The Portland Recipe

Reports of a dining demise have been greatly exaggerated.

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It’s an exciting time in Portland’s food industry. The region is earning national accolades – but is also facing major turmoil. Local businesses see looming minimum wage increases in their future, and the landscape of restaurant compensation threatens to be re-written by a federal court ruling limiting the widespread practice of pooling tips between front-of-house staff and other line employees. The tumult has many people concerned.

Two months ago, Vice.com published an article “Why Portland is Experiencing a Restaurant Apocalypse” claiming that a large number of the city’s best eateries were folding. As a resident of Portland, an economist — and a diner — I found this alarming.

So I set out to square this with the data. While some restaurants are indeed folding their tents — the venerable Heathman Restaurant and Veritable Quandary, for example, — there’s no evidence that the city’s food scene is anything other than robust. Indeed, rather than “restaurant apocalypse,” it is more accurate to refer to a “restaurant cornucopia.”

At City Observatory, we’ve used counts of the number of restaurants per capita as an indicator of the vibrancy of the local economy and cultural scene. Our latest tabulations show that among metropolitan areas with a population of a million or more, Portland ranks second nationally — to San Francisco — in the total number of restaurants per capita.

That ranking is up one place from the previous year — Portland having pulled well ahead of Northwest neighbor Seattle on this index. And these tabulations count only “full-service restaurants” — not fast food joints, coffee shops or food carts.

The Vice article points to the demise of a number of high profile eateries in the past couple of years, and includes anecdotes from the well-known dining consultant Kurt Huffman, regarding the number of other restaurateurs who seek his advice about navigating the tough competitive food scene in Portland. Everyone complains they are hardly making any money.

There’s some truth to those complaints. The restaurant business everywhere is a high turnover proposition. Consumers vote daily with their feet and palates on which places they like (and which they don’t). Barriers to entry are low, especially in Portland. Cuisines and establishments go in and out of fashion. Constant turnover is a reality in the restaurant business.

However, rather than being a sign of weakness, the turnover in the restaurant business in Portland is a sign of dynamism and strength in the industry at large.

Instead, what’s going on is a classic example of what economist Joseph Schumpeter called “creative destruction”: new businesses, new ideas, new products and new restaurants and new cuisines are displacing old ones. That’s progress.

In fact, as the Vice article makes clear, Portland has emerged as an incubator and selection environment for food innovations. Because there are so many excellent competing chefs, diners have lots of good choices and educated palates.

To get an idea of how much turnover there is in Portland, we looked at data on the 100 highest rated Portland restaurants, compiled by Willamette Week. Of the 100 establishments included in its 2009 Best Restaurants list, 73 were still in business in 2016 — an attrition of slightly more than one-fourth in seven years. (And keep in mind these are the “best” restaurants. More “average” ones might turn over even more.)

This turnover rate may have something to do with the taste for novelty. The restaurant business thrives on producing new and different products that pique our tastes. One sign of a thriving, innovative food economy is a place where there is ample new entry, providing consumers with more and different choices.

One strong indicator of the fickleness of taste, and its importance to this industry, is the turnover in the top 100 list itself: While 73 of 2009’s best restaurants were still around seven years later, only about a third of the survivors (27) were still on Willamette Week’s 2016 best restaurant list.

Compared to other cities, Portland also has several advantages in helping restaurants get started. The city has some 800 licensed food trucks, most located in pods in city neighborhoods, which provide a cheap place to test menus and hone business skills.

Several of these food carts have evolved into bricks and mortar locations. The average size of restaurants in Portland is considerably smaller than in the typical metropolitan area, and Oregon makes it relatively inexpensive for even the smallest restaurants to get a liquor license.

In an important sense, what’s going on the in the food business in Portland is a microcosm of what it means to thrive in today’s economy. The food industry here exhibits many of the key aspects of what economists call an industry cluster: a strong base of high quality suppliers (local farmers, farmer’s markets, artisan producers of everything from meat and cheese to wine and beer), a competitive and cooperative ethic among people in the industry, and increasingly savvy, demanding customers.

Together these factors produce a critical mass of pressure and resources that push the food industry forward. As the city’s food scene has developed, for example, it has begun to attract talented chefs from San Francisco and New York and elsewhere.

Making it easy for entrepreneurs to try out new ideas and develop their skills, consumers that are open to the idea of trying new and different things, a culture that appreciates and values authenticity and connections to place — all these factors fuel a prosperous local food economy.

Whether it’s the economy, government regulations — like pending minimum wage increases — or fickle consumers, there are always new challenges confronting the region’s restaurateurs. Note that unlike nearly every other city, Portland customers don’t have to pay sales tax, which automatically makes going out cheaper than cooking at home.

Maybe that will be a consolation as they adapt in the days ahead. Rest easy, diners: Portland’s restaurant scene is still in a pre-apocalyptic period.

Table:  Restaurants per 10,000 Population

51 Largest U.S. Metropolitan Areas

Sources:  Census Bureau, County Business Patterns, 2013

Data tabulated by City Observatory.

Joe Cortright is the principal of Impresa.