(Illustration by Chris Gash)

Ripple was the kind of warm, welcoming place that bred regulars like rabbits. It was both upscale and casual, and not overpriced. It won awards and was fondly reviewed. It was filled with people until, gradually, it wasn’t.

“Our sales were down, and they’ve been down over the last couple of years. I don’t know if that means fewer people are going out, or they’re going to different places,” said owner Roger Marmet.

He made the decision not to renew his lease, and the seven-year-old Cleveland Park restaurant served its last meal on June 24. Disappointed fans wondered: Was the bubble to blame?

If you’ve read anything about restaurants in the past six months, you would be certain that they were all doomed. “There’s a massive restaurant industry bubble, and it’s about to burst,” Thrillist proclaimed in December. For independent restaurants, it has already popped, according to an article in Restaurant Hospitality. The fast-casual bubble might be bursting, too, says Nation’s Restaurant News. Locally, Washingtonian cited several restaurateurs who were certain we were in a bubble. Every restaurant closing adds fuel to the fire.

“There is just an insane amount of restaurants opening, and I can’t imagine there’s enough to go around for everybody,” said John Fielding, owner of Soapstone Market and the former Chao Ku, which closed in February.

There are so many places to eat now, all filled with reclaimed barnwood and Tolix stools and poke and — for now, at least — people. Maybe it will last. Maybe they will struggle. But does that make what’s happening a bubble?


“We made a decision to close, and that was informed by our numbers and our specific situation,” said Ripple owner Roger Marmet, who does not think there is a bubble. “Seven years seemed like a good, long run.” (Deb Lindsey /For The Washington Post)
How we got here

We had 469,018 restaurants in the country in 2001, according to the Quarterly Census of Employment and Wages from the Bureau of Labor Statistics (BLS), and by the end of 2016, we would have nearly 150,000 more — a 30 percent increase. In some states, from 2001 to 2015, the number of restaurants soared even faster. Georgia, Arizona, Mississippi and Texas saw a 40 percent growth rate. The District had 1,423 restaurants in 2001, and closed out 2015 with 2,233, a 57 percent increase. Nevada saw a staggering 70 percent increase in the number of restaurants during the same period.

The economy boomed early in the 2000s , spurring more restaurant openings during the aughts — and that growth continued, albeit slowly, after recovery from the Great Recession. This coincided with a demographic shift back toward cities. The suburbs, full of Applebee’s and T.G.I. Fridays, were painfully uncool, and this new urbanism trickled down to midsize and small cities.

“The fact that Nashville is a gastronomic destination, or that Birmingham, Alabama, has some wonderful restaurants — that’s the product of some of the same trends,” said Paul Freedman, a professor of history at Yale and the author of “Ten Restaurants that Changed America.” People began to spend more money on restaurants. In 2016, for the first time ever, they spent more on dining than on groceries.

Some credit belongs to media, too. Celebrity chefs aren’t anything new, but with the advent of competitive TV cooking, the definition of a “celebrity” chef has expanded to the point of nebulousness. Most major cities have a handful of “Top Chef” competitors’ restaurants and other spots that attract attention — and these chefs can use their fame to procure favorable lease terms and open new restaurants rapidly.

Caring about food has become a mark of sophistication. Comparing who has gone to the newest restaurants, in some cities, is a better conversation starter than movies or TV or music. And forget art; in neighborhoods such as the District’s 14th Street, restaurants have replaced nearly all the galleries.

Millennials who graduated from college during the recession have been — either by choice or due to reduced economic circumstances — more likely to spend money on experiences, rather than things. (Witness the online outcry over their avocado toast habit.)

“People define themselves not just in terms of the food they like, but the food they know about,” said Freedman, relating it to the idea of cultural capital. “Instead of measuring your wealth by money, you measure it by knowledge.”


The area along 14th Street NW in the District is packed with restaurants, including Estadio. Restaurants have largely replaced art galleries in the neighborhood. (Tracy A. Woodward/The Washington Post)
Why it’s not a bubble

As restaurants opened, other restaurants closed. This has always been true. But because more were opening, more were closing, and this began to look very alarming to chefs and the aforementioned publications, which began to call it a bubble. Except if any of them had talked to an economist, a different picture might have emerged.

