Every town you’ve called home offers a burger joint, a taco truck, a patio that beckons. But over time you start to realize the allure is not just about the menu, it’s about the sensation of the experience. After all, we don’t celebrate milestones nor invite out-of-town guests to join us at the local hardware store. We go out.

Fort Collins has been fortunate to host a multitude of culinary options at different price points and styles of service. Complain, if you must, that blue jeans and a ball cap are acceptable attire at any given establishment in town, but this only emphasizes the point. The culture of Fort Collins happens to mesh tailored suits with biking skorts.

So what does this have to do with the local business environment?

The food service industry represents approximately 8% of all sales tax licenses issued in Fort Collins, though collects nearly 15% of all sales tax remitted to the City[1]. It further employs over 13,000 residents of Fort Collins[2] and it’s under threat.

Owning a restaurant is a risky proposition[3]. Success is not necessarily defined by the quality of the product, while failure is not necessarily defined by a lack of determination or skill. Safely turning raw material into a finished product that meets the expectations of every customer, every time, whenever they come through the door, is challenging enough. To achieve that within minutes, while providing an experience that invites repeat visits, tests even the best operators.

Add to that the reality of every other small business — workforce issues, demand for higher wages, supply chain disruptions, regulatory mandates, and rising product and overhead costs — all lead to higher prices that are very visible to a cost-sensitive customer base. Dining out is a discretionary choice that can flip success into failure in short order.

But to ask most restaurateurs why they choose such a treacherous path, you’ll hear the passion for creating an experience that is unique to every guest. It’s about building a culture. Not just for your own establishment, but within the culinary ecosystem of the community. A vibrant, healthy restaurant scene elevates the sense of purpose among competitors. New concepts, new techniques and new menu items all serve to motivate challengers to the benefit of the dining public. It also provides an entry point to our economy for those that might otherwise feel excluded.

According to the Colorado Restaurant Association, women, people of color, and immigrants to this country over-represent new entrants to the industry as compared to the business community as a whole. They further report that 1 in 3 adults gained their first job in food service, providing the platform for future success in whatever industry they may eventually pursue.

In the city of Fort Collins, we now find ourselves at the intersection of aspirational objectives and economic reality. Our collective desire to respond to changing climate conditions, reduce income inequality, and minimize waste has approached the point where hard decisions must be made. And food service sits squarely in harm’s way.

What’s different about food service is the processes that occur within the four walls of an establishment. Proper storage, preparation, hygiene, and presentation of food is water and energy intensive. The more successful a restaurant is, the greater its process intensity. Coolers run less efficiently as food is removed and replaced with greater frequency; cooktops tap more energy with greater use to fuel the cooking appliance while increasing the strain on air handling systems that dissipate heat and airborne byproducts; more water is used in the preparation of meals, cleaning, and as refreshment for more diners. Policies under consideration appear to create disincentives for increasing customer traffic while public sensitivity to increased food safety remains elevated.

Here’s what is being discussed at City Hall.

Building Performance Standards
To achieve community-wide commitments outlined under Our Climate Future, existing commercial buildings between 5,000 and 10,000 square feet would need to reduce the intensity of energy use up to 15% by 2035. Larger buildings will be subject to a 25% reduction target by 2030. Fort Collins Utilities modeling shows 200 buildings between 5,000 and 10,000 s.f. do not currently meet the energy use target. Within that list are 26 properties that host food service businesses. Utilities further estimate approximately 520 buildings of greater than 10,000 s.f. will be required to make improvements, of which 19 offer food service. This means approximately 45 food service businesses do not appear to meet energy efficiency targets[4], or roughly 10% of the local industry.

The overarching objective of BPS is to transition away from fossil fuel sources to electricity. Read more about BPS here.

As outlined in City Council presentation materials, City staff estimates the cost to bring buildings of this size into compliance would range from $4.11 to $4.56 per square foot. On average, that works out to $32,500 for smaller buildings. Yet these estimates are based upon the costs incurred by participants in the Platte River Power Authority Efficiency Works program, which represents all business types. To meet efficiency targets, food service operators will likely face significantly higher outlays due to the relative inefficiency of older appliances and equipment.

