Restaurant Business Models in a Recession

[Chris Amirault]

In this topic, New Yorkers have been discussing the effects of the recession on the Manhattan restaurant business, about which the NY Times's Frank Bruni today opined. Amid Bruni's pithy details involving special meal deals and FOH staff exhaling when he walks through the door, no one went on the record with any real candor about the scary realities of the economic situation, save perhaps for Fabio Trabocchi claiming declines in the city's high-end restaurants running at a stomach-flipping 40%. Here's the venerable Alfred Portale:

“People need to understand how tight the margins are in the restaurant business,” said Alfred Portale, the chef and one of the owners of Gotham Bar and Grill, which opened 25 years ago.

Mr. Portale said that Gotham’s revenues are down by about 15 percent from a year ago, adding, “This is the toughest January I’ve ever seen.”

I asked if the restaurant was still eking out a profit. After hesitating for several seconds, he said, in a staggered cluster of short sentences: “I hope so. Yes. We will. A small one.”

Not very reassuring.

I live in Providence, and everyone in the industry I talk to here is reporting tough times now and ahead. One friend who works in the kitchen at one high-visibility concept restaurant recently got let go in a third blood-letting at the place, and several similar places are looking downright ghostly all week, even on weekend nights. At two Asian restaurants I frequent regularly, the owners reported significant declines -- save for the recent lunar new year.

However, I had a conversation with the owner/operator of a Vietnamese restaurant today that got me thinking about who's being affected and why. He agreed that business was really slow, but he also talked quite a bit about the benefits of having a family-operated establishment: when times are tough he can skip a paycheck or three, something that several other places on the same street couldn't do (including a long-time neighborhood institution and a three-month-old Thai joint). They're shuttered; he's hanging in there. His place is along a moderately busy suburban street, not in the prime downtown or College Hill real estate sector, so he doesn't have to worry about killer rent or mortgage payments. And he's got reliable, built-in staffing flexibility: he's out front and his brother is out back, and the family pitches in if the restaurant is busy (or on college break).

There are certain commonalities about the business of running a restaurant -- product management, utilities costs, etc. -- but there are other differences that seem to be making a big difference in this economic climate. What are you seeing in your neck of the woods, either as a pro in the industry or a customer? What restaurant business models seem to be making it through the storm? Who got shuttered, and why?

[Fat Guy]

It's intriguing to me that the Asian-restaurant owners you spoke to are getting stung so badly. Asian restaurants, the inexpensive ones at least, should at least in theory be poised to pick up business during an economic downturn. I've lost count of the number of articles I've read saying that McDonald's is prospering right now because it's picking up a lot of business that more expensive restaurants are losing. Inexpensive Asian restaurants should be positioned to reap similar benefits. In a lot of towns, the fast-food chains and the Chinese restaurants are direct, within-category competitors.

[RAHiggins1]

My favorite Chinese place just shut it doors with no notice. Poof, its gone. No one knows why. Fortunately I found another that is ran by 2 little, old, taiwanese ladies and the food is marvelous.

[Maitre D'Hell]

I'm with you, FG. As the "flagship" restaurant of a local owners empire--we do asian-fusion--our business has fallen way off (10 covers last night). However, the owner's cheap, simple, Chinese joints are actually UP from last year.

[Chris Amirault]

Remember that I live in RI, where unemployment is 10% and rising; the state budget gap is about as big as California's in terms of percent of total budget. And Providence is one of the poorest cities in the US.

I think that, in this economic climate, eating out period is one of the first things that people cut. That's certainly what folks are telling me about their places, whether they're cheap or not.

[Fat Guy]

I think that, in this economic climate, eating out period is one of the first things that people cut.