After the housing bubble burst, people began to use the word carelessly, labeling as a “bubble” any financial circumstance that seemed to spell doom. But a bubble is a specific idea: The Financial Times defines it as “when the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals.”

To determine whether there is a bubble, William Wheaton, a professor of economics at Massachusetts Institute of Technology and an expert in urban economics, said he would look at three factors: the rate of restaurant growth relative to population and income level, the price of meals over time, and stock prices for restaurant companies.

“A bubble would be when all three of those metrics are unsustainably high, so you were paying an outrageous price for a meal, and because of that, restaurants were really profitable, and the share price of [a chain such as] Darden — the prices of restaurants that are changing hands — would be astronomical,” he said. “There would be a surge of people opening restaurants. There would be an unusually high number of restaurants per capita.”

The 30 percent national growth rate since 2001 “doesn’t really sound like that to me,” he said. “The underlying data show a very smooth continuous trend in the preference of Americans to eat out.” The 57 percent growth rate in the District over the same period does not faze him either, for two reasons: The median household income has also risen at a high rate — 32 percent — in Washington since 2005, and population has gone up too: According to Census Bureau estimates, it has risen 13 percent from 2010 to 2016, the highest population in Washington in four decades . And when you examine the restaurant growth rate year by year, it varies widely: Some years, it’s 8 percent, some years only 1 percent. “That doesn’t look like a bubble,” he said. “A bubble, you have no growth for years, then 8 percent” for several years.

While meal prices have gone up over the past 15 years, according to the BLS’s consumer price index, it has been a smooth trend, not a sharp spike that would indicate a bubble. Competition among restaurants also keeps prices lower than they might otherwise be. Restaurant stock prices are all over the charts, from company to company — some chains have seen a reversal in fortunes, some have held steady. But none have collectively spiked or dropped at the level that Wheaton says would suggest a true bubble.

Tyler Cowen, a George Mason University economics professor and author of “An Economist Gets Lunch,” doesn’t think there is a bubble, either. He sees a bubble as “a big increase that cannot be sustained, and will see a permanent cutback in the foreseeable future,” he said. “There has been a big increase, and there may be a minor cutback, but it’s mostly sustainable.”


Diners line up outside Bad Saint in Columbia Heights. “People define themselves not just in terms of the food they like, but the food they know about,” said Paul Freedman. (Goran Kosanovic/For The Washington Post)
If it’s not a bubble, then what is it?

What’s happening is something that some restaurateurs may not want to hear: Competition in an already-tough business is getting even tougher. Cowen has an analogy: “Say you went to Hollywood and you asked, ‘Is there an actors-and-actresses bubble?’ ” he said. True, there is an overabundance of aspiring stars who move to Los Angeles with dreams of making it big. They spend money, time and effort investing in their future. But for most of them, it will never pay off. Drama-school graduates know the risks, and still, they keep heading west, because they believe that they are different. With some hard work, they’ll be the ones to make it big. The overabundance of young ingenues will continue in perpetuity.

“You have too many people trying, but that’s going to persist more or less forever precisely because the reward is high,” said Cowen. “The world of fancier restaurants” — and casual restaurants, too — “has become more of a winner-take-all world.”

What a bubble comes down to is an asset’s fundamental value. But how valuable are restaurants, these days? You might think a restaurant is the same as a house — they’re both structures — but it’s not, said Wheaton. “Real asset bubbles have this problem of having a big hangover. You build too much, the supply doesn’t go away,” said Wheaton. That’s not the case for restaurants, which can be turned into other businesses if they close — unlike a suburban McMansion. Though restaurateurs might not see it this way, from an economist’s perspective, “The good news is, it’s as easy to close a restaurant as it is to open one,” said Wheaton.

There is still positive growth in the restaurant industry, though Hudson Riehle, senior vice president of research at the National Restaurant Association, acknowledges that things aren’t as good as they were before the recession. Still, the NRA projects that sales will increase 4 percent next year.

But ask the NPD Group, a market research firm, and the outlook is less rosy. Their research suggests that the number of visits people make to restaurants began to decline in March 2016, and will continue to do so. Contradicting the BLS data, they also found that the number of restaurants in the country had declined by 2 percent since the previous year.

