particularly those that roosted after heavy spring rains. “This is Florida,” she said simply. “You’re going to have bugs.”
The high number of emergency closures wasn’t limited to the panhandle, by any means. DBPR records indicate that emergency closures all over the state skyrocketed. For fiscal years 2011-2012 and 2012-2013, there were 403 and 434 emergency closures statewide, according to the state’s data. But that number jumped to 633 for the most recent fiscal year that began July 1, 2013 and ended June 30 2014.
Though most pest control companies declined to go on record regarding the matter, one former employee acknowledged the area is prime territory for bugs and other critters given the moist, warm climate. “Especially when you’re by the water (such as the Gulf of Mexico),” the source emphasized, explaining that this kind of prime real estate is also prime for rodent and roach activity or even, infestation. Additionally, the source said, because restaurants have an abundance of fresh, as well as discarded, food, they are particularly alluring to unwanted critters.
Experiencing an emergency closure, particularly when publicized, is extremely stressful for those in the business, said Woodward. So much so, she subsequently closed her once-thriving cafe for good not long after the temporary shut-down, saying she’s “taking a break” from restaurant ownership. “For a small, locally owned restaurant, it’s crushing,” she said, of the experience. “It’s just brutal.”
Survivors and Thrivers
Though a number of the area’s most promising eateries have gone belly up, it isn’t all bad news for restaurant proprietors in Northwest Florida. South Walton County, said Harper, is proving to be a real boomtown, with triple digit increases in sales over the past decade.
Other areas appear to be thriving, too. Destin Commons’ new expansion included a new Chipotle’s that’s been packing in customers since opening. And a new World of Beer is scheduled to open in Destin this fall.
Nearby, Chan’s Wine World expanded into an adjoining space and has opened a gastropub, The Craft Bar, featuring what they have advertised as affordably priced, quality fare as well as a delectable assortment of craft beers and liquors. And many old-timers continue to thrive. The Southern Restaurant Group’s Back Porch, for example, has been in business since the late 1970’s and owned by the family restaurant group since the 1980’s. A second location can now be found in Panama City Beach’s Pier Park. Likewise, Pompano Joes, open since the 1990’s, continues to be a South Walton hotspot.
The secret to their success, Comer said, stems from more than just tracking the bottom line. “It’s important not to focus just on expenses. It’s just as important to focus on offering great food and great service,” Comer advised. “This is always a challenging industry. But we’ve been fortunate to be successful because our customers have stayed loyal to us.”
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