28 W E S T W O R D F o o d & D r i n k 2 0 2 5 westword.com ver. Restaurants have three primary cost centers: labor, the actual ingredients in the food and drinks, and rent. Prevailing industry wisdom says that model operators should spend 30 cents of every dollar of revenue on labor, 30 cents on ingredients, and 30 cents on rent. The rest of their mis- cellaneous costs and their profi t come out of that fi nal 10 cents – which means that 3 to 5 percent profi t is considered a healthy margin. I’ve talked to exemplary Denver operators in 2025 who are struggling to eke out even 1 percent… and many are operating for long stretches in the red. This is primarily thanks to rising costs. Since COVID, the price of all three of those cost centers has gone up at a breakneck pace. Unless you’re running your own off-the-grid homestead, you’ve keenly felt ingredient costs rise over the last several years just by going to the grocery store (eggs cost HOW much these days?). In Denver, minimum wage increases are tied to the Consumer Price Index, an indicator of infl ation. So just as infl ation has hit the cost of ingredients, it’s very directly and very quickly driven up wages in the Mile High City. A fl urry of recent state-level regulation has also increased what benefi ts and different types of leave are required, adding both employee-level costs as well as administrative costs for compliance. And then there’s rent: While offi ce and housing rents have decreased here, retail rent – including restaurant rent – has continued to rise! I’m not here to challenge your politics on any of the individual factors mentioned, but rather to say it’s the speed and breadth of the increases that are a deadly threat. Diners ultimately bear these increases, because like all businesses in America that would like to continue to operate, restau- rants consider costs when setting prices. The Consumer Price Index is up 19 percent since 2021 – which means you now need $1.19 to buy the same ingredients a buck would have gotten you just four years ago. Wages in Denver have grown by 27 percent over the same time period. So, of course, it’s logical that prices have jumped. But the reality is, when you’re staring down a $30 price tag on a burger and you’re thinking even the $20 you used to pay for it was kind of outrageous, it’s understandable that your reaction may be to dine out less often. Restaurants know this and many have absorbed as much of the cost increase as they possibly can themselves – hence the ever-shrinking margins and operating in the red. Also dampening diner enthusiasm? A perception of rising crime in the heart of the city coupled with a perception of slow-to-respond law enforcement. Work- from-home policies that are leaving offi ces vacant and an appetite for the business lunch that’s extremely thin. GLP-1s and other weight -loss drugs, which are chang- ing what and how much people like to eat and drink. Road construction on major arteries (ahem – Colfax) making it un- bearable to drive and impossible to park. People moving out of Denver and into the ‘burbs. And let’s not forget we’re all also feeling infl ation in other parts of our lives. Add to all of those challenges mac- roeconomic concerns like tariffs and a volatile labor market and macropolitical stresses like the specter of ICE raids, and it’s no wonder that long-time operators are throwing in the towel, and would-be entrepreneurs are fi nding other pursuits. What’s so hard about this moment is the uncertainty about how we get out of it. That’s what makes 2025 the hardest opera- tional year I can remember and puts this all in sharp contrast with the pandemic lock- down. At least during COVID there was relief money, community and optimism that the bad times would eventually come to an end. But now: Are we just around the corner from getting our mojo back? Or is this the depressing new normal? What will Denver dining look like in fi ve years? Shifting tides create opportunity, and certainly no matter what happens some restaurants will fi nd a way to navigate the current mess and thrive. Already this intense pressure has forged some dia- mond-grade restaurateurs – they tend to run leaner than a cash-strapped start-up, cultivate highly professional cross-trained teams, and have revenue lines outside of their core business. Leven is a good ex- ample of this, with its prepared foods and thriving take-out business. Olive & Finch is another, with its centralized kitchen operations that feed prep for its restaurants and catering business. Ultimately, I think that the restaurants that survive will fall primarily into two camps: those who lean hard into con- venience, and those who create experi- ences that diners return to over and over in droves. On the convenience front: Restaurants that specialize in fast ordering, to-go food and delivery fared well during COVID, and their success hasn’t abated. Good times will likely continue to roll, even in Denver: These are places where technology really can supplant labor in a meaningful way, because the diner doesn’t care nearly as much about human interaction. These concepts will implement kiosk ordering, automate at least some components of the cooking process, and lean into robot delivery. This future is approaching – or already here at many fast-food outlets. On the experience front: These will be places that un- Food for Thought continued from page 26 Sushi-Rama was Denver’s fi rst conveyor belt sushi spot. HARD KNOCH PR continued on page 32
