The Restaurant and Bar Business

I am far from an expert on the Restaurant and Bar Business segments but as a long time resident of Chicago in various areas packed with these establishments from Wrigleyville to Bucktown to River North I am at least a frequent regular qualified to throw my 2 cents in. I hadn’t thought too much about the economics of this until I talked to a friend who recently opened two great pizza places where he is the owner about what you get when you buy a used restaurant.

You get nothing… you have to re-model and start over the food concept. And when you sell, the next guy does the same.

What makes a good restaurant as a business? There are a lot of variables and I am only speculating, but certainly timing and location are key elements. For instance you have the Twisted Spoke, a bar on Grand Avenue in what used to be a pretty sketchy part of town that is rapidly gentrifying, and they have the iconic “skeleton on a motorcycle” on permanent rotation in front. This bar has survived for a long time with a mix of hipster / biker cool, an astoundingly good drink / beer mix, and surprisingly good food and interesting / witty / iconic employees. I’d bet that back in the day this place was actually full of bikers but nowadays the crowd looked like the usual hipsters in plaid shirts. And don’t forget the enormous benefit of a rooftop – it astounds me how many bars / restaurants ignore the fact that Chicago people LOVE to sit outside during the few nice days that we receive every year and they drink like fish and eat until they can’t even move.

A River North restaurant, Sushi Samba, was enormously successful for many years in the heart of River North. We used to give a general description of where we lived as “near Sushi Samba” because everyone either went there or knew about it. The place is enormous with an upstairs that opened up in the summer and was packed with beautiful scantily clad people and cars lined up for valet parking around the block. But recently I walked right by and saw this…

Their furniture was being carted away and sold off and the restaurant was shut down. In recent months / years the crowds had dwindled as dozens (literally) of big new restaurants opened all over River North. I don’t know if they couldn’t keep pace or perhaps their real estate was so valuable that they were simply priced out of the market – depending on “air rights” you could build a multi-million dollar condo unit or even large building on that large space facing Wells. From my economic perspective they could have (or maybe did) sold out to someone else at the height and pocketed the money and let the other guy ride the popularity wave back down. Before it was Sushi Samba it was the Hudson Club which also was hugely successful and busy for a while long before I moved to River North. So perhaps it will become another huge successful restaurant, as well.

Cross Posted at LITGM

35 thoughts on “The Restaurant and Bar Business”

  1. I’ll chip in my two cents, even though I know nothing about the subject. There was a really good Italian restaurant in a strip mall in a nice neighborhood a few miles from me. I first went soon after they opened. It was corner property, muted decor, low-light, and wrap around windows that gave a feeling of openness despite being a crowded space inside.

    They served a dish, Penne Adriatica, that was one of the best things I’ve ever eaten. It was penne pasta, with a light scratch-made sauce full of tomato bits and herbs and garlic, crab meat, seared scallops and grilled shrimp. Unbelievable flavor. As time went by, it got more crowded, and soon you had to wait to even sit on weekend nights. They eventually added outdoor seating for the summer months. Very successful little business.

    Around that time it was sold to Hispanic owners. While the name and menu stayed the same, their first order of business was to install a small bar and big screen TVs with Spanish language sports. The service got much worse. Everything took forever to get, the food began to get that slapped-together, shut up and like it, quality. The atmosphere inside, predictably, got noisier and pushier. I stopped going. We didn’t enjoy it anymore. Apparently a lot of people stopped going. It closed about two years later. I missed the old place and still miss it.

    I never understood why they did that. Why buy a successful Italian restaurant if you what you really want to run is a Spanish language sports bar? And why in an area where there’s not a large Hispanic population? I wonder how much money they lost?

  2. I worked at a number of family-owned restaurants in high school and college- counter work and dishwashing. Restaurant work is a long-hour, low margin business. The reason there are so many family operations is that the family members work for peanuts. Replace those family members with ordinary employees, and the business goes under. It is a tough business. For being a tough business with long hours, I was impressed by how down to earth the restaurant owners were. Would you like to sit down and have a beer with them? Hell, yes. Perhaps that is because while you can put on a front when you work 40 hours a week, when you spend 120 hours a week at it, you have to be your self. No one can put up a front for 120 hours a week.

  3. I’ve met a couple of restaurant makers. These are guys that come up with a plan and establish a successful restaurant based on a theme of some sort. Then they sell it to somebody with more money than smarts and the original owners move on and build another one.

    There used to be a hugely successful bar and restaurant in Coast Mesa called “The Crazy Horse.” It had country music in a small theater with a restaurant next to it in another wing of the building. It was one big building near the 55 freeway. A few years later, it was sold and closed about two years after that. It had been established by these guys I talked to. It was amazing how somebody could screw that up. It was hugely successful. For years after it closed, the building was visible along the 55 freeway and never had any other business in it.

    If you google “Crazy Horse Restaurant” you will find them in several states and I don’t know if those have anything to do with the guys I talked to.

  4. Is Old Jerusalem still on Wells? Great place, back in the day. The owners probably bought the building in the ’70s or early ’80s when the neighborhood was a dump, and rode the real estate mkt all the way up.

    How about Ishtar? The original owner built it up and sold it a few years later. It was never the same.

    Most restaurants seem to go downhill after they are sold.

  5. In California, it’s all about the lease. If you negotiate a favorable one you have a chance. If not…

    Oh and you can’t serve foie gras. Otherwise to the clank you go.

  6. With bars I suspect the need (and protection) of embezzlement is a science. It is mostly cash and how do you measure the contents of a bottle vs the revenue?

    With restaurants you are at the mercy of the head chef. He leaves it is like starting over. I think there is a lot of money to be made but you have to be married to the business – lots of oversight 6-7 days/week.

    I used to watch that Gordon Ramsey program where he would come into troubled restaurants and tell them what was wrong and how to fix them – discounting the usual reality show dramatics it was interesting to really see the inner workings of the business.

  7. Interesting topic – I might add you can go overboard on buying into themes. A fellow spent over a million opening a 50s theme restaurant – 50s cars in front, servers in poodle skirts, etc. It lasted a year/2.

    Another restaurant I know of – successful (very) restaurant – owner sold it and the first thing the new owner did was lay off half the staff and cut the lighting.

    I am sure that he did it to afford to pay off he seller but the customers knew it and attendance dropped dramatically.

    I think – whