There
is one fact about foodservice real estate that has remained true for decades:
If
you pay too much for the location, you eventually pay for it with your profits
according to Steven Johnson, Grocerant Guru® at Tacoma, WA based Foodservice
Solutions®.
But
today's foodservice business is considerably more complicated than simply
saying, “Keep rent between 6% and 10% of sales.”
That
old rule of thumb can be useful as a starting point, but it is not a universal
profitability formula. In 2026, foodservice operators have to look at occupancy
cost, labor, food costs, sales productivity, off-premise sales, technology,
delivery economics and gross-margin mix together.
And
there is another important distinction: rent is not the same thing as
occupancy cost.
Occupancy
can include rent, property taxes, insurance, common-area charges and other
location-related expenses. The National Restaurant Association's latest
operating data shows just how important this distinction has become.
The Real Number: Occupancy Cost as a Percentage of Sales
According
to the National Restaurant Association's 2025 Restaurant Operations Data
Abstract, based on data from more than 900 restaurant operators, median
occupancy costs in 2024 were 5.7% of sales for full-service restaurants and
5.2% for limited-service restaurants.
Location
matters.
For
full-service restaurants, median occupancy costs were approximately 6.0% in
urban/city-center locations, 5.5% in suburban locations and 5.4% in small
communities or rural areas.
For
limited-service restaurants, the difference was even larger: 6.0% in
urban/city-center locations, 5.0% in suburban locations and just 3.2% in small
communities or rural areas.
That
is an important food marketing lesson.
The
best location is not necessarily the location with the most traffic. It is the
location capable of producing enough profitable sales to justify its occupancy
cost.
A
$20,000 monthly rent may be expensive for one restaurant and a bargain for
another.
It
all depends on the sales the location can generate.
Foodservice Has Become a Cost-Battle Between Labor, Food
and Real Estate
Rent
does not operate in a vacuum.
The
restaurant operator is fighting several cost battles simultaneously.
The
National Restaurant Association reports that in 2024, median salaries and wages
including benefits represented 36.5% of sales for full-service restaurants
and 31.7% for limited-service restaurants.
Food
and non-alcohol beverage costs represented another 32.0% of sales for
full-service restaurants and 32.4% for limited-service restaurants.
Put
those three numbers together and the challenge becomes obvious.
A
restaurant can already have approximately:
32%
food + 32%–37% labor + approximately 5%–6% occupancy
before
paying for utilities, insurance, technology, repairs, supplies, credit-card
processing, marketing, administrative expenses, depreciation and everything
else required to operate the business.
And
the pressure has not disappeared.
In
July 2026, the National Restaurant Association reported that restaurant
expenses remained substantially above pre-pandemic levels. Compared with 2019,
average restaurant employee hourly earnings had increased 41%, while
average wholesale food prices were up 35%.
That
changes the rent conversation.
The New Rule: Don't Ask “What Percentage Is Rent?”
Ask:
“What
percentage of sales can this location afford to spend on occupancy while still
producing the return we require?”
That
is a much better question.
A
restaurant doing $2 million in annual sales with $120,000 of occupancy costs is
at 6%.
A
restaurant doing $1 million in sales with the same $120,000 occupancy cost is
at 12%.
Same
building.
Same
rent.
Completely
different economics.
And
that is why percentage-of-sales analysis is so important.
Example #1: The High-Sales Restaurant
Imagine
a restaurant generating:
$2.5
million in annual sales
Annual
occupancy cost:
$150,000
Occupancy
percentage:
6.0%
That
location may be highly attractive because the real estate is consuming only six
cents of every sales dollar.
But
suppose the operator can increase sales to $2.75 million without materially
increasing occupancy.
The
same $150,000 occupancy cost now represents only:
5.45%
of sales.
That
is the power of sales productivity.
The
operator did not negotiate a cheaper lease.
The
operator made the lease cheaper by generating more sales.
This
is one reason food marketing matters so much to real estate economics.
Menu
innovation, takeout, catering, delivery, loyalty programs, digital ordering,
daypart expansion and Ready-2-Eat/Heat-N-Eat offerings can all help increase
sales productivity without adding another restaurant.
