So You Want To Be A Restaurateur?
Read This First
By Phillip McGrath
I can’t count how many people from all walks of life—surgeons, stockbrokers, salesmen—have come up to me at the Iron Horse Grill and, with stars in their eyes, said, “I would love to own my own restaurant just like you!” I think to myself, “You’ve got to be kidding.” Are they really ready to literally assume the roles of butcher, baker, and cocktail maker, as well as myriad others, in their own small business?
Maybe it is because of the popularity of cooking shows and made-for-TV reality shows glorifying the restaurant culture and deifying chefs. Most of those shows are about as close to restaurant reality as a soap opera is to the life of the average housewife.
In its simplest form, a restaurant is a retail business. Once you remove the elegant trappings of the dining room and the mystery of the items on the menu, what a restaurant business does is purchase high-quality, fragile, highly perishable, and expensive raw materials (the food and beverages), manufacture items in a hot and dangerous factory (the kitchen) according to intricate formulas (the recipes), and sell them through fully commissioned salespeople (the dining-room staff), in a highly stylized showroom (the dining room) to a demanding and knowledgeable clientele.
Unlike other retail businesses, the restaurant business is immediate. You order your martini, shrimp cocktail, steak, and chocolate mousse and expect them to arrive expediently, be impeccably prepared, artistically presented, and served by a smiling, caring wait staff. All of this must transpire in a window of about two hours.
Let’s suppose you want to go through with embarking on your own restaurant odyssey. Your first key decision: restaurant concept and location. French bistro? Spanish tapas? Asian-Fusion? Will it be in the City Center, a renovated mansion in the country, a strip mall on a busy road, or a food court in a mall?
Danny Meyer, the highly successful restaurateur behind Manhattan’s Union Square CafÃ©, Tabla, and others, writes in his book, Setting the Table, that the first thing that he looks for in a restaurant location is a long lease with affordable rent and the ability to sublet, assign, or sell his lease in case the restaurant fails. At the start, the only true asset that a restaurateur has is its lease. Why do you think areas like the Meatpacking District in Manhattan, downtown Yonkers, and Port Chester have become chic areas for restaurants?
They are areas that have large spaces at low rents. A good friend of mine, Alan Harding, was one of the pioneers of the now red-hot Smith Street restaurant scene in Brooklyn. He opened the French bistro Patois 10 years ago. His lease is about to come up for renewal, and his landlord has generously offered to renew it—at almost triple his present rent.
Here in Westchester, my friends at Kisco Kosher had to relocate from their location in Mount Kisco to White Plains because the landlord wanted a substantial rent increase.
Rents in Westchester are fast becoming out of reach for many first-time operators. Gerry Houlihan of Houlihan Restaurant Brokers in Bronxville tells me that rents in the county range from lows in Mount Vernon and Peekskill of $35 to $45 a square foot to as much as $80 a square foot in places like Rye, Scarsdale, and on Mamaroneck Avenue in White Plains. That is close to Manhattan occupancy costs. You have to sell a lot of beet-and-goat-cheese salads to make it at those prices.
Once you have found your dream location and decided on the concept and menu, you have to build the restaurant. To start, you will need, at the minimum, an architect and possibly a designer to make the dream a reality. Houlihan tells me that current “build-out” costs range from $200 to $275 per square foot. “Build out” includes everything from the architect to the opening and all fees, equipment, tabletops, and anything else that it takes to get you to opening night. And that’s not even going for all the bells and whistles. (The 1,750-square-foot Iron Horse Grill would cost well over $450,000 to renovate today.) These “leaseholder improvements” then become the property of the landlord. Unlike renovations to your home, which increase their value, the equipment in a restaurant actually begins to depreciate as soon as it is installed and used.
You can also go the route of buying an existing restaurant. There is an adage that the third party to own the location is the one that gets the good deal. The first operator overspends to build and outfit the space. The second owner overpays because the place is relatively new and in good shape. The third person in gets the best deal because the price has fallen to a manageable number.
Prepare for lots of red tape. Local architectural review boards, village or town boards of trustees, planning boards, and zoning boards must all be placated, and often require a substantial fee. Mike Testa, the Village of Pleasantville’s building inspector, estimates the cost of fees and escrow accounts for these various boards to open a new 60-seat restaurant in the village at approximately $8,000—if all goes smoothly.
Insurance is another high-cost item. Paul Sohigian, a partner in DRS&W Insurance in Harrison, a company that insures a number of local restaurants, admits that restaurants are considered a highly volatile risk by insurance carriers because of their high mortality rate (80 percent don’t survive). On average, you can expect to pay $7 per $1,000 in sales for premises and product liability, $3 per $1,000 for liquor liability, and $3.50 per $100 of payroll for workers’ compensation.
Staffing a restaurant is no picnic either. First you have to hire a competent, talented chef. Much of the success of your restaurant rests with this person; it is therefore the most important human resource decision you will make. The chef’s compensation can range from $50,000 to $65,000 in smaller restaurants and can reach six figures in large, pricey establishments. You’ll also need to hire bartenders, waiters, bus people, dishwashers, hosts and hostesses, and food runners. At the Iron Horse Grill, on a typical Saturday night, we can have as many as 18 people working and that is for a 60-seat restaurant with a bar that seats 10. That is one employee for every 3.8 seats!
How do you get the money to pull off this crazy idea? It’s not easy. When I was thinking of opening the Iron Horse Grill, I approached a local banker. I told him of a “friend” who was planning to open a restaurant in Pleasantville. He bluntly said, “Phil, we don’t lend money to restaurants.” Next, a local meat purveyor told me that he was on a small business board at another Westchester bank and that they were looking to lend money to small businesses. He arranged for me to meet with one of their vice presidents, who on the spot rejected my proposal.
In the end, what are you really looking at? If you can survive the first two years (only one out of five restaurants do), you can expect to work long hours and write lots of checks. You can serve 150 happy diners on a Saturday night—but the 151st who felt that his tapenade was a bit salty is the one you lose sleep over. If you succeed, you can expect to make a profitable return on your investment (about 8 to 10 percent) if you can keep your costs in line. Just because a restaurant is always full does not guarantee financial success. If your pricing and costs are out of line, you will soon be out of business.
So why do I do this? I may never make millions, but the exhilarating experience of making customers happy gives me and my staff a sense of fulfillment that not many other professions do. Just last week, a woman came in for dinner with her husband and daughter for her birthday. The daughter and husband ordered dessert, but the birthday girl did not, so we sent out a complimentary butterscotch crÃ¨me brÃ»lÃ©e. She called me over. “Now I know why you’re so successful,” she said. “You can read people’s minds and give them exactly what they want.”
That was the first time that anybody accused me of being clairvoyant, but not the first time a customer reminded me of the magic of being a restaurateur. That night, my staff and I won over a new customer, who may tell others about her experience and, in turn, guarantee that we will live to cook another day.
Philip McGrath has been chef and owner of the Iron Horse Grill in Pleasantville since October 1998.