How do Lexington restaurants describe business these days? ‘Carnage’

Why are so many restaurants closing in Lexington? Two words: The Summit.

The upscale $156 million retail, dining and mixed-use development that opened in May brought two dozen new restaurants to town in the last five months.

But that’s just part of the story; other factors include a restaurant boom locally and nationally and a low unemployment rate.

“You can’t add that many (restaurants) in less than six months and not have some carnage,” said Brian McCarty, co-owner of Bluegrass Hospitality Group, parent of Malone’s, Drake’s, Harry’s, OBC Kitchen and Aqua Sushi.

The bloodbath began last month, when at least four locally owned restaurants served their final meals. Another, Cheapside, has shut down at least temporarily.

Those won’t be the last to close, say several local restaurant owners.

“If you’re not doing well by the end of Keeneland, you’ve got a bleak winter ahead of you,” said Rob Ramsey, who owns four Ramsey’s Diners around the city. “You’ll see more restaurants close.”

Larry Adams, who closed Wines on Vine last week, was blunt: “You’ll see a bunch close over the next few months,” he said. “There’s a hundred hanging on tooth and nail.”

But he believes that the new development wasn’t the only issue.

“The Summit is what it is; a lot of our client base isn’t going to The Summit,” Adams said. “I think, to sustain in this climate in Fayette County, you have to have everything working in perfect order. Excellent chef, management on top of every game, maximize every nickel of revenue ... if you’re not, you’re going to fall short.”

Rob Perez, who owns three Saul Good restaurants and opened DV8 Kitchen this summer, said he expects “more casualties” soon.

“This is most trying economic time I’ve seen in the Lexington restaurant market. More trying than the 2008 downturn,” Perez said. “This is a pretty tough time.”

In short, Lexington has too many restaurants, some restaurateurs say, and they aren’t all going to make it.

“I think that developers have been very optimistic about the breadth and depth of the Lexington market,” Perez said.

Lee Greer, whose family started Cheddar’s and is now partners in Willie’s Locally Known and Vinaigrette Salad Kitchen, which expanded this year, said Lexington is “saturated” with more coming every day, and it’s taking a toll on weaker businesses.

“It seems like every time one opens, two close,” said Lee Greer, “Just look at the sheer number of restaurants that have opened. ... Every week one or two ... Compared to 15 years ago, it’s a huge increase in openings. I expect a lot more closures coming in the next few years.”

Through the end of October, city statistics show, about 90 restaurants have opened or changed hands, including fast food chains, according to certificates of occupancy. Over the last five years, the number of certificates has fluctuated — 82 in 2012, 100 in 2013, 84 in 2014, 75 in 2015, 85 last year — but the total is already above the 2016 level for the entire year.

How much competition is there? The Lexington-Fayette County Health Department inspects about 1,550 locations, from white-table cloth restaurants to gas station convenience stores, day-care cafeterias to fast-food chains.

Mark Wombles, the chef who owns Distilled at Gratz Park in Lexington plus Heirloom and Mezzo Italian Cafe and Provisions, both in Midway, compared the restaurant climate to the housing bubble.

“We’re building these restaurants on glass stilts,” he said. “And it’s something to really be worried about it. ... I think everybody’s down a little bit because of The Summit.”

How they all will weather the bump will depend on how healthy business was before, he said.

But the phenomenon isn’t unique to Lexington. Around the country, restaurant industry analysts say, business, particularly at chain restaurants, is at the brink of a major downturn. The National Restaurant Association has reported that sales year-over-year began dropping in early 2016 and the trend has continued, with a majority of restaurants reporting sales growth in just four of the last 22 months.

A New York Times piece attributed much of the problem to Wall Street, which has created pressure on chains to maintain growth by opening new stores, so overall sales rise even as same-store sales slip.

Here that trend is compounded by The Summit, which brought several new concepts to the market in such a short time.

But the ripples began years ago, Perez noted. When The Summit was announced in 2013, the area’s food market began a seismic shift, he said.

First to feel the effects might have been Lexington Green, which lost the Whole Foods grocery store to the new development. Other shopping centers scrambled to combat the coming onslaught.

“People had to figure out a strategy,” Perez said.

Fayette Mall decided to go after big guys, he said: The Cheesecake Factory and BJ’s Brewhouse, which have huge menus and lots of seats, and the mall developed more restaurant space in adjacent areas.

Lexington Green went after boutiques and entertainment, developing its Lakeside Live music venue and a restaurant, Jax.

For the southside of Lexington, Perez said, “they totally commanded the market on Friday and Saturday nights April through August, and that affected restaurants on the south side in a significant way.”

The Hamburg shopping center, where he has a Saul Good location, developed the area on the other side of Man o’War, adding a whole new dining area with a swath of new restaurants along the interstate and near the new subdivisions, Perez pointed out.

