Restaurants Are Full, Yet Earnings Are Declining: Why Are Famous Venues Closing

In the Croatian hospitality scene, we have a paradox: on one hand, almost every week, the media reports the closure of a well-known restaurant, while on the other hand, statistics show that Croatian hospitality is doing quite well. Revenues and fiscal turnover are increasing, restaurants are full during the season, and menu prices have risen sharply in recent years.

However, restaurateurs warn that there are fewer portions of food on tables than before. Part of the increase in fiscal turnover is due to higher prices, but also because today part of the turnover is recorded that previously did not necessarily have to be fiscalized, as more and more guests are paying by card. Therefore, a higher value of issued invoices does not necessarily indicate a healthy sector. In the post-pandemic era, our industry sources claim that some restaurants were making more profit than today, even though current prices are much higher.

There is no mass disappearance of restaurants; new ones are opening, but in recent months, well-known names are also closing. Makamana in Zagreb’s Savica closed just as it was seriously breaking into the market, Plantéa in Buzin lasted less than six months, the Split-based Đir left its city location after a drastic rent increase, and Rougemarin is leaving its old address after fifteen years. On the Adriatic, restaurants with decades-long traditions, such as Rivica in Njivice, are also closing.

Dynamic Market

The president of the Zagreb Hospitality Association and owner of the restaurant Franz, Franz Letica, warns that there is no unified data on how many restaurants open and close each year. They operate as crafts and commercial companies, one business entity can have several establishments, and a different concept can quickly replace another at the same location.

The Cult of the Blue Mussel counted at least fifteen Zagreb venues closed in the first seven months of this year, from restaurants and snack bars to pubs and bars, noting that the list is likely not complete. According to the Crafts Register, at the end of July, there were about 8,800 crafts in the food and beverage preparation and serving sector, 1.2 percent less than the previous year and 2.3 percent less than in July 2024. This data does not indicate how many individual restaurants have closed.

Letica, who has been in hospitality for nearly thirty years, does not believe we are witnessing a general disappearance of restaurants. The market is very dynamic, and the closure of a well-known venue today receives much greater media attention.

– A venue can be full, present in the media, and well-rated, while simultaneously having a cost structure that is not sustainable in the long term – he says.

The Tip of the Iceberg

According to data from the Croatian Chamber of Trades and Crafts, the revenues of observed entrepreneurs in hospitality who are subject to profit tax in 2024 increased by 19.2 percent, but expenses increased even more, by 21.1 percent. Material costs rose by 13.9 percent, and personnel costs by 30.4 percent. Net profit fell by 4.8 percent, and the EBITDA margin dropped to 11 percent.

The president of the HOK’s Guild of Hospitality and Tourism Workers, Hrvoje Margan, warns that even full tables do not guarantee a positive result. A restaurant can operate at a loss if prices are poorly set, work organization is inefficient, or fixed costs are too high. It is no longer crucial how many tables are full, but how much clean profit remains on them.

The owner of the BioMania restaurant in Zagreb and Brač, and a member of the Management Board of the Entrepreneurs’ Voice Association, Dario Kožul, expresses particular concern that not only projects that failed to position themselves are disappearing but also quality family restaurants with decades-long traditions. In his opinion, the entire issue boils down to two things: excessive tax burden and a desperate Foreign Workers Act.

– Tourists say that restaurants in Croatia are expensive. And they are, because due to uncompetitive costs we have expensive procurement, especially in my case when I procure organic products. Due to much higher VAT and other levies, people are complaining, and that is why our tourist turnover is declining. We cannot compete with Spain when we are more expensive – says Kožul.

According to his calculations, the overhead costs of restaurants are rising by about 10 percent annually, and wages have increased by approximately 50 percent in the last two to three years.

– Restaurateurs are not achieving higher turnover; in the best case, they are stagnating. To survive this calculation, restaurants would need to grow by 10 percent annually because you have an annual turnover decline of 10 to 15 percent. But even such stagnation, which has accumulated over the years, is bad, which is why we have the current situation with closures – explains Kožul, noting that this is just the tip of the iceberg and that there will be more closures.

Cautious Guests

Part of today’s calculation, he believes, can only be understood when we return to the years immediately after the pandemic. People were eager to go out and socialize and were willing to spend much more. Some restaurateurs interpreted this extraordinary demand as the new normal.

– Few restaurateurs realized that this was a one-time opportunity. But even when we are all realistic, we are still more expensive than other countries and do not provide value for money – he emphasizes.

Meanwhile, guests have also become more cautious. Letica says that today, more than before, they seek value for money, not necessarily the lowest price, but a fair relationship between price, food quality, service, and overall experience.

