c’mon, man, what are you basing this on? if you have some experience in this area, it
would go a long way towards establishing some credibility.
and no, replying merely, “i have some experience in this area” doesn’t really count.
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Micah, It’s kind of amusing reading somebody pretending to know something but at the same time obviously knowing nothing
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Nothing on HO about Trestle. There were two reports on Chowhound right after it opened, nothing added since CBS homogenized the site.
Rich people people sometimes open restaurants for the expected perks, but any semi-rational investor starts with a business plan that envisages a specific return on their investment. If you put too much capital into a business, you’ll never get it back, so the rational decision is to pull the plug. Restaurant owners are often too emotionally invested and end up going broke instead.
General rule of thumb is that a restaurant’s lease should be no more than 8% of total revenues. Negotiating a cheaper lease with better terms is a major factor in making a restaurant profitable.
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The better general rule of thumb, at least with respect to restaurants, is that it is not a good idea to invest in restaurants. Ever.
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In what area? In making money off businesses? Been doing that my entire life.
In restaurants? I know a bunch of people that invest in restaurants. I once considered investing in restaurants as a another revenue source.
What Ipse said is completely true, you should never invest in restaurants, for ROI anyway. Of course places like, say, tire shop taqueria might actually make money for the family members that run it, but talking about places like Republique and shit? Places that would go into somewhere with $100,000/month rent? These places are almost entirely funded by a sort of shadow vanity industry. No one is making money off of them as investments. Sometimes one of them actually is a massive insane hit that sustains like Bestia, but way more often they just fizzle and lose money. The name of the game is just losing the least amount of money possible, not maximizing ROI. The investors are all people for whom losing even a million bucks a year is just a kind of high-level expense for adding cool restaurants to their city. Like Phil Rosenthal who joined Sprout. He has hundreds of millions of dollars, and he doesn’t care at all if he loses a million here or there as long as Sprout opens cool restaurants that he likes eating at. Pretty much every investor is like that in the realm of higher end restaurant financing.
There are also other instances of people that got into the game thinking they would be making tons of money… these places are usually the ones that fold though.
I’m sure there are random exceptions to the rules as well.
Feel free to look into it for yourself if you want. I found it difficult to believe as well before I looked into it. I was eating at some of these places and thinking “boy, this must be a cash cow kind of place! I wonder who opens these things?” Turns out you wouldn’t be more wrong. The main people you are paying your $100/person to isn’t the chef, or the investors, it’s the landlords and the city, and hell, often enough the farmers…
Weird industry.
I don’t think I encountered any semi-rational investors in the restaurant industry.
Not the high-end types anyway. Maybe chefs that get a taco truck, or hard-working families starting a great spot for thai food or something, sure. But on this upper level…at least here in LA, it’s essentially entirely a vanity industry.
I guess you’re right, there sometimes are unique owners that go it alone imagining reaping some kind of big rewards, get emotionally invested, and go bust too… but I’ve never found those people to that rational in their approach to restaurant either.
It seems to me like the world of high-end restaurants is a world funded by a bunch of people that were hyper-rational in some other aspect of life, and this is the industry they want to just be emotional and carefree in. Tons of Private Equity guys, Hedge Fund guys, I-Bankers, etc… fund restaurants or put into major restaurant groups in LA. Surely they know how to squeeze profits out of pretty much anything, so why do they invest in things that are known losers financially? All kinds of reasons, but none of them particularly rational if by “rational” you mean “optimizing actions to make profits”.
Could be different in different cities… but the similarity of restaurants in many major cities make me think it probably isn’t. Wasn’t Saison bankrolled by a high-finance guy in SF through its early period of losing something like $10,000 a day in ingredients before it was popular and gained traction?
The smart way to open a high-end restaurant is probably to partner with a hotel.
Joshua Skenes and Mark Bright started Saison on a shoestring in an industrial area where previously the only people on the street at night were hoboes. I think I read that they originally financed it with credit cards.
http://insidescoopsf.sfgate.com/blog/2009/07/14/a-new-restaurant-opens-one-night-a-week/
thank you.
The biggest shares of restaurant revenues go to employees and food suppliers, each probably 35% or more at a good high-end place. The landlord might be the only person involved making a profit.
That is indeed what I said. I guess “food supplier” is better than farmer though.
True the staff, especially FOH, do make money off places, esp. popular places. Being a FOH server at Bestia is a shockingly great paying job by any metric imaginable, but those are pretty rare jobs.
The real lesson is mainly that being a landlord is a truly wonderful thing lol
Nope. In general, not true. I’m in that industry and don’t know a single person who’s a restaurant investor. We can read pro formas.
Restaurateurs/operators always marvel at how we can fundraise for different projects/companies and it’s so hard for them to raise a fraction of that amount for a restaurant.
Regarding the seemingly sudden rise in menu prices, many restaurants have been preparing for higher labor costs (rising minimum wage) and higher food costs.
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