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To Danny Casler, the closing of a taco joint in Kailua was symbolic of a bigger issue: what he and others say is a trend of small, independent businesses shutting down in the beachside community.

“Privately I was told it seems like no restaurants can survive in Kailua anymore,’” Casler wrote on his Instagram page, which serves as an alternative news source for Kailua, with 75,500 followers and news ranging from lost keys and pets to crime, weather and car accidents.

“We have seen so many leave and not renew leases in the last few months,” Casler added on his post. “This is just the beginning. Watch what the next 1-2 years is about to bring.”

The story of Taqueria El Gallo Rosa’s demise is complicated, says , the restaurant’s founder and chef. All sorts of costs have increased, he said, including the cost of importing ingredients like peppers from Mexico.

“For us, it was a lot of factors: the rent, the economy, obviously a lot of factors,” he said.

Comments from readers in response to reflect a range of opinions concerning the demise of . But an outsized number of comments point to the landlord, .

One of Hawaii’s original , the company once known for and has largely shed those roots and morphed into a modern real estate investment trust. The company’s headquarters still commands a stately presence on Bishop Street, but A&B’s biggest investors these days are hedge funds and financial institutions based in , , and . Much of A&B’s .

It might be easy for people to blame the big landlord with its out-of-state investors for the loss of a favorite small-town eatery. But Garcia said that narrative is a bit too simple, given the many challenges the business faced.

“The rent is just one of them,” he said.

A spokesperson for A&B echoes Garcia, saying the perception that businesses are closing simply because of high rents is wrong.

“It’s a misconception that businesses close solely due to rent costs,” said Andrea Galvin, A&B’s manager of corporate communications. “Labor shortages, rising staffing expenses, increased operational and supply costs, and fluctuations in customer preferences and patterns in visitor traffic are often cited as reasons business owners choose to close.”

“It is disappointing when the narrative over social media is that businesses close solely due to rent costs, which is simplistic and often untrue,” she added.

Small Businesses Face High Costs For Labor, Goods

While big chains with deep pockets have an easier time riding out cost increases, mom-and-pop places struggle as they have since the Covid-19 pandemic began in 2020.

Before the pandemic, bars and restaurants operating at a high level might have enjoyed 10% profit margins, says Steve Haumschild, owner of , which operates a brew pub in Kailua.

But a shrinking workforce and general inflation have increased the costs of labor, shipping and goods, Haumschild said. And not all of those costs can be passed on to consumers without increasing prices higher than people are willing to pay.

“The numbers to run a business — you can’t run those costs through and expect customers to pay for it,” he said.

The result is that businesses absorb some of the increased costs, and the best performers now might generate a 3% to 4% profit, Haumschild said.

Lindsey Dymond, owner of , says it’s a tough time to run a restaurant.

“It’s a really hard business right off the bat,” said Dymond, who now operates four locations on Oahu. “You make one boo-boo on labor, overhead or costs of goods, and you’re only going to make it as long as you’re willing to reach into your own pocket.”

Doing things like pooling tips and providing paid time off and profit sharing can help retain good employees, Dymond said. Another key to making it in the tough market is negotiating a good lease, he said.

“A bad lease is a kiss of death,” he said.

A&B Says It Tailors Leases To Ensure Tenant Success

Rebecca Cummings, vice president of the Kailua Chamber of Commerce and publisher of “Kailua Town Magazine,” says it can be difficult to get a good lease with A&B because the company wields most of the power when trying to negotiate lease renewals.

“Everyone knows the terms of the new lease are not going to be the same as they were before,” Cummings said. “It’s always going to be an increase.”

Cummings said many factors play into a business’s success or struggles. But, she said, at least in the central part of Kailua, A&B is a consistent factor.

“There is a common denominator, and that is the lease terms,” she said.

Galvin, the A&B spokesperson, said the company not only negotiates lease renewals, but tailors each agreement to ensure the particular business succeeds.

“As a local landlord, we work closely with our tenants, as it is in our mutual interest for them to succeed,” she said. “When negotiating lease renewals, we develop competitive, market-based renewal terms tailored to each business’ needs and goals, factoring in the health of the business and sales data, to ensure the business’ continued success.”

She also said the company wants to work with locally owned tenants.

“Locally owned businesses make up over 80% of A&B’s tenants in Kailua and are key to ensuring a diverse and appealing experience for our community, tenants, and customers,” she said. “Partnering with businesses that understand Kailua’s unique preferences is key to achieving this.”

“Recent additions include a martial arts academy, a guided stretch studio, an outdoor and
camping equipment store, a hair salon, and new dining options to be announced soon,
enhancing the variety of goods and services previously unavailable or limited in Kailua,” she added.

Garcia, El Gallo Rosa’s chef, is philosophical. He understands businesses need to adapt to change. In any case, El Gallo Rosa has another location in Ward Village that’s doing well.

Still, he says, he will miss Kailua, where he moved from Baja California to open his restaurant, and the community.

“Kailua people are the best,” he said.