Restaurant economics in the Midwest

[LAZ]

Will someone please explain to me why some relatively poor, even crime-filled Chicago neighborhoods can boast a wealth of independent and ethnic restaurants -- maybe small, maybe shabby, but functional -- and relatively affluent suburbs and stable small towns are full of godawful Jimmy Johns and mediocre Applebees?

Compare, say, Pilsen to Prospect Heights, or Bridgeport to Bloomington, Ill.

Why is that the first restaurants to go into expanding suburban areas, like the Randall Road corridor in the western suburbs, are all chains?

Is it just density? I understand that suburban restaurants tend to draw less weeknight business than urban ones do, but I don't understand why. And I don't understand why a chain outlet, particularly a franchise, can sustain this any better than an independent restaurant.

[SuzySushi]

From the perspective of someone who's not in the restaurant business, I bet one reason is that chain restaurants already have a reputation (maybe mediocre to many of us at eGullet, but they wouldn't have gotten to be chains if mass-America didn't flock to their tables), and independents are an unknown quantity.

People will go to chain restaurants because they know what to expect. Conversely, they'll stay away from independents because they don't know what to expect.

[markh]

Two words: population density. In Chicago you have large concentrations of people in small areas, and that is what's needed to support restaurants. For example, Pilsen has a large Hispanic population, so it can support a number of quality Mexican restaurants.

However, this is also true in the suburbs. West Chicago has a large concentration of Hispanic residents and it has several very good Mexican restaurants. The corridor of Westmont, Downers Grove, and Lisle has a large concentration of Asian residents, and lo and behold, you'll find a myriad of excellent Chinese, Filipino, Indian, and Korean restaurants in that area...

[mlarue]

But wait, (as they say on TV) there's more! The relatively affluent suburbs mentioned are usually the places with the newest buildings. And new construction equals much higher rent (or purchase price) which, in turn, makes opening a restaurant highly capital-intensive. Chains have access to that capital. Yet another influence is concentration of customer subgroups. If a restaurant is planning to appeal to a particular ethnic group, or to young people, or to people with a taste for something unique, there are usually neighborhoods where a sufficient number of those potential customers exist to form a base -- and that base allows them to get started and develop a reputation which would pull customers from greater distances. That's awfully hard in most homogeneous, high-rent, suburban communities. Top that off with the fact that the suburbs are filled with newer families with kids who primarily eat at home and look for McDonald's or Pizza Hut when they do go out. At the end of the day, I'm surprised there are as any interesting suburban restaurant at all.

[LAZ]

People will go to chain restaurants because they know what to expect. Conversely, they'll stay away from independents because they don't know what to expect.

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This is a reason for the proliferation of chain restaurants generally. It doesn't explain why chain restaurants should be more economically viable than independents outside urban settings.

For example, my neighborhood has a Jimmy Johns. It's across the street from a high school, so I can see why it would be a desirable location. But why would somebody choose to open a Jimmy Johns there and pay franchise fees when, probably, an independent sandwich shop or a hot dog stand would do just as well?

But wait, (as they say on TV) there's more!  The relatively affluent suburbs mentioned are usually the places with the newest buildings.  And new construction equals much higher rent (or purchase price) which, in turn, makes opening a restaurant highly capital-intensive.  Chains have access to that capital.  Yet another influence is concentration of customer subgroups.  If a restaurant is planning to appeal to a particular ethnic group, or to young people, or to people with a taste for something unique, there are usually neighborhoods where a sufficient number of those potential customers exist to form a base -- and that base allows them to get started and develop a reputation which would pull customers from greater distances.  That's awfully hard in most homogeneous, high-rent, suburban communities.  Top that off with the fact that the suburbs are filled with newer families with kids who primarily eat at home and look for McDonald's or Pizza Hut when they do go out.  At the end of the day, I'm surprised there are as any interesting suburban restaurant at all.

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Population density appeals to both chain restaurants and independents. I can understand why there would be more restaurants in urban areas than non-urban communities. I don't understand why, proportionately, of those restaurants that there are, more should be chains outside cities. It works the other way, too. I was somewhere on the North Side recently (I forget just where), thirsty and in a hurry, and I just wanted to get a Coke at a drive-thru. But there wasn't a McDonald's or Burger King for miles. (I'm not a kneejerk anti-chain bigot; they have their place.)

