The San Diego hospitality company that founded Breakfast Republic more than a decade ago announced this week that it will be closing three of its older locations amid an aggressive growth plan that contemplates opening a dozen new restaurants in Texas over the next five years.
More immediately, Breakfast Republic’s first location, in North Park, along with two other restaurants in Encinitas and Ocean Beach, will be serving their last meals Aug. 9. While they are the earliest of the Breakfast Republic venues, they are no longer performing as well as the eight other Southern California locations, and with leases due to expire on two of the restaurants, it made sense to not renew them, explained Johan Engman, founder of Rise & Shine Hospitality, parent company of the Breakfast Republic and Breakfast Company brands.
In the case of the North Park restaurant, Engman owns the real estate and said he will be putting the building up for sale. Business there declined, in part, he said, because of the removal of 175 street parking spaces to make way for bike lanes several years ago.
The Ocean beach restaurant, at 5,000 square feet, is far larger than the locations he is now opening, and it’s also on the second floor, which isn’t as convenient for customers. The closure of the Encinitas location is more related to the rent, which was expected to increase significantly as part of a lease renewal, Engman said. That space too is larger, at 3,500 square feet.
“The reality is, if I knew then what I know now, I probably wouldn’t have opened this many stores in what I would say is a relatively small market as San Diego is, compared to a Los Angeles or Dallas, where I’m expanding in the future,” Engman explained. “But it’s part of learning, too, and neighborhoods have changed. I mean, North Park, even five years ago, is very different than it is now.”
In San Diego County, there are a number of Breakfast Republic locations that will continue operating. Those are in East Village, Liberty Station, Mission Valley, Pacific Beach, and Scripps Ranch. And outside the county are six others, in Costa Mesa, Culver City, Echo Park, Irvine, Long Beach and Palm Desert.
Known for their innovative spin on American classics, Engman’s breakfast/brunch-centric restaurants feature such menu classics as shrimp and grits, a variety of eggs Benedict concoctions, and decadent French toast options that incorporate peanut butter, brûléed bananas, and toasted marshmallows and chocolate sauce into the recipes.
While the company’s expansion plans will focus on Texas — most notably, Austin, Dallas and Houston — the Rise and Shine Hospitality Group will not ignore California entirely. Three new Breakfast Republic restaurants are planned — one in Palm Springs, which is expected to open in mid- to late October; another in Huntington Beach, planned for late February to early March; and then Highland Park in Los Angeles, in late February to early March, Engman estimates.
The cost of converting existing restaurant spaces into a new Breakfast Republic or Breakfast Company restaurant in California is $400,000 to $500,000, says Engman. He notes that the financing for his new locations will come from existing cash flow.
The first Texas restaurant — the Greenville Breakfast Company, located in the Dallas area — is scheduled to open by December. It’s 3,300 square feet, a larger size more typical of the Breakfast Company brand.
Engman acknowledges the cost and ease of doing business in Texas is one of the big draws for expanding there. Profit margins are also a little narrower in California, largely because of higher labor costs for hourly and tipped workers. He still expects to open at least one California restaurant a year, but that’s a much slower pace than the planned strategy for growth in Texas.
No other Texas leases have been signed, but Engman says he is actively looking in the state for vacant restaurant spaces that could be converted to a Breakfast Republic or Breakfast Company venue.
“It has become increasingly difficult to do business in California. There’s everything from increasing costs and labor and California being a state where there are a lot of frivolous lawsuits,” Engman said.
“I’m also pretty good friends with the guys over at Snooze, and they have breakfast restaurants in about 15 states or so. And Texas is their best market. I’ve spent a good amount of time there in different markets, and it just seems to be a very foodie state, very business-friendly.”
Longtime restaurant broker Mike Spilky said he’s not surprised to see Rise & Shine pivot to Texas for expansion of the breakfast brand.
“This speaks to the difficulty of running a restaurant in California right now,” said Spilky, president of San Diego-based Location Matters, a restaurant brokerage company. “We see a lot of restaurant groups closing and consolidating and, in turn, opening stores in other states. Broken Yolk is one of them. Places like Texas and Arizona are friendlier for business. Engman’s brand is also a bit heavier for health-conscious California.”
As much as breakfast remains a popular dining concept among consumers, Engman points out that his locations have the advantage of full liquor licenses that help boost revenue.
“You know, you go in for a permit or a liquor license in Texas, and it’s not months and months like San Diego,” he said. “It’s weeks.”
The average year-to-date revenue of each of his breakfast restaurants, he says, averages about $2.4 million, although some locations like Mission Valley and East Village exceed $3 million, he said.
“Frankly, when I close the three that I’m closing that have been struggling, the average goes up immediately because I wouldn’t be closing them if they were little cash cows.”
Over the years, Engman’s company, which also includes the Fig Tree Cafe, Eggies, Feast & Fareway at the Coronado golf course, and Ox Coffee, has had to close restaurants before, including Fig Tree and a concept called El Jardin that was at Liberty Station. More recently, a Breakfast Republic location in La Jolla closed last year as part of a lease buyout from the property owner.