On a small ground floor space below the Russ Building, a hulking Neo-Gothic office complex on Montgomery Street, is something that has become its own type of unicorn: a new retail concept in the heart of the Financial District.
Brenna Gilmore, the manager of Superfine Kitchen, was ready with a smile and an apology for the work being done on the location’s refrigeration system on a recent Wednesday morning.
The store, which opened in November, is lined with ready-to-go meals that span cuisines from Mexican rice bowls and healthy salads to deli sandwiches, along with a few sweet treats like chocolates and candies.
The idea, according to CEO Louis Brouillet, is to create a community-based convenience store with a focus on quality products and quality ingredients. All of the meals are prepared fresh daily at the company’s commercial kitchen in the Dogpatch.
“Convenience has always come at the expense of quality or health. So can we bridge both? I believe so,” Brouillet said.
According to Brouillet, sales at the location are going up week after week even as the return to Downtown offices has largely stagnated. He sees it as a positive sign.
“We understand that this may look from certain angles like, 'Why are you doing this now?'” Brouillet said. “But we’re not trying to be everything to everyone. We’re trying to do what we do really, really well.”
Data from the city’s Treasurer & Tax Collector's Office and analyzed by the Bay Area Council Economic Institute show businesses like Superfine have their work cut out for them.
In a reversal of the first two years of the pandemic—when more businesses closed than opened—10,078 businesses opened last year compared with 6,937 business closures. Overall business openings have declined year-over-year since 2016, but the pace of business closures has slowed from the pandemic high of 13,469 seen in 2020.
But there is wide variation in the success rate of these businesses based on their location.
According to Abby Raisz, a research manager with the Bay Area Council Economic Institute, it’s become apparent that a geographical divide is determining the success of new businesses in San Francisco.
On one end is Downtown, which has struggled under the weight of remote work and challenging street conditions that have slashed the daily population of office workers that used to be the lifeblood of small businesses in the area.
Between March 2020 and February 2022, 29,456 businesses of all sizes closed, while 29,998 opened—a small net increase of 532 new businesses. But the Financial District and Chinatown took the biggest hits, accounting for nearly 20% of the city’s overall business closures.
On the other end of the spectrum are southern neighborhoods exemplified by the Bayview, Bernal Heights and the Excelsior, which were notable bright spots in business openings during the pandemic.
Raisz said that the split between Downtown and certain neighborhoods is an acceleration of a pre-pandemic trend, likely linked to the competitive nature of Downtown real estate and sky-high rents during the peak of the market.
Now, with record-high vacancies Downtown, that fissure has become more pronounced. Looking at data from March 2020 to February 2023, neighborhoods that have seen more business closures than openings include the Marina, Pacific Heights, North Beach and Nob Hill. But those challenges seem to have stabilized somewhat over the past year.
“If we look at just the last 12 months [February 2022 to February 2023], every single neighborhood other than the Financial District and Chinatown netted overall new businesses,” Raisz said. “Overall fewer businesses are opening now than pre-pandemic, but so many fewer businesses are closing than in the first part of the pandemic.”
Allison Kelly, the CEO of ICA Fund, which mentors Bay Area small businesses and helps them develop key skills like accessing capital, said she’s seen things settle down from the initial shock of the pandemic.
“It does seem to be stabilizing in terms of the new businesses starting versus those closing in the deep throes of the pandemic,” Kelly said. “During the pandemic, the set of constraints changed, and they needed a minute to reassess their business model. By and large, that has been done.”
Her organization took a small dip into lending when it raised $1.5 million for a zero-interest loan fund to help businesses through that initial pivot. But access to capital remains an ongoing concern.
In some cases, Kelly said, that transition back to normalcy has meant a slide back to preexisting problems in commercial lending such as a tendency not to lend to minority and women business owners. Her organization has focused on providing resources for entrepreneurs often locked out of traditional sources of capital.
The macroeconomic situation has compounded money issues for businesses, with inflation meaning rising costs and higher interest rates meaning more expensive loans.
“People are having to make different priorities in their spending. And as a result of that, lower revenues make it more difficult for traditional commercial lenders to extend credit,” Kelly said.
Raisz said she dug deeper into the data to understand why businesses in Bayview-Hunters Point had such a strong showing. One of the reasons that emerged was the diversity in businesses in the area, which is home to retail trade, manufacturing, restaurants and many other small businesses.
Olton Rensch, the owner of Tallio’s Coffee in the Bayview, said he’s not surprised by the neighborhood’s numbers. In the last few months, he’s seen multiple businesses pop up on his stretch of Third Street, including a neighboring hair salon and soul food restaurant.
Aside from a handful of grants from city agencies and local nonprofits like Economic Development on Third, Rensch financed the bulk of his business through his retirement account, credit cards and his savings.
He reopened his own doors in September after a yearlong ordeal familiar to many San Francisco small business owners, which involved navigating a complex network of city agencies to renovate his business’ interior.
Just last month, he was in court when his landlord tried to serve him with eviction papers after he fell behind on his rent. He was able to reopen after finding the funds to pay the back rent. In a show of the perseverance inherent to being a small business entrepreneur, he continues to forge on on behalf of the community.
“I have a dream. My goal was really to beautify one community at a time with the idea that not every community gets the same luxuries as others,” Rensch said. “I don’t want to give up because it isn’t an investment that you’re going to get back. I have a 6-year-old son, and we’re both invested in this for the long haul.”