There are plenty of families with kids in the city, probably more than in the suburbs. It's easy to dismiss the 'burbs as full of white-bread eating breeders, but I look around at my neighbors and I don't see that as the case. And while I don't believe that the suburbs are homogeneous -- even if they were, that doesn't explain why more non-ethnic but independent restaurants don't open in the suburbs and small towns.

In the Chicago area, anyway, real estate in any halfway desirable city neighborhood is much more expensive than in all but the most affluent suburbs, so that argument doesn't hold up. You can buy a three-bedroom house on half an acre in the NW suburbs for less than you'd pay for a condo in Wicker Park. I can't believe that commercial-property prices aren't proportionate, even for new construction. And it isn't all new construction. Look at Park Ridge, where independents are gradually being replaced by chains.

I can see that the location of independents (and, I guess, small chains, where one restaurateur owns several places within a region) tends to be more quixotic than that of chains. Joe Entrepreneur lives in Rogers Park; he wants a short commute to work, so he decides to open a restaurant there. Or he's from Burma and looks around and sees that there aren't any Burmese restaurants in his neighborhood and he decides to open a place so that he and his compatriots can get something they like to eat. Whereas chains tend to do market research before launching new locations.

But why does that research tell them that West Bend, Wis., is a better place to open an Applebees than Albany Park, and conversely, why aren't there more quixotic entrepreneurs looking at opening up in small towns and suburbs?

[annarborfoodie]

I moved from a place with many great independant spots (Ann Arbor MI) to a chain restaurant wasteland with a few good independent places (Champaign-Urbana IL). I think it's just a matter of people not knowing any better for the demand to be there for really good independent restaurants to make it. They really seem to think that Applebee's is a good place to eat (in fact it's the only full service restauarant in the smaller town south of Champaign where I live). Being a college town, I think we have a better selection of the campus pub-type places than we would otherwise, but the chains are showing up there too - such as Bar Louie.

[gfron1]

The people that I've known who've gone into the restaurant business have opened their ethnic/quirky restaurants where they live. These are not the folks who are expecting to make a million, rather they want to do what they enjoy. And if you're wondering what type of restaurants will open in a white, middle class suburb, my guess would be chains because the chain has followed the demographic. However, go into any area with a higher ethnic population (even in a suburb) and you'll find the ethnic shops (side-by-side with the chains if it is in a suburb).

For example, we are almost daily asked to open a chain of our store in Las Cruces. We know it would be profitable, and in fact would help business here in our small town because of shared freight costs, but I have no interest in drivng to Las Cruces - let alone 10 miles out of my town.

[Devotay]

It's also a function of time. Chicago has been a city for 150 years. Prospect Heights, what? Maybe 50?

I know that when I lived in Schaumburg as a kid the population there was 19,000 and it was hell-and-gone from Chicago. Now it's a nearby suburb with about 120,000 people. There's been no time to establish any cultural or neighborhood identity that would foster a culinary tradition, thus the monied chains have filled the vacuum.

[ludja]

I  moved from a place with many great independant spots (Ann Arbor MI) to a chain restaurant wasteland with a few good independent places (Champaign-Urbana IL).  I think it's just a matter of people not knowing any better for the demand to be there for really good independent restaurants to make it.  They really seem to think that Applebee's is a good place to eat (in fact it's the only full service restauarant in the smaller town south of Champaign where I live).  Being a college town, I think we have a better selection of the campus pub-type places than we would otherwise, but the chains are showing up there too - such as Bar Louie.

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The comparison between Ann Arbor and Champagne-Urbana is an interesting one. One might think the demographic would be similar in the two places (midwest, large university town). Do you have any theories why or how they developed differently?

I wonder if much of Ann Arbor's food scene developed in the 60's/70's (as did, for example, Berkeley's). I don't know how or if the two campuses/towns differed then or in the aftermath but pehaps that is a reason for the difference. Also, are there more immigrants in one town versus the other?