How much one item can change the entire calculation is demonstrated by the owner of the once-popular restaurant Đir in Split’s Grip, Vice Majić. After ten years of operation, his rent increased by as much as 90 percent. He closed Đir and moved the business to Potravlje, where he opened the konoba Lopar on his family estate.

– Due to the rent increase, I was forced to move to a rural estate on my grandfather’s land, and I must admit that I feel relieved due to much less stress. Of course, the calculation for a rural konoba and a restaurant in the center that attracts foreign tourists is not the same. The center can perform its role as a location, but inflation eats into margins, which can no longer be compensated by raising prices – notes Majić.

His revenues are modest, but the business is calmer.

– Many people believe that good money can be made in hospitality. Maybe that was once true, but that time has passed – he asserts.

Perhaps the more interesting part of the story is happening among those who are not leaving the restaurant business but are seeking a different way to stay in it.

Two Bad Options

Makamana in Zagreb’s Savica closed after it had already established itself, but co-owner Mario Kljaić did not leave hospitality. He redirected the business to festival offerings and street food. He works with Tom Gretić under the brand Street Food by Tom Gretić, with stalls and food trucks, and has announced two fixed fast food locations in Zagreb.

– A classic restaurant today is burdened with high costs and low margins. Additionally, people no longer have time to sit in restaurants. The street food concept has been successfully existing abroad for ten years, and it is also easier to find workers – says Kljaić.

Street food has, as he himself says, killed him business-wise, but in the end, he embraced it. This change is more interesting than just listing closed restaurants. Kožul believes that street food does not have to replace a classic restaurant but can become an additional source of income, which he knows firsthand because he had such a concept in Brač. Exclusive restaurants in Europe and the USA have been developing bistro versions and street food versions of their premium brands for years to expand their audience.

– The street food concept is easier due to logistics and more profitable due to less labor. It is inherently more profitable than classic restaurants, let alone in combination – says Kožul.

And then we return to Kožul’s other key problem – people. It is not just about the cost of labor but also about the fact that there are not enough quality employees, and the procedures for hiring foreigners are too slow for an industry where needs change from week to week.

– Quality labor is rare in itself, and when you find someone who suits you, you cannot hire them because the work permit takes several months. Good workers will not wait for you; they will go to someone else – he says.

Therefore, restaurateurs often find themselves between two bad options: not opening a venue until the documents are resolved or risking inspection while waiting for papers.

Closing Does Not Mean Giving Up

Large systems have an advantage in such an environment. They can consolidate procurement, human resources, and central kitchens. Kožul cites Batak as an example but does not believe that large chains are the reason for the decline of small restaurants.

– Big players have done a good thing for hospitality. Batak has created a culture of going to restaurants among the wider masses, encouraging people to go out and eat something. They have managed to find the formula for the price-quality ratio – believes Kožul.

A much bigger problem is that a small restaurant struggles to function if the owner is not deeply involved in the business on a daily basis.

– Entrepreneurs who are just opening restaurants face significant challenges. They have the option to either ‘die’ for their cause by working twenty hours or to run the business with at least two families. I do not know of any other job in the market where owners have to be so involved – emphasizes Kožul, adding that BioMania survives thanks to his involvement and enthusiasm, a team that is additionally engaged, a clear niche of sustainable vegetarian and vegan offerings, and a large number of returning guests.

The vegetarian restaurant Plantéa in the City Island business complex in Buzin was a three-story facility of nearly 400 square meters, with strong culinary names, and it closed after less than six months. Manager Atam Puri stated at the closure that investors had focused on something else. Thus, neither the height of the investment nor the nicely decorated interior guarantees survival. Letica warns that it is a mistake to first define a large space and high investment and only then think about who the guest is and how big the market is. Hospitality is not a passive investment. However, closing a particular location does not have to mean giving up the business. Sometimes it means that the owner is trying to change what no longer makes sense in time.

Adriatic in Focus

Such is the case with Rougemarin. Marin Medak is leaving his long-standing location in Zagreb’s Folnegovićeva Street after fifteen years, but he is not leaving hospitality. Rougemarin is moving to the renovated Mimara, and next to the Museum of Contemporary Art, he already has a smaller concept Bar&Ton.

– I am moving to a new location, leaving the ‘shack’ for a castle. I am working smarter, less, and better, with a higher quality offer – says Medak.

Despite the fact that the examples are different and in many ways incomparable (Kljaić has replaced a classic restaurant with street food, Medak is changing format, Majić has replaced the center of Split with a rural konoba), there is a clear signal that restaurateurs are seeking a new calculation. Kožul expects this to be most evident on the Adriatic, where part of the old hospitality guard is already withdrawing.

– In the upcoming period, the hospitality scene in Croatia will change significantly, especially on the Adriatic, where this is already happening with the indigenous crew – says Kožul, who believes that the previous closures are just the beginning.

There will be more.