Restaurateurs Say Atlanta Restaurants Battling Out In A Bubble

Is there a restaurant bubble in Atlanta? You bet, and only the best operators may survive.

“Every city has a food bubble. It's going on right now,” HVMG Corporate Director of Food and Beverage Innovation Garron Gore said. “Atlanta has one. It's not quite as large as Denver. Denver is crazy; 362 restaurants have opened this year so far in Denver.”

Gore was part of a panel of top Atlanta restaurateurs at Bisnow's Atlanta's Thriving Hospitality Market on Tuesday, where he and other panelists detailed the state of the metro area's restaurant battles.

At the moment, restaurateurs are still seeing sales volume growth overall, with a 0.4% increase in the first quarter compared to the same period in 2017, according to the most recent NetFinancial report. But diving deeper into those local numbers, NetFinancials highlighted a worrying stat: more than half of the restaurants surveyed (103 non-franchised restaurants) experienced negative sales in the first quarter.

While new restaurant openings in the first quarter were down 14% from the previous year, 120 new restaurants still opened in Atlanta, or the equivalent of 10 new restaurants per week this year alone, Fifth Group Restaurants Founding Partner Robby Kukler said.

“I think we've reached kind of a peak [in] '15, '16,” Castellucci Hospitality Group CEO Frederico Castellucci said. “You're starting to see that oversupply of seats.”

That pace is what forced RO Hospitality to shy away from opening a restaurant in Atlanta this year, founder Ryan Pernice said.

“We heavily considered for us whether or not we wanted to open a place in Atlanta, and frankly, right now, Atlanta for restaurants is scary,” Pernice said. "There's a lot of restaurants opening."

Even the best restaurant operators are not immune to having to shut down due to circumstances beyond their control, he said, especially when new, mixed-use developments open nearby that command a local market's attention and dining dollars.

“Cakes and Ale closed. Fourth and Swift closed. Those were great restaurants. The operators I knew well. They did a great job. What does that say about the state of the market?” Pernice said. “I believe good operators will prevail, but not all of them. Sometimes circumstances are beyond your control, and if a Ponce City Market opens across the street from you, that's going to put a hurt on."

Some panelists said rising construction costs, paired with spiking labor costs, are forcing them to wait and see before opening any new restaurants beyond 2019. Those headwinds also have some restaurateurs becoming less lofty with interior designs.

“We're seeing restaurants that are actually being built with less finishes and a little more casual,” Kukler said. “I think the idea of eating in a restaurant that has residential finishes or Class-A level finishes is not as important to people.”

Fifth Group is exploring more stripped-down eateries for future growth for that reason, he said.

“Eating in a hole-in-a-wall or what is sometimes a one-off, chef-owned restaurant that they were not able or willing to put $2M or $3M or $4M or $6M or $8M or $10M into ... I think that concept is going to grow,” Kukler said. "I know we're looking to do places like that."

Still, the overall costs to open a restaurant have mounted significantly since the Great Recession, Castellucci said. His first Iberian Pig restaurant cost over $100K when it opened in 2009. The price tag for the new Iberian Pig opening in Buckhead is $2.5M, Castellucci said.

“It's the restaurants we are designing that are expensive. You know, even Cooks and Soldiers, which I built in 2014 ... our budget there for construction was $800K, all in, $1.4M," he said. "Four years later, we're almost double that for a similar type of project. For the rest of the restaurant community, it just raises the stakes.”

Pernice echoed those sentiments when it came to costs.

“It's a real interesting time, and it's a real scary time to be an operator because you have this huge opportunity, but we're spending a buck to get these places opened, and there's a lot of places opening,” he said. “Food is being toyed with as this thing to bring people in [to new developments]. Food and beverage have never been more important. Which both makes us sort of prime players in some of these developments and also feel a little bit … like a pawn in a much larger game.”