Also, did Ann Arbor embrace farmer's markets earlier than Champagne? (I think that farmer's markets can have a huge impact in this regard. The small downtown of Sunnyvale in the heart of Silicon Valley was literally moribund 15 years ago. Half of the storefronts were closed up. They institiututed a Saturday Farmer's market on the street about that time and since then the street has filled out with independent shops and restaurants. There is still a ways to go, but the difference has been remarkable. Now the town is actually tearing down the neighboring multistory mall filled with chain stores and restaurants and will be rebuilding a new type of open air "mall" that will more closely model the original downtown street (where the market is). I know the new mall will have chain stores, etc but I wonder if there will also be some independent ventures. THis is only one example, but I've heard of a similar transformation underway in Phoenixville, PA in which a weekely farmer's market is helping to bring in and sustain non-chain ventures.

As gfron1 mentioned, there also have to be passionate people living in a given area that are committed to create these types of businesses. They may or may not be able to help develop the palate/sophistication of the area with their new business but first you just need people with a vision who want to start and maintain independent shops or restaurants.

Edited February 26, 2007 by ludja (log)

[ludja]

It's also a function of time.  Chicago has been a city for 150 years.  Prospect Heights, what?  Maybe 50?

I know that when I lived in Schaumburg as a kid the population there was 19,000 and it was hell-and-gone from Chicago.  Now it's a nearby suburb with about 120,000 people.  There's been no time to establish any cultural or neighborhood identity that would foster a culinary tradition, thus the monied chains have filled the vacuum.

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Also as mentioned above, how much do you think the existence of older buildings makes a difference? It seems easier to open a unique place with ambiance in a place that has building options other than a front in a strip mall...

[annarborfoodie]

I wonder if much of Ann Arbor's food scene developed in the 60's/70's (as did, for example, Berkeley's).  I don't know how or if the two campuses/towns differed then or in the aftermath but pehaps that is a reason for the difference.  Also, are there more immigrants in one town versus the other? 

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I think that the proximity to Detroit helps Ann Arbor a lot. They get people with money from the suburbs eating at their restaurants, not just the locals and students. There is also better availability of ingredients (especially in the winter). I think one of the hardest things about living here is the lack of good produce during the winter, and anywhere other than the Farmer's Market, joining a CSA, or having a great garden in the summer. Champaign is just so isolated in the middle of a cornfield, and there are comparatively few people who know good food. Most people who are looking for a good dining experience head up to Chicago for the night.

Champaign doesn't have a downtown Farmer's Market - there is something in a parking lot at the edge of town in the middle of the week (I've never been). Urbana has a Saturday farmer's market in the parking lot of their moribund downtown shopping center. Interestingly, Champaign's downtown area is further along in its redevelopment than Urbana's.

[LAZ]

Also as mentioned above, how much do you think the existence of older buildings makes a difference?  It seems easier to open a unique place with ambiance in a place that has building options other than a front in a strip mall...

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I'm not really talking about unique ambiance, high-end culinary values or even ethnic fare so much as nonchains vs. chains. There are loads of mom-and-pop restaurants in strip malls in the city of Chicago.

Again, I bring up the example of the Jimmy John's across from the high school. The owner obviously decided that opening this franchise would be more profitable or otherwise better than opening an independent sandwich shop in the same location. Other than a certain amount of name recognition and cooperative advertising, I don't understand the cost-benefit.

I'm also wondering why, when people think of Midwestern cuisine, they tend to think of the homogeneous chain fare in these small-town and suburban examples, instead of thinking of the wealth of ethnic and innovative dishes available in cities like Chicago and Detroit, whereas when they think of coastal foods, they think of L.A., San Francisco, New York and Boston. So Michael Bauer can dismiss a dish by describing it as fit for Midwestern tourists.

Aren't the suburbs and small towns there as full of bland chains as ours?

[cdh]

A thought here I'd like to bounce off the assembled--

What about the issue of franchising and the ability to afford the buy-in fees, and risk minimization?

A franchise with a nationally advertised name over the door may be considered a much less risky investment than a start-up with no brand equity. Might folks who are interested in opening a restaurant be legitimately concerned about hedging their bets by buying into a franchise. Might local bankers be more likely to extend the loan to a prospective franchisee than to a ground-up new enterprise?