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I think a lot of people don't conceive of Chinese takeout (or McDonald's) as "eating out," though. These have long been staples of the below-the-poverty-line diet. Yes, it's cheaper to cook at home, but that doesn't seem to register with a lot of people even when their economic circumstances are quite dire. In some cases it's because the working poor have little time to prepare meals, in some cases it's due to lack of education, and I suppose there are a variety of other explanations. But in the best economy if you look at who's eating a ton of McDonald's and Chinese takeout it's a demographic whose numbers are, at present, rising.

[phlox]

In my city, bistro type restaurants are doing OK and fine-dining is really hurting. I'm about to start selling plasma.

It's hard not to be discouraged and I feel selfish for feeling this way...but I'm just pissed off! I love what I do, and I'm finally at an age/level of experience where I could actually have a career, and instead there will just be nothing, and by the time this turns around, I will be too old to be eligible for management jobs.

Edited February 6, 2009 by phlox (log)

[pastrygirl]

and by the time this turns around, I will be too old to be eligible for management jobs.

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?????

How old is too old for management? What else do you do when you get too old besides go into management?

[phlox]

I just mean for entry-level jobs. In any industry, companies like hiring folks who are really young for those types of positions. Once you've been around longer and might demand a higher salary, it gets harder.

Sorry to get off-topic - I think casual, comfort-food type places will stay popular. What I see is that the perception of how expensive a restaurant is is more important than what the actual prices are.

Edited February 6, 2009 by phlox (log)

[pastrychefjustin]

Here in NC, things don't seem to be so dire; however, I just quit my job at a pastry shop because the owner paid me late for three consecutive months. I am going to be working at a bread bakery where I formerly worked as a baker.

I find it interesting that the bread bakery is prospering, and actually expanding, the only direct competition here is Panera. The pastry shop is the only one that is directly in town, so customers continue to go there for coffee and cake even though the quality suffers across the board from the front of the house to the back of the house. Unfortunately, the business owner is dishonest, or at least shady, with his finances. He is currently in his 4th year of ownership and most employees are still waiting on over a month's pay.

The bakery has been open for 9 years now, and the pastry shop only 4, but - the bakery has stock-piled hundreds of thousands of dollars into savings, and the pastry shop is paying rent 4 months late. After reviewing sales of years gone by, there is no reason why the pastry shop should be where it is today.

I would say that good business sense will always prevail. I believe that, as a friend recently said, "there is no reason why anyone should be hit so hard that they can't eat." Given the exceptions of circumstances beyond our direct control, I learned in a basic culinary college that planning and preparing for situations that may arise is the best plan possible.

Mc Donalds is one of the most prominent and popular food service establishments in the world today. Although the quality of food and dining experience is at the lower end of the spectrum, they have undeniably become a thriving and successful business. I think that if you are keen on planning and preparing, any business can survive economic hardship and strife.

Edited February 6, 2009 by pastrychefjustin (log)

[MattyC]

I've felt the bad effects of this whole economic downturn. 3 months ago I was laid off from a small restaurant where I was working - unfortunately it was a new place, still in it's first year, and some people were put off a little by the prices to begin with. I think that if it had been a little more established, things wouldn't have gone south so fast, but it just didn't have the regular customer base to help, so pretty much as soon as the economy went down, the place hit a brick wall.

But now i'm back to where I was working before there, a remodeled fine dining OPR turned bistro, and business has been nothing short of great. We are still only open for dinner, just a scant 4 hours, but on the slowest days we still do about 40 covers and on the weekends around 90, and just recently expanded to 7 days a week, and still pulling in good business. No idea if this will last, but it seems pretty constant, and strangely enough it's actually been getting busier, so who knows.

Sadly, as an example of what someone said earlier, on how smaller bistros are doing ok and fine dining is taking a turn for the worse, we did 88 people within the first 3 hours of service last saturday, and a well known fine dining place did 20, if that, all evening. I mean, good for us, but I feel bad for the fine dining since I know someone there.

[Chris Amirault]

Nation's Restaurant News had an article on the effects of the economy on restaurants here:

The study by market research firm Morpace Inc. found that 48 percent of U.S. consumers are eating out less often now than they did about six months ago, when the economy began its tailspin.