Moreover, according to the CRA, electric appliance options to prepare certain cuisines, such as a wok, are either not available or impractical for commercial use, creating an impenetrable barrier to entry for a segment of restaurateurs.

Recognizing the churn that takes place in this industry is helpful. Most new establishments are kitted out with the remnant equipment and appliances of operators that have closed shop or upgraded. In this way, restaurateurs are able to gain entry to the market more quickly with less capital than would otherwise be expected. New appliances that are more energy and water efficient are a luxury that may be considered once the business is fully established and generating solid returns. It is critical to recognize that traditional financing is either not available or offered on unfavorable terms to the food service industry until consistent profitability is achieved.

Two fundamental disconnects occur in the adoption of BPS, as currently presented to and discussed by City Council. Building owners don’t benefit from lower utility costs while utility rates are projected to increase much higher than overall inflation as the byproduct of pursuing climate goals outlined in Our Climate Future.

Most restaurateurs do not own their building, which means the building owner is on the hook to reduce energy consumption. This creates material conflicts between the owner and the operator. If the property owner is penalized for not meeting efficiency standards, that cost will be passed on to the operator. Even if the property owner does invest in efficiency measures, they will not recognize the benefit of lower utility bills since the tenant is responsible for paying for usage. The only rational benefit is the presumed ability to charge higher rent for a more efficient space – at the risk of losing their tenant.

Meanwhile, the operator is pressured to invest in newer appliances, improve processes, and train their employees in best practices on the premise of lower utility bills. But utility bills aren’t going down[5] and their landlord is raising the rent to cover the expense of energy improvements.

Your Fort Collins Area Chamber has been working with City Staff to showcase the challenges of this current design while identifying opportunities to test concepts before making them standard, over-reaching policy.

Water Supply Requirements and Water Allotment
Through the process of re-evaluating water needs for various business types, the water supply requirements (how much water the City needs to hold in portfolio) and the allotment (how much water each user is allowed before excess use fees are assessed) are under review. You can read more here.

As mentioned, food service is a water use-intensive business. The City has developed a schedule of water allotment requirements for all permitted land use types[6]. The annual water allocation for restaurants is equal to 145 gallons of water per square foot of building space, meaning the City water utility would plan to deliver 406,000 gallons of water to a 2,800 square foot restaurant. This equates to an allocation of 1.25 acre feet of the City’s water portfolio.

For comparison, the square foot water allocation for a medical office building is 33 gallons, a hotel/motel is roughly 47 gallons, and a conveyor-type carwash is 1,500.

To open a restaurant in a space not previously occupied as a restaurant, the owner would need to pay upfront for any necessary increase in the allotment of water use dedicated to the physical space. If located within the City water utility service area (there are five water utility providers operating within city limits), that water would derive from sources that have been accumulated by the City since the late 1800s. However, City Council adopted a policy in 2022 that establishes a price paid by new users based upon an adjusted value of existing water rights and the projected cost to acquire additional rights to meet future demand. Add to that the projected costs to maintain and upgrade existing facilities and the reconstruction of Halligan Dam.

Whereas, in 2017 Fort Collins Utilities charged $6,500 for an acre foot of water, that same acre foot now costs $68,200. This fall, Council is scheduled to formally consider a further increase that would incorporate both a “contingency” factor of 30% (in the event the cost of acquiring new water rights or construction costs related to Halligan increase before a new fee schedule can be considered and implemented) and a “safety” factor of 20% (related to uncertainties of water supply such as drought).

At its July 9 meeting, City Council was presented with revised cost options of $63,800 and $110,700 per acre foot. The higher cost option reflects the estimated current market value of all water rights owned by the City, versus an inflation adjusted cost basis for the existing portfolio. Both include estimated costs for new water infrastructure related to development and acquisition of additional water rights. The numbers may yet change again prior to formal consideration for adoption this fall.
As it currently stands, a restaurateur seeking to open a new café in a 2,800 square foot space would be hit with a water supply fee of $85,250[7] before all other impact and permit expenses. However, if that same restaurateur takes over a space vacated by a prior food service operator, there would be no additional water supply assessment. The chilling effect on opening in a new location is clear.