Do people who started out as franchisees ever sell off the franchise and convert their return on investment and knowledge into ground-up restaurants, or do non-competes in the franchise agreements stifle that?

Edited February 26, 2007 by cdh (log)

[nsxtasy]

I'm also wondering why, when people think of Midwestern cuisine, they tend to think of the homogeneous chain fare in these small-town and suburban examples, instead of thinking of the wealth of ethnic and innovative dishes available in cities like Chicago and Detroit, whereas when they think of coastal foods, they think of L.A., San Francisco, New York and Boston. So Michael Bauer can dismiss a dish by describing it as fit for Midwestern tourists.

Aren't the suburbs and small towns there as full of bland chains as ours?

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Yes, the suburbs and small towns on both coasts are as full of chains - and, for the most part, the SAME chains - as those in the Midwest. Whatever the reasons, the prominence of chain restaurants in the suburbs, and particularly in those suburbs that have been most recently developed, is a nationwide phenomenon, not unique to any one part of the country.

Snobs in New York and California dismiss dishes in that way because they've probably never been to the Midwest (at least, not lately) and have no idea how good our ethnic and fine dining cuisine is. Pure arrogance probably plays a role as well; I've heard plenty of people on both coasts say some of the stupidest, most ignorant things about the Midwest (e.g. "Of course our city gets better produce than you do, because we have a farmer's market"). It happens all the time. Which is one more reason I'm glad I live here and not there.

Edited February 26, 2007 by nsxtasy (log)

[dinerminer]

A franchise with a nationally advertised name over the door may be considered a much less risky investment than a start-up with no brand equity.  Might local bankers be more likely to extend the loan to a prospective franchisee than to a ground-up new enterprise?

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Bingo! It's all about the money, big surprise huh? People who invest (in)/open franchise restaurants are primarily motivated by profit, plain and simple. Franchise restaurants generally operate at significantly higher profit levels than independents. The economy of scale thing. Independents usually have more esoteric motivations, love of food, love of people, satisfaction of the id. Unfortunately these are not "bankable" assets.

[kiliki]

Interesting thread. People have had good ideas about why someone might open a franchise rather than an independent restaurant, but no one has really addressed why chains are more prevalent in some locations (suburbs across the US, not just the midwest). And why do some cities have a much higher percentage of chains? I remember reading a few years ago that Denver had the highest percentage, and Seattle had the lowest. I have a good friend in Denver and the number of chains in the city is indeed striking.

[kiliki]

I'm also wondering why, when people think of Midwestern cuisine, they tend to think of the homogeneous chain fare in these small-town and suburban examples, instead of thinking of the wealth of ethnic and innovative dishes available in cities like Chicago and Detroit,

Snobs in New York and California dismiss dishes in that way because they've probably never been to the Midwest (at least, not lately) and have no idea how good our ethnic and fine dining cuisine is. Pure arrogance probably plays a role as well

My family is all from the midwest-I am originally from Michigan-so I don't feel like I'm one of those people that is snobby. But I might be able to offer some insight, since you asked. The midwest is a big place, and most of us with midwestern roots/family aren't fortunate enough to have all our relatives in Chicago, with its great ethnic/fine dining scene. In my case, I visit Des Moines, Iowa City, suburban Minneapolis, Milwaukee, Toledo, and Saginaw. I have a very hard time finding good groceries and many good restaurants, even after I've asked/searched for suggestions on food boards like this. There are some but just not as many as I would expect. My mother in law and sister in law are fascinated by the fact that we don't have any chain restaurants in our neighborhood, and that we don't shop at chain groceries. This post isn't to diss the midwest food scene, but I do hope it explains why some people have the impression they do-it is often based on experience (don't we all have relatives in the midwest we visit?), not uninformed snobbery.

[nsxtasy]

A franchise with a nationally advertised name over the door may be considered a much less risky investment than a start-up with no brand equity.   Might local bankers be more likely to extend the loan to a prospective franchisee than to a ground-up new enterprise?

←

Bingo! It's all about the money, big surprise huh? People who invest (in)/open franchise restaurants are primarily motivated by profit, plain and simple. Franchise restaurants generally operate at significantly higher profit levels than independents. The economy of scale thing. Independents usually have more esoteric motivations, love of food, love of people, satisfaction of the id. Unfortunately these are not "bankable" assets.

