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Fierce competition causes a spate of Baltimore-area restaurant closures

Competition in Baltimore’s restaurant industry is as tough as it’s ever been — and it’s putting some eateries out of business.

The area has suffered a spate of high-profile restaurant closures this year, from storied spots such as the Bel-Loc Diner and Lenny’s Delicatessen’s Lombard Street location* to relative newcomers such as La Folie bistro and Starlite Diner. Though some chain restaurants closed, real estate data suggests that small, independent eateries were hit hardest.

Restaurateurs and industry analysts agree the closures are more visible than usual, but that’s where the consensus ends: They blame a multitude of factors, from increasing labor costs to high crime rates in the city — amid cutthroat competition that has become more heated.

Sascha Wolhandler retired this summer after closing and selling Sascha’s 527 Cafe in Mount Vernon.

“It is the culinary moment, and so people want to open restaurants, and so the competition is fiercer that ever,” she said. “That only means you’ve got to step up your game. You’re only as good as the very last french fry you’ve served.”

Neither state nor national restaurant industry associations could quantify closures, but other data point to a decline in area eateries. Vacancy rates in Greater Baltimore for small commercial real estate spaces that house or have housed restaurants have been higher than usual this year, according to Chris LeBarton, a market economist focusing on Baltimore for CoStar Market Analytics. For spaces of less than 3,000 square feet — often home to independent restaurants — vacancy rates have risen to 7.5 percent, the highest they’ve been since 2010.

Employment in Maryland’s accommodations and food service industries declined from 245,600 in July to 229,900 in September, according to the U.S. Bureau of Labor Statistics. Nationally, “food and drinking places” saw some of the steepest declines in employment from August to September.

Anirban Basu, CEO of the economic consulting firm Sage Policy Group, said the rising cost of labor is affecting restaurateurs.

“It’s difficult to find workers,” Basu said. “And because of minimum-wage laws, some of those workers have become more expensive.”

Maryland’s minimum wage will rise from the current $9.25 per hour to $10.10 in 2018.

“It’s not just about the minimum-wage employee,” Basu said. “When the most entry-level people get a wage increase, the people who have a bit more seniority also expect to see some increase in their compensation.”

Many area restaurateurs say they already pay well above minimum wage to be competitive. Bill Irvin, a partner in the newly opened Avenue Kitchen & Bar in Hampden, said he pays dishwashers — who are among the lowest-paid kitchen staff — $14 or $15 per hour.

“The labor force is so thin in Baltimore, so you have to overpay,” Irvin said. And those costs eat into profit margins.

“At the end of your week, you sit down with the accountant. It’s like, ‘We did all this work for that?’ ”

Brandon Chicotsky, a faculty member at the Johns Hopkins University’s Carey Business School, said larger shifts in consumer behavior have changed people’s eating habits. More people work from home and socialize online, which limits weekday lunch outings. More millennials cook at home.

”It’s structural, and this is something a lot of restaurateurs are missing,” Chicotsky said. “They’re building their restaurants physically to invite that classic behavior of ... socializing.”

The rise of third-party delivery services has made it increasingly difficult for restaurants to draw customers inside. Amazon, UberEats, DoorDash, Grubhub, Postmate and Slice deliver meals to diners’ doorsteps from white-tablecloth restaurants and fast-casual concepts alike.

“It’s not just going out to a restaurant and it’s not just ordering pizza anymore,” Wolhandler said. “You can order a full-blown dinner.”

Most traditional restaurants are not set up for high-volume delivery business.

“They need to begin rethinking the layout of their facility and deployment of staff,” Chicotsky said. “Their patrons may still want to consume their product, and not so much their service.”

Social media has added another layer of competition. Christopher Spann, who closed and sold Le Garage in Hampden this summer, said dining out has become more about generating “likes” and being seen in popular spots, limiting the number of places people are willing to eat.

“Going out becomes going out to the latest cool place … and that drives people perhaps to almost tighten the rotation of where they would go,” said Spann, who owns the Wine Market in Locust Point.

That means restaurants must adapt to modern customers, who are increasingly tied to smartphones, said Roland Rust, a professor at the University of Maryland’s Robert H. Smith School of Business. He suggested restaurants could capitalize on those customers by expanding their bars “to accommodate the Tinder set,” and providing high-speed Wi-Fi.

For restaurants to thrive, Basu said, the Baltimore area needs a more vibrant economy and high-quality jobs that give workers disposable income. Maryland has seen job growth, he said, but not in high-wage categories such as commercial cyber technology.

“Our business climate is just not up to it,” he said. “If you want to keep restaurants busy, if you want to keep small businesses in general, you have to provide for its economy.”

In Baltimore City, many restaurateurs say business still has not recovered from the riots of 2015. Spann and others said they don’t see the same volume of customers from the suburbs.

Wolhandler said Sascha’s 527 Cafe underwent some of its worst times following the riots. But the ebb and flow of business is a natural part of restaurant life, she said.

“There are times when the going is spectacular and times when it is awful,” she said. “You just have to bite the bullet and deal with it and pull all your employees in and work forward.”

Kirby Fowler, president of the Downtown Partnership of Baltimore, attributes recent closings to the natural three-to-five-year life cycles of restaurants.

He said he has been encouraged by openings and restaurants in the pipeline, such as Chez Hugo near Chesapeake Shakespeare Co., and the restaurant coming to the former Alex. Brown investment bank building.

“Where we’ve seen closures, we’ve seen other restaurants come on their heels,” Fowler said.

Irvin is one of the restaurateurs who have jumped at opportunities to open their own concepts where others have failed. His current restaurant, the Avenue Kitchen & Bar, replaced Le Garage in Hampden. He also helped open the now-shuttered La Folie Bistro, which replaced Tavern on the Square.

Location remains a top priority for restaurateurs, he said, and it was the factor that both sparked his interest in opening La Folie and led to its closure. The French bistro was located on Canton Square, where he hoped to provide an alternative for older customers to the neighborhood’s raucous bars.

The restaurant lasted a year before closing in September.

“Our biggest challenge with La Folie was parking ... getting the right customer in there,” he said. “And Canton used to be the place.”

Mounting costs and challenges are not enough to deter prospective restaurateurs from going into business, he said. Restaurants will continue to open as long as entrepreneurs continue to dream.

“If anyone’s got some money in the bank and they love going out and having a good time, it always gets a fire burning in their belly that ‘I want to open one of these things,’ ” Irvin said.

“And then they go ahead and they throw their money into the fireplace, and it just goes up.”

*Clarification: This article has been updated to clarify that the Lenny’s Delicatessen on Lombard Street is the location that closed. Its locations in Owings Mills and the Horseshoe Casino Baltimore remain open.

smeehan@baltsun.com

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