Hospitality entrepreneurs suffer boom repercussions

Vancouver property costs have made it harder for hospitality startups to secure affordable leases and workers – but rising tourism and new opportunities created by technology are buoying sales

Emad Yacoub, right, co-founder of the Glowbal Restaurant Group, with Glowbal chef Ryan Gauthier. Yacoub says that while there is no end to rising costs, his ability to raise prices in response is limited | Chung Chow

 

This story is part of Business in Vancouver's Launch series, focusing on B.C. startups and emerging trends in entrepreneurship

Emad Yacoub scratches his head as he sifts through an accounting book to see how his Glowbal Restaurant Group’s 11 restaurants are doing.

“I look at the financial statements for the whole company and there’s all the sales I do,” he told Business in Vancouver. “I say, ‘Oh my God! When I had only one restaurant I made a lot more money.’”

Back in September 2007, Yacoub had just opened his fourth restaurant, Italian Kitchen, and he believed that the more new restaurants he opened, the more profit he would be able to enjoy.

It was a natural assumption and one shared by many retail entrepreneurs and restaurateurs who aim to scale up their startup enterprises on their path to success.

Unfortunately, things are not always that simple.

Some economic metrics in Metro Vancouver are just as positive today as a decade ago. B.C.’s average unemployment rate for 2007, for example, was 4.3%, or just a tick behind Alberta’s 4.2% rate, which was the lowest in the country. B.C.’s 5.1% unemployment rate in August was the second lowest in the country, by a small margin.

The metric that has likely had the biggest effect on startup retailers and restaurants is one that has rocked the lives of many residents.

Climbing Metro Vancouver real estate prices have pushed commercial lease rates skyward while also contributing to higher property tax bills and heightening the scarcity of entry-level workers willing to work for minimum wage.

Single-family home prices in Metro Vancouver surged 110% to $1.6 million between February 2008 and February 2018. During that same time frame, condominium prices advanced 76.4% to $682,800, and duplex prices rose 73.5% to $819,200.

Compare that with Bank of Canada’s 16.43% estimate of the price increase between 2007 and 2017 for a standard basket of goods.

“The Vancouver restaurant market has just not adjusted yet to start charging international pricing,” Yacoub said.

He lamented that while his costs have risen, he is unable to raise his prices to recoup his investments.

An equally troubling development is that Yacoub has difficulty finding and keeping employees.

A skilled pastry chef recently quit after telling Yacoub that he was unable to live in Vancouver on the salary he was getting and that he was returning to France.

Other restaurant owners echo Yacoub’s frustrations.

“We could afford to be bad operators and leave money on the table back in the day, because we still made a profit,” said Daniel Frankel, who owns Tap & Barrel and previously operated ventures such as the Mill Marine Bistro, Prospect Point Café and Stanley Park Pavilion.

Frankel keenly monitors the popularity of individual items on his menus and sets prices accordingly to make those dishes as profitable as possible.

“Today we would be dead in the water if we didn’t understand procurement and menu engineering,” he said.

Despite the frustration of higher costs and fewer willing workers, there are have been some positive changes in the past decade.

Record numbers of tourists have visited Vancouver this year, and Frankel’s Tap & Barrel restaurant at Coal Harbour has been doing exceptionally well as a result.

Kelly Gordon, who is a partner at Extra Mile Hospitality and operates several Romer’s restaurants among other ventures, said the proliferation of meal delivery companies is another positive trend because it is easier than ever to serve people who want that service.

All demographics, but particularly the millennial generation, have made it a habit to order restaurant food for delivery, he said.

This has spurred the creation of ventures such as Skip the Dishes, Door Dash and Foodora. None of those companies existed 10 years ago.

Gordon said delivered meals comprise 23% of the sales at his Kitsilano Romer’s restaurant, and that he uses various companies to provide that service.

“The benefit for the restaurant is that we don’t need to provide the service-side work,” he said. “Deliveries are profitable.”

Government regulations, whether provincial or municipal, have long been a sore point for small-business owners, and BC Restaurant and Food Services Association CEO Ian Tostenson said this has not changed during the past decade despite a provincial government seen as business-friendly.

Tostenson praised the provincial Liberals for speeding up the time it takes for restaurant owners to get liquor permits and for changing liquor polices to allow happy hours, but he said much needs to be done.

“Many regulations that affect restaurant owners have not changed,” he said. “A lot of that regulation is not with the province, it’s with municipalities or Metro Vancouver. It’s absolutely an unco-ordinated mess.”

When it comes to retail ventures, startups are easier than ever to launch but harder than ever to scale up, said DIG360 owner and retail analyst David Gray.

Retail businesses are easier to launch today, compared with 10 years ago, because of lower costs for software or platforms that run in the background of e-commerce websites.

“There are also a lot of pop-ups now,” Gray said, referring to bricks-and-mortar stores that lease space for a few days or a few months. A decade ago, pop-up shops tended to be primarily for seasonal businesses such as costume stores at Halloween.

Vancouver’s Indochino was one of the first menswear companies to launch pop-up stores when it started what it called a “travelling tailor” program in 2011.

Like their counterparts at other online-only companies, Indochino executives soon realized that to increase sales and not be limited by an online reach, the company needed to start opening physical stores.

Marketing retail products has also changed a lot in the past decade.

Gray calls one marketing trend “the rise of the hyper-influencers.”

Increasingly, companies provide free products to a growing network of bloggers who use social media sites to post photos of products or discuss a brand’s merits.

The downside of a more developed e-commerce scene is that retailers’ competition is no longer down the street or across town.

Global competition, not only from the e-commerce behemoth Amazon.com Inc. (Nasdaq:AMZN) but also from dozens of upstart ventures around the world, is just a mouse click away for customers.

“There has also been a low-growth economy for retail, and a lot of deflation,” Gray said. “A pair of jeans at a certain quality point is less expensive than it was a year or two ago. That means that retailers have to sell more to have the same revenue at a time when consumers are more frugal.” •

gkorstrom@biv.com

@GlenKorstrom