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It might not be ALL about the money.

If I wanted to open a restaurant, it seems to me it would be a lot more WORK (not just money) to do all the development on all the recipes, and decide on all the equipment needed, and decor, and computer systems, and advertising, etc, than to open an additional location of a chain in which all of those items are already provided and done for you. (If you don't have the experience to do all the development in all those areas, you may have the additional problem of hiring people with the experience level needed.)

I am not in the restaurant business, and I know some people here are, so I don't claim to have their expertise. But I can only guess that a lot of the development work is already done when opening an additional location of an existing restaurant than when starting from scratch.

[ludja]

Interesting thread. People have had good ideas about why someone might open a franchise rather than an independent restaurant, but no one has really addressed why chains are more prevalent in some locations (suburbs across the US, not just the midwest). And why do some cities have a much higher percentage of chains? I remember reading a few years ago that Denver had the highest percentage, and Seattle had the lowest. I have a good friend in Denver and the number of chains in the city is indeed striking.

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This is what I am interested in as well, which prompted the question of comparing Ann Arbor and Champagne-Urbana. People have given lots of good reasons why chains, in general, may be an easier business proposition. There is also an important link as nsxtasy mentioned as to *when* a place has undergone development. I do also think that "where" plays a factor as well and this is not a dig at the "midwest". Each location has its own particular history and challenges in regard to how it evolves with respect to the threat of chain restaurant overload and the death or dearth of independent establishments.

I find this a very interesting topic, but apologize if I have contributed to "drifting" the discussion away from the original midwest focus of the thread. There are common issues to be discussed as this is a phenomena to some extent all over different parts of the US, but it seems as if there are also interesting and different issues specific to the midwest (and the different areas within it) as well.

Edited February 26, 2007 by ludja (log)

[nsxtasy]

The midwest is a big place, and most of us with midwestern roots/family aren't fortunate enough to have all our relatives in Chicago, with its great ethnic/fine dining scene. In my case, I visit Des Moines, Iowa City, suburban Minneapolis, Milwaukee, Toledo, and Saginaw. I have a very hard time finding good groceries and many good restaurants, even after I've asked/searched for suggestions on food boards like this. There are some but just not as many as I would expect.

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I'm very familiar with most of those cities - not with their groceries, but with their restaurants - and I have quite the opposite opinion of them. Granted, you would expect fewer restaurants (in any category) in a smaller city than in a large one, just due to sheer size. But Milwaukee has a very impressive array of restaurants, everything from fine dining to ethnic cuisine etc, despite being only about a fifth the size of Chicago (1.7 million vs 9.5 million people); at least one of their restaurants (Sanford) would be among the very best in Chicago if it were located here. Even Toledo has a fairly decent restaurant roster for a city of its smaller size (600,000). Iowa City, if anything, has MORE than I would expect. I am not as familiar with Minneapolis but my impression from reading about them here and on Chowhound is that they, too, have an excellent restaurant scene. Saginaw is tiny, and you wouldn't expect to find anything really excellent, but even in small towns and rural areas, you can find some great places, as anyone who has been to Tapawingo and Rowe Inn in Ellsworth, Michigan, or to Margaux and Biro in Sheboygan, Wisconsin, or to Chez Francois in Vermilion, Ohio, can testify.

I think one other factor in such comments is that many people are reporting based on old information. In other words, people grow up in one place, and move to another place, and they'll say "the groceries and restaurants where I live now are so much better than where I used to live". The reason? Thanks to growing interest in food, grocery and restaurant options are steadily improving everywhere around the country. If you have formed your opinion of a place's offerings based on being there five or even three years ago, your knowledge is probably obsolete. Think of the restaurants and grocers that have opened just within the past 3-5 years where you live now and you probably realize how rapidly things change. I can tell you that if I had to name the top restaurants in cities I'm familiar with, both large and small, at least a third are less than three years old.