In the meantime, the Jefferson Street and Distillery District dining areas blossomed, along with revitalized parts of downtown, including The Square, with what is generally regarded as the highest priced restaurant in town, Tony’s.

“A large amount of restaurant seats were added over the last few years,” he said. “It’s interesting there’s this much optimism for growth when there’s not a larger population.”

Then this summer The Summit finally opened with great fanfare, and people from Lexington and from out of town rushed to try the new places out.

“The people of Lexington like to try new restaurants and that takes away from customer base of existing long-term restaurants,” Ramsey said. Customers will return if the new places aren’t consistently good. “You get a very short honeymoon here.”

With that many new restaurants opening all at once, the competition isn’t just for customers but for employees.

The labor market “is murder,” Ramsey said. “For over two and half years I’ve had more than 400 hours of overtime every week.”

He can’t hire enough people to work at his restaurants and to keep staff he has had to raise the hourly rate.

At the Andover location, near Hamburg, where pressure has been most difficult, he said, “my average rate in kitchen is $12.50 an hour; add in overtime and it’s $18. And I can’t staff it. I have fry cooks who are bringing home $45,000, $50,000 a year and I can’t staff it.”

So restaurants that were already facing diminished income from fewer customers now faced increased costs for labor.

“People don’t have a good feel for what a small margin there is in the restaurant business,” Ramsey said. “If you can make 10 percent ... you’re doing great.”

Seth Brewer, who closed Enoteca in October after three and a half years, said it only took a relatively small shift to push his business to the brink.

“It’s not that customers weren’t coming,” Brewer said. “It’s just that there are more eateries on their to-do list. ... Everyone’s got to check out The Summit, Carson’s, the Distillery District. All it takes is regulars coming once every other month instead of once a month to make a difference. We feel it.”

Debbie Long, owner of Dudley’s on Short, has seen waves of new restaurants come in over the last 30 years. And she knows to expect at least a short-term decline when it happens.

“If a restaurant opens up that is going for the same clientele I am, has the same price point and a similar feel … I see a month to three months of my business decline,” she said. If the new place isn’t good or consistent, then her customers will be back after three months.

“If they are good, I see six months or more, and I might lose some people for good,” she said.

Even though most of the new restaurants at The Summit don’t compete directly in the white-tablecloth fine-dining space, the sheer volume of the new development has shifted gravitational pull to the south side.

Long said it could take two years or more for Lexington to adjust to all the new restaurants there and many locally owned ones downtown “can’t wait two and a half years for (business) to come back.”

Despite the recent spate of closings, Lexington’s local restaurant market isn’t likely to get less competitive. But with the Old Courthouse opening next year with a restaurant and event venue and the CentrePointe complex with a hotel and a Jeff Ruby’s steakhouse and the Town Branch park with nearby restaurants, there will more to draw customers back downtown.

And more is better, as long as they aren’t all going after the same diners, Long said.

“For us, down on Short Street, we feel like having other successful restaurants on Short gets people downtown,” Long said. “It brings people downtown and gives them choices. The Summit does the same, brings them out there and gives them choices.”

Ouita Michel, whose Honeywood is the locally owned restaurant at the heart of The Summit, said that she thinks the development has had, and will continue to have, a net positive effect on the overall restaurant market here.

When developer Bayer Properties recruited new retailers and restaurants, they were selling Lexington, the community. “And I think it’s been a big driver in PR hits, in media coverage,” she said. “It’s been stratospheric. It’s particularly true in the restaurant industry and food culture. We went from basically being completely invisible to having a very strong regional presence and potentially a national presence.”

She pointed out that The Summit has only been open six months, so businesses closing now “may have had some pre-Summit struggles.”

Business there has been strong “but it’s not burning down the house. It’s going well, but it’s not like the people on Nicholasville Road are going out of business.”

McCarty, whose Bluegrass Hospitality Group is planning to open a Drake’s restaurant in Brannon Crossing near The Summit next year, said turnover in the business is inevitable and that the market is far from over-served.

“There are over 2,000 seats new to the market at The Summit, and in a market the size of Lexington, that’s a lot to digest,” McCarty said. “Big real estate developments like that don’t usually get built in cities of 300,000 to 400,000 people. We’re fortunate to have that asset; from a consumer standpoint it’s wonderful to have that many new choices.

“But to add that many in one spot, not sprinkle them out, not back fill on restaurants that have closed … it’s going to take some time to digest that. ... It’s just been amazing to me how we’ve had so many new restaurants open over the last five years and everybody just continues to blow and go. I can name five that will open for every one that closes.”

This story was originally published November 10, 2017 at 9:50 AM with the headline "How do Lexington restaurants describe business these days? ‘Carnage’."