Pandemic-Proof Your Restaurant Lease (+ 2 more key takeaways)
Now in mid-2023, U.S. restaurant operators seem to be in one of two categories:
(1) those getting back to normal operations, normal food costs, and normal labor hiring, or
(2) those who acknowledge we are in Restaurant Economy 2.0, with forever-changed operations, higher food costs, more challenging labor and hiring, and permanently lower profit margins.
The dominant factor deciding whether a restaurant or brand is in in #1 or #2 appears to be geographic location. Those areas in the U.S. significantly affected by Covid shutdowns often are in #2. Those areas that were closed for only short periods are in #1 (even if they still are hit by the same higher food costs).
For everyone, however, Covid will not be the last pandemic, and it may be much less than a hundred years for the next pandemic to arrive. Given the human population’s increase and our wild appetite for food, land, and growth, we are constantly pushing into habitats of other living things that contain pandemic-causing viruses.
So, how does a typical restaurateur plan for this? Here are three considerations for your next lease:
1. Patio Space – if a pandemic hits again and social distancing comes back, open-air outdoor space will be key. When looking at a space and negotiating the LOI, consider this. Is there a patio area? Can you secure rights to it? If not a patio, is there a city sidewalk? Often, operating on public sidewalks requires either an explicit right to do so in the local zoning code or a special use. Have you looked at the zoning code to see what’s allowed or what can be granted?
2. Outdoor speakers – if you are operating in outdoor space, chances are you will want ambient music for your guests. Are outdoor speakers allowed under the zoning code? Will the landlord agree to them?
3. Drive thru window/pick up window – perhaps your business needs a Chick-fil-a style drive thru operation. Chances are, though, all you may need is a window where customers who have pre-ordered and pre-paid for food can conveniently drive up and grab it. Why? Three things. First, in a pandemic, limited contact is key. Second, customers looking for convenience will be attracted to your restaurant. Third, if we move back to take-out-only service, a drive-thru window avoids overburdening parking spaces and creating problems with the city. A pick-up window like this also does not create a car stacking situation at the outdoor menu and limits foot traffic into the restaurant.
Two other important considerations when negotiating your next lease:
First, air conditioning units – these are super critical, and you would be amazed at how often they are left to the end of due diligence. Put these at the top of your due diligence checklist for new restaurant space. Why? For one, they’re an expensive line-item on your pro forma if you need to repair or replace them during your restaurant build-out, so they should be addressed right away with the landlord. Second, just as frogs are the indicator species of the pond, air conditioning units often are the indicator species of the building. If the a/c units are well-maintained, the landlord probably has maintained the rest of the space. If not maintained, the rest of the space probably needs work, too.
Second, grease traps – look at the lease provision regarding grease traps. Are you comfortable with whatever is required? Are the physical grease traps in good shape? This usually is a discussion point, and it often comes up at the very last second when everyone is trying to finish the deal and sign the lease. Do yourself a favor and move this toward the top of your checklist and save yourself the last-minute fire drill.
If you would like to discuss this or your next lease, I am happy to talk more,