[Matcha Eyes]

One reason for more independent places not being in the suburbs could be the cost of rent(this has probably already been mentioned). Is it really no suprise that rent in Detroit is cheaper than the suburbs? Opening a business is such a huge expensive risk, the cost of the suburbs is just like a second punch in the gut.

Although I would like to add that having those independent places in the city is great. There is a strange neighborly feel when you walk into those places after a late night romp in the city and people know your name. It makes me choose those 24 hour joints in the "bad" neighborhoods over the grubby Denny's in the supposedly "nice" areas

[dinerminer]

Work is time, time is money. Been in the business for 30 years. Many of the franchise operators I know are, in fact, in the franchise business. Not just restaurant franchises either, everything from windshield replacement to copy shops to retail clothing. It's about return on investment, the product is secondary.

Secondly, chains predominate in many suburban areas because of commercial real estate developers. They are marketing traffic counts and visibility, chains love those numbers. Chains can also move quicker in securing and developing coveted sites due to their vast resources, both financial and human.

Third, increasing regulation (alcohol, food safety, employment practices, etc.) of the food/restaurant industry has made it difficult for many independents, particularly "old school" operators to stay competitive with chains.

Edited February 26, 2007 by dinerminer (log)

[Tess]

I think Prospect Heights is kind of unusual. It doesn't have that dense a population and it doesn't have much of a village center. (I mean, 83 and Camp McDonald?) As for the village center of Mt. Prospect, it is a nightmare to get around, much worse than Arlington Heights or some of the other villages in that area. Although it is a rather prosperous area I just don't know how many people from there are dining out on a weekly basis, say. For those who are, there is Milwaukee Road and there are a few places in Arlington Heights. I don't know how much more business there is to capture. There are a lot of people staying in the hotels nearby and near O'Hare who might be looking for something to eat but I bet an awful lot of those go to chains. I would think long and hard before opening a restaurant anywhere near Prospect Heights.

[nsxtasy]

One reason for more independent places not being in the suburbs could be the cost of rent(this has probably already been mentioned). Is it really no suprise that rent in Detroit is cheaper than the suburbs? Opening a business is such a huge expensive risk, the cost of the suburbs is just like a second punch in the gut.

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True. It's also worth noting that people going to restaurants in the suburbs expect amenities. I am thinking specifically of parking, which means land and maintenance costs. This is one more factor in the higher cost in the suburbs than in the city (in addition to the price or rental rates for indoor square footage).

[nsxtasy]

I think Prospect Heights is kind of unusual. It doesn't have that dense a population and it doesn't have much of a village center. (I mean, 83 and Camp McDonald?) As for the village center of Mt. Prospect, it is a nightmare to get around, much worse than Arlington Heights or some of the other villages in that area. Although it is a rather prosperous area I just don't know how many people from there are dining out on a weekly basis, say. For those who are, there is Milwaukee Road and there are a few places in Arlington Heights. I don't know how much more business there is to capture. There are a lot of people staying in the hotels nearby and near O'Hare who might be looking for something to eat but I bet an awful lot of those go to chains. I would think long and hard before opening a restaurant anywhere near Prospect Heights.

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Actually, the problem with opening a restaurant in Prospect Heights is that there are MANY excellent restaurants nearby, including many that are not chains (although it depends on exactly how you define "chain").

In Wheeling (right next door), you have:

Le Francais - Legendary single-location restaurant now run by Roland Liccioni of Carlos

Pete Miller's - Second (and only other) location of the well-regarded Evanston steakhouse

Tramonto's Steak and Seafood and Osteria di Tramonto - Two new steakhouse and Italian restaurants opened by Rick Tramonto of Tru

Bob Chinn's - Original location (of two) of the seafood restaurant (formerly one of the highest-grossing single-location restaurants in the country prior to opening their second location in Kenosha)

And just to the east you have Northbrook with many more restaurants, and to the west you have Arlington Heights, also with many more restaurants, including the always-wonderful Le Titi de Paris, a single-location longtime French favorite.

As you can see, the area around Prospect Heights is actually chock full of restaurants, and it doesn't even have many of the chains, aside from the fast-food category. If you're looking for a place with lots of chain restaurants, you would be better off pointing to Schaumburg, Naperville, or Gurnee.

Edited February 27, 2007 by nsxtasy (log)