Zero Waste
In 2013, City Council adopted a strategy to redirect 100% of community waste from the landfill to recycling, repurposing, or composting facilities by 2030. You can read more about that plan here.

Like any business, food service generates waste in the normal course of business. What’s unique is the amount of food material that requires robust infrastructure to convert waste to organic material suitable for other purposes. Such infrastructure does not currently exist at scale and there is reason to question whether Larimer County, through its new landfill, will be able to offer an economically viable solution within the foreseeable future.

A further complication to recycling efforts is contamination. Separating food and food byproducts from recyclable material can be cost-prohibitive or technically infeasible. Paper napkins provide an excellent example. The market for recycled paper and cardboard fiber is healthy, yet paper napkins can’t be recycled at scale because of the intended use – we use them to wipe food from our mouth and grease from our fingers. That contamination currently precludes reuse of these fibers. Perhaps contaminated napkins can be composted, but that surfaces another shortcoming.

Industrial-scale composting of food waste does not currently exist in our region. Though there is at least one private company offering such a service, capacity is limited. To meet the objectives of Zero Waste without compromising public health and food safety, compostable materials would need to be picked up at least daily from a busy restaurant. At present, that requirement can’t be met nor is there a location where such a volume of deliveries can be received.

This also points to the larger impediment to recycling efforts. The purpose of recycling is to extend the useful life of the chemical components that comprise the discarded product. That requires demand for those components. Glass bottles can be crushed into a fine powder or melted down and sold to the manufacturer of glass products. But the amount of energy, extensive processes, and cost of equipment necessary to reduce and purify recycled glass is not necessarily competitive with sourcing virgin material. Similar circumstances apply to varying degrees with plastics, paper, cardboard and metals.
Larimer County, operator of the public landfill, envisioned a robust recycling and compositing program in conjunction with the opening of its replacement facility. However, it appears the new landfill, north of Wellington, will open next year as a dumpsite only as the economics and logistics of the broader vision have proven to be far more challenging than anticipated.

Ultimately, the success of a composting and recycling campaign will rest upon cost benefits. If participation is simple and cheaper than contracting for trash service, uptake within the food service industry will be strong. To achieve that objective, taxpayers must be willing to subsidize the program cost in return for the community-wide environmental benefits that are sought. If the industry is expected to absorb the full program as another cost of doing business, we should expect to see far fewer restaurants in our future.

The Bottom Line
Addressing the myriad and complex regulatory cost burdens federal, state and local governments impose upon business is an overriding priority of your Chamber. Well-intentioned as some of these initiatives may be, there remains a false assumption that associated costs will be absorbed by businesses through lower profit margins – and thereby reduce income inequality, which checks another box.

However, the food service industry is particularly vulnerable to this emerging threat. Not only does the average restaurant operate on a 3% profit margin[8], but policymakers don’t appear to yet grasp the devasting effect this will have on the most culturally, economically, and socially diverse industries operating within our community. Food service offers a pathway to economic security and personal fulfillment for many of our fellow residents. It further provides the rest of us with the opportunity to promote cultural awareness and a comfortable place to enjoy a fine meal.

[1] Courtesy of the Fort Collins Economic Health Office
[2] Estimate derived from US Census data and Colorado Restaurant Association
[3] According to the Fort Collins Economic Health Office, roughly 60% of food service businesses close within 1 year, while 80% close within 5 years of opening their doors.
[4] As of December 2022, there were a total of 466 food service businesses operating within the city, according to the City of Fort Collins Economic Health Office.
[5] Platte River Power Authority is projecting wholesale electric rates to increase between 6% and 9% through 2030.
[6] https://library.municode.com/co/fort_collins/codes/municipal_code?nodeId=CH26UT_ARTIIIWA_DIV5WARI_S26-149WASUREWSNOSE
[7] 1.25 acre foot allotment times $68,200 equals $85,250
[8] Courtesy of Colorado Restaurant Association