“There’s too many restaurants,” said Bonnie Riggs, an NPD analyst. “We’ve got more supply than we have demand, or more seats than we have bodies to fill them. Until we right that ship, where supply and demand equalizes out, we’re going to see continued troubles in the industry, continued unit closings.”


Chef-owner Jeffrey Buben greets diners at Vidalia in 2009. The restaurant closed in 2016 after 23 years. (Susan Biddle/For The Washington Post)
Why restaurants close

The troubles seem to come from all directions. There’s the rising cost of food, and the price of real estate in hot restaurant cities such as Washington. And there’s the rising price and scarcity of good labor, which increasingly cuts into business models as states raise the minimum wage. According to BLS, the restaurant industry surpassed health care in 2016 to become the strongest field for job growth in the country. Between 2010 and 2015, the restaurant industry added jobs at a rate four times stronger than the overall economy, according to the National Restaurant Association.

There may be plenty of openings, but “the lower echelons of the business, they’re tapped out. You can’t find people,” said Paul Guzzardo, a restaurant consultant and partner in several restaurants, including Leopold’s Kafe . He thinks that indicates a bubble, but Cowen disagrees.

“It has not been a speculative fervor,” Cowen said. “The laws changed, prices went up, some places had to adjust.”

Another challenge: competition in new places. Meal kits such as Blue Apron can provide the novelty diners crave — but without requiring them to leave their homes. Grocery stores are offering restaurant-quality carryout, and prices are lower there, too — a fact that the respondents in NPD’s study cited. And delivery services such as Seamless and Caviar may keep kitchens busy, but they’re taking a cut and leaving seats empty.

All of these factors actually support the fact that it’s not a bubble, says Wheaton.

“If the number of restaurants is growing and getting out of hand, and on the supply side, it’s more difficult to open a restaurant, that means there’s some surge on the demand side,” he said.

And if that demand doesn’t last, as NPD has suggests is already happening, the fallout won’t be a sudden pop. Instead, we can expect a gradual shakeout: Only the strong will survive. To use Cowen’s Hollywood analogy, the restaurants that make it will be the Meryl Streeps and George Clooneys of the industry. The Seann William Scotts and Mischa Bartons will do fine for a little while, until they don’t. And even Clooney and Streep will, one day, retire. Because sometimes restaurants just close. Perhaps they were poorly funded, or poorly managed, or perhaps they’ve just lived their natural life span. When the Southern restaurant Vidalia closed in Washington in 2016, it was after 23 years.

Depending on which study you consult, anywhere from 26 to 60 percent of restaurants don’t make it past their first year. Restaurants such as Delmonico’s, which opened in New York in 1837 and served President Abraham Lincoln and Mark Twain, are the exception. We shouldn’t expect restaurants to last forever.

“We made a decision to close, and that was informed by our numbers and our specific situation,” said Ripple owner Marmet, who does not think there is a bubble. “Seven years seemed like a good, long run.”


When the Wharf opens in October on the Southwest Waterfront, it will bring with it more than 1,000 additional seats in restaurants. (The Wharf)
What it all means

Even if there are too many restaurants, people are not going to stop opening more of them, against all good judgment. Part of the reason is the prestige.

“There’s something about restaurants that people, especially investors, think, ‘It won’t happen to me,’ ” said Guzzardo.

Celebrity chefs are also eager to roll the dice.

“It’s an ego thing,” said Tom Papadopoulos, a real estate broker who specializes in restaurants. “They have landlords chasing them, offering lucrative deals. I think they end up taking their eye off the ball when they open three or four restaurants” in a short span of time.

As with the housing bubble, some cities will struggle while others will be fine. Independent restaurants will have a tougher time than chains, according to NPD (though some chains, such as Subway, are closing hundreds of locations), while fast-casual chains will thrive.

In Washington, come October, the Wharf entertainment complex will open, adding more than 1,000 restaurant seats to a potentially saturated D.C. market.

“That will create traffic that didn’t exist there before,” said Papadopoulos. “Will it take away from some other areas and restaurants? Yeah, but the guys that are putting out the good product will do well, and the guys that won’t will go out of business.”

And for some of them, even good product won’t be enough.

“The restaurant business is a copycat business. What’s actually different and unique?” said Fielding of Chao Ku. “I hoped that being cheap and unique was good enough. What shocks me is how good our food was, and how we still didn’t make it.”