Example #2: The Restaurant With “Cheap” Rent That Isn't
Cheap
Now
consider a restaurant with:
$1.0
million in annual sales
and:
$60,000
in annual occupancy costs.
That
is also 6%.
On
paper, everything looks fine.
But
what happens if traffic falls and annual sales decline to $800,000?
The
occupancy cost suddenly becomes:
7.5%
of sales.
If
sales fall to $700,000, occupancy becomes:
8.6%.
Nothing
changed about the lease.
The
restaurant simply lost the sales volume necessary to support it.
This
is why operators should not only monitor occupancy as a percentage of
sales—they should monitor sales trends and occupancy dollars together.
A
rising occupancy percentage can be an early warning signal that a location is
losing economic productivity.
Example #3: The C-Store Foodservice Opportunity
Convenience
stores demonstrate why the old restaurant-only way of thinking about real
estate is changing.
Foodservice
has become one of the most important profit engines in convenience retail.
According
to NACS, foodservice accounted for approximately 28% of U.S.
convenience-store in-store sales in 2025 and 38.9% of in-store gross profit
dollars. Prepared food alone represented 73.9% of foodservice sales.
That
is a remarkable transformation.
Twenty
years ago, foodservice represented only about 11.9% of convenience-store
in-store sales.
Today,
prepared food is helping redefine what a convenience store actually is.
It
is no longer simply:
Fuel
+ cigarettes + packaged snacks + beverages.
Increasingly
it is:
Fuel
+ beverages + snacks + fresh prepared food + breakfast + lunch + dinner +
snacks + beverages + meal solutions.
And
that changes the real estate equation.
A
convenience-store operator may be able to justify a higher occupancy cost if
the location supports substantially higher foodservice sales and gross profit.
NACS
reported that foodservice generated approximately 38.3% of in-store gross
profit dollars in 2025, demonstrating that foodservice's contribution to
profitability is considerably larger than its share of sales.
That
is precisely why foodservice should be considered when evaluating a site's
rent.
The Grocerant Effect: Rent Can Be Supported by More Than
One Revenue Stream
Here
is where the traditional restaurant real estate model becomes even more
interesting.
A
restaurant location may generate revenue from:
·
Dine-in
·
Takeout
·
Drive-thru
·
Delivery
·
Catering
·
Mobile ordering
·
Loyalty programs
·
Family meals
·
Meal components
·
Ready-2-Eat products
·
Heat-N-Eat products
The
same principle applies to grocery stores and convenience stores.
The
physical location can become a food production and fulfillment platform,
not simply a place where customers sit down to eat.
That
means operators should increasingly evaluate real estate based on total
foodservice revenue productivity, not just traditional dining-room sales.
This
is particularly important as consumers continue shifting food occasions between
restaurants, grocery stores and convenience stores.
The
lines between these channels continue to blur.
What About Starbucks, Darden and Other Major Operators?
The
original version of this article used Starbucks, Darden and 7-Eleven as
examples of companies supposedly maintaining specific rent percentages.
I
would be careful with that comparison.
Public
companies do not always report “rent” in a way that allows an apples-to-apples
comparison with an independent restaurant's lease expense.
For
example, Darden's fiscal 2026 results show $13.21 billion in sales, with
$4.04 billion in food and beverage costs, $4.18 billion in restaurant labor and
$2.13 billion in restaurant expenses.
Darden's
scale gives it enormous purchasing, labor, marketing and operating advantages
that a single-unit restaurant does not have.
Likewise,
Starbucks reported approximately $37.2 billion in fiscal 2025 revenue,
while store operating expenses represented 45.9% of total net revenues.
The
lesson is not that Starbucks or Darden has discovered one magic rent
percentage.
The
lesson is that large operators manage the entire economic productivity of
the location.
That
includes sales volume, labor productivity, menu mix, occupancy, throughput,
technology and customer frequency.
The New Foodservice Real Estate Scorecard
I
believe foodservice operators should evaluate every location using at least
five measurements:
1. Occupancy Cost Percentage
How
much of every sales dollar goes toward rent and other occupancy expenses?