...

“All restaurant categories share the pain," Denyes said, "but higher priced restaurants may be hurt more.

“About half the patrons of upscale restaurants like Morton's and Ruth's Chris, and midscale venues like P.F. Chang's and California Pizza Kitchen, are dining there less now than six months ago,” she said. “The pullback is slightly less severe at fast-casual restaurants.”

[Edward J]

One of my favourite quote is "Change is the price of survival"....

However I don't 0/0 a restaurant anymore, I o/o an artisan chocoalte and pastry place.

The ones who can get a handle on the biggest expenses are the ones who have the best chance for survival.

We all know what they are: Rent. Labour. Foodcost.

The insane amount of energy (terms of gas/electricity, manpower, and capitol for equipment/infrastructure) needed to offer a say, 50 or 60 item A'la carte menu, is well, just insane. I truly think the a'la carte system menu will change, and the ones who do will succeed. There are many ways to do this.

[nypork]

I'm a chef at a tapas place in NYC that has been open just a year and we just had our biggest day yet. I think the small plate and quartinos of wine model will boom in these times. There is nothing over $15 dollars on my menu and many around $10-and I must say I'm can be generous on portion. The one thing I have noticed is volume of business on individual days. It seems like everyone is saving up for the weekend, while Fridays and Saturdays are usually the busiest days, now they just totally eclipse the business we do earlier in the week.

[Shinboners]

Sadly, as an example of what someone said earlier, on how smaller bistros are doing ok and fine dining is taking a turn for the worse, we did 88 people within the first 3 hours of service last saturday, and a well known fine dining place did 20, if that, all evening. I mean, good for us, but I feel bad for the fine dining since I know someone there.

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Over here in Melbourne, Australia, a number of fine dining places have opened up less expensive versions of the flagship restaurant. A few were shrewd (or lucky) enough to have opened their cheaper options well before the financial crisis hit late last year. At the very least, they'll get some cash flow which will hopefully help their flagship restaurants survive.

However, I do think a lot of restaurants will close in Melbourne. There was a report recently that said that we had too many restaurants for a city of 3million. Complicating the issue at the high end of restuarants is the Crown Casino. Like their Las Vegas counterparts, they have lured high end restaurants to their location. We have a Nobu, but it's owned by Crown - and without the Crown money behind it, I think there would be a good chance that it would close.

[turkeybone]

Im in Baltimore, MD. My restaurant has an upscale and bar component, we brew our own beer and are popular for it. While our parties were down in the holiday season from last year, our restaurant week was especially booming and we were nearly breaking covers records. Also within the past 6 months we have broken and then nearly broken our previous dollar records. Theres definitely no sign of say, the bar propping up the upscale (24-27 dollar entrees). The food is seasonal (local but not overtly so) with a slight European slant.

Our chef is new as of 6 months ago, and he's very well trained and been bringing food costs down very well, with very excellent food which I think always goes far. Also we are close to two venues, so when there are shows or concerts we frequently will fill up.

As far as other restaurants in the area, its been tough. Lots are closing or changing hands. I know of a few that close for renovations, and then come back with a lower priced menu. The fine dining to the best of my knowledge is getting crushed -- lots of extended restaurant week menus and such.

[tan319]

This LATimes article from yesterday doesn't make things feel real great.

As a pastry chef, desserts are the first thing to hit the wall in this kind of economy so working in a place that just opened last April came to a close about three weeks ago for me.

Last November I thought when everybody sees the fourth quarter statements they would start slashing with a vengeance but when January rolled around the empty seats were staggering!

Xmas parties were very slow and unfortunately I think after todays numbers are counted places are going to stop betting on the next holiday.

I'm going to lay low for awhile and see if a few things that were in the works pan out but I have to admit that I'm starting to think about other careers.

You know things aren't very good when you start looking at locations like Dubai for work and a day later read an article the economy there starting to crumble...