Austin Business Journal July 28th 2022 |Food & Lifestyles| “CHANGING TASTES” “How businesses are adapting to the evolution of eating in Austin” By Sahar Chmais
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Image from mattselrancho.com
Tex-Mex like Matt’s El Rancho will fill you up and refresh you with a margarita “for around $30-a business model that has worked for decades..” Contrast that with “melt-in-your mouth bites, full of color and detail” that might run you “$300 on an intimate meal at Otoko, a sushi restaurant that seats 12.”
ABJ writer Sahar Chmais argues that these two establishments, just miles apart, “epitomize the current state of Austin’s food scene.” Beside a field of old and newer eateries creating competition, restaurants are now facing the added headwind of “the rapidly rising cost of doing business.”
Today building out a new restaurant downtown or SOCO “can…cost $3 million to $ 5 million,” says attorney Kareem Hajjar (Partner at Hajjar Peters LLC). Plus rents are averaging $70/sqft without triple net. One bid for space in SOCO was recently rejected at $200/sq ft.
Besides local entrepreneurs, national groups are competing as well based on “what they see as Austin’s future and still spending less than they would in major coastal markets.” This latter point is a recurring theme for Austin. Whether it’s housing, labor, or commercial space costs are still lower in Austin when compared to premium American locales-NYC, LA, and the Bay Area. These national bigs are “substantial, sophisticated, [and] very well run groups.” They have economies of scale as well.
According to John Heffington (CBRE) there’s a “surprising” demand, but not enough supply, for spaces ranging from 8,000-12,000 sqft. Given the increasing competition, which was thinned out by 20% in Texas due to the pandemic, locals operating a location or two are finding space, downtown in older class B buildings, or moving into “neighborhoods or places such as East Austin or South First Street.
With so much allocated to rent, a restaurant “needs to generate about $10 million” annually to cover other costs and generate a profit. Notably, Matt’s El Rancho, 70 years in Austin, ranked 73rd as a national independent restaurant in 2020, reported revenue of $14.3 million in 2019 from its 9,000 sqft location on Lamar.
Matt’s has bucked the moniker “evolve or die” as they have honed their business model that has consistently focused on “good service…great product…and take good care of your people.” Even during the pandemic, Matt’s kept its loyal staff of 225 doing renovations and adding a take-away service to their business model.
Otoko, part of the New Waterloo group, contrasts with Matt’s having opened just in 2016. “It was among the first to offer omakase-style dining in Austin-a Japanese concept featuring dishes selected by the chef.” Chef Yoshi Okai’s three hour service led to a “best new chef’s [award] in 2017 from Food and Wine Magazine.” With just 12 seats in a unique 1,500 sqft space at the South Congress Hotel, Otoko “has one of the highest average check sizes out of New Waterloo’s many restaurants, which include La Condesa and Il Brutto, which seats hundreds.”
Otoko image from robbreport.com
The article notes that “even at Waterloo, its restaurants individually operate on low profit margins” that essentially being the nature of the industry.