2. Sales Per Square Foot
How
much revenue is the physical location generating?
This
is particularly important when comparing expensive urban locations with
lower-cost suburban or rural locations.
3. Gross Profit Per Square Foot
Sales
alone can be misleading.
A
$1 million location selling low-margin products may be less attractive than a
$900,000 location with a much stronger gross-margin mix.
4. Labor Productivity
How
much sales volume is being generated for every labor dollar?
With
labor costs remaining elevated, this is increasingly important.
5. Foodservice Contribution
What
percentage of the site's sales and gross profit is coming from higher-value
foodservice?
This
measurement is becoming especially important in convenience retail.
The Most Dangerous Rent Is Not Always the Highest Rent
There
is another lesson I have learned over decades of watching foodservice
operators.
A
high rent location can be profitable.
A
low-rent location can lose money.
The
difference is sales productivity and margin productivity.
Suppose
Location A costs $200,000 a year in occupancy and produces $4 million in sales.
Occupancy:
5%
Location
B costs $100,000 and produces $1 million in sales.
Occupancy:
10%
Location
B has half the rent dollars.
But
Location A is actually carrying the lower occupancy burden relative to sales.
This
is why foodservice real estate decisions should never be made simply by asking:
“What's
the rent?”
The
better question is:
“What
sales and gross profit can this location realistically produce?”
Three New Food Marketing Insights From the Grocerant Guru®
Insight #1: The New Rent Number Is a Sales Productivity
Number
I
would stop thinking about rent as an isolated expense.
Instead,
think about rent divided by productive sales capacity.
The
operator who can increase transactions, average check, dayparts and off-premise
occasions can potentially reduce occupancy as a percentage of sales without
negotiating one dollar off the lease.
Food
marketing can therefore become real estate cost management.
Insight #2: Foodservice Can Make Expensive Real Estate Work
A
location that once depended almost entirely on lunch and dinner may now have
opportunities for breakfast, coffee, snacks, takeout, delivery, catering,
family meals and prepared food.
That
creates more revenue opportunities from the same four walls.
The
winning question isn't:
“Is
this rent too high?”
It
is:
“What
additional food occasions can this location capture?”
That
is a very different real estate strategy.
Insight #3: The Future Belongs to the Operator Who Measures
Profit Per Customer, Not Just Sales Per Customer
The
foodservice industry has spent decades obsessing over sales.
But
in today's cost environment, sales without margin can be dangerous.
Operators
need to know:
Who
is the customer?
What
did they buy?
What
did it cost to make?
How
much labor did the transaction require?
How
much did delivery or payment processing cost?
How
much gross profit remained after the transaction?
Then—and
only then—can the operator determine how much occupancy cost that customer can
actually support.
That
is the new foodservice real estate equation.
The Bottom Line
The
old 6%–10% rent rule is not dead.
But
it needs to be put into context.
Current
restaurant operating data suggests that median occupancy costs are closer to 5%–6%
of sales for many restaurant operators, with meaningful differences by
format and geography.
At
the same time, restaurants are dealing with historically elevated labor and
food costs and extremely thin bottom-line margins. The National Restaurant
Association reported median 2024 pre-tax income of only 2.8% for
full-service restaurants and 4.0% for limited-service restaurants.
That
means a few percentage points can make a very big difference.
So
my advice to foodservice operators is simple:
Don't
lease a location because the rent looks cheap.
Don't
reject a location because the rent looks expensive.
Instead,
determine how much sales, gross profit and customer frequency the location
can realistically generate—and then calculate the occupancy cost that those
economics can support.
Because
in the end, the best foodservice location isn't the one with the cheapest rent.
It
is the location where the real estate, food, labor and marketing work together
to produce the highest sustainable profit.
That
is the real Grocerant Guru®
rent rule.
Make the four walls earn their keep.
About
Foodservice Solutions®
Looking
for your own foodservice growth opportunities? Foodservice Solutions®
specializes in outsourced food marketing, business-development ideation and
identifying, quantifying and qualifying opportunities across restaurants,
grocery stores, convenience stores and the growing Grocerant niche.
The
objective is simple: find more food occasions, create more customer value
and make every square foot work harder.
