Your Best Store Might Be Your Worst Deal.

Each portfolio has the store everybody brags about. Highest sales in the fleet, the one that gets toasted at the holiday party or celebrated at the town hall, the number you quote when someone asks how the brand is doing. Here's the uncomfortable, candid question: is it actually your best deal? Because sales volume and deal quality are two different measurements, and the store winning the first contest can be quietly losing the second.

One of the numbers that measures success is total occupancy cost as a percentage of gross sales. I broke down what goes into that number, and why it runs well past the rent you were quoted, in an earlier post. This one is about what the ratio tells you across a portfolio, because most founders can quote every store's top line sales, but struggle to quote occupancy for a single one of them.

Run two stores side by side. Store A does $2M a year at a 15% occupancy ratio. Store B does $1.2M at 8%. Store A is the party story; it's also paying $300,000 a year to the landlord before payroll, food, or a single repair. Store B pays $96,000. If both stores run comparable food and labor lines, the quiet store is generating the cash that funds your next opening, and the "party story" is working mostly for its landlord. With the exception of brand lift and halo effect, not many of us toast Store B, and Store B is the better business from a financial perspective.

So what's a healthy occupancy ratio for your stores? It ranges; however, one of the most credible current benchmarks is the National Restaurant Association's 2025 Restaurant Operations Data Abstract: for 2024, median occupancy cost was 6% of sales for full-service restaurants and 5.2% for limited-service. The working rule of thumb across the industry is that 6 to 12% is livable, 8% is the practical ceiling to underwrite to, and north of 12% the deal is eating the business. Public filings tell the same story: in fiscal 2024, Chipotle ran occupancy at 5.0% of revenue, Cava at 7.3%, Shake Shack at 7.7%, and Sweetgreen at roughly 9%. Those figures aren't perfectly comparable since each company defines the denominator a little differently, but the trend is noticeable.

Here's the part that makes this an annual discipline instead of a one-time check: the ratio drifts on you, and it only drifts one direction. Your base rent typically escalates 3% per year per the lease agreement, which compounds to roughly a third more rent by year ten. Your Common Area Maintenance (CAM) cap, if you negotiated one, almost certainly excludes real estate taxes and insurance, so those pass-throughs climb uncapped, and the taxes get reassessed the day your shopping center trades to a new owner or is refinanced. Meanwhile, if your sales growth is coming from price rather than traffic, your guest counts are quietly eroding the store's ability to absorb all that fixed cost. The National Restaurant Association put total restaurant expenses up 36% from 2019 to 2026. A store that opened at a healthy 8% can sit above 11% by the back half of its term without a single bad quarter.

The operator's response is unglamorous and worth real money. And often places unreasonable expectations on the operators to drive higher sales when they inherited the rent before the doors ever opened. Calculate the ratio for every store, every year, using the full occupancy number. Read every CAM provision and reconciliation, because estimates get trued up each fiscal year and errors run in one direction (I'll let you guess which side of the table benefits more). And know your renegotiation levers before option time arrives: option windows, co-tenancy failures, and a landlord's vacancy risk are the moments the ratio can be repaired, and they only help the tenant who shows up with the math already done.

Be sure to know this ratio for each location you operate, even if it's approximate. The founders I've worked with who can quote key financial ratios can typically run circles around the founders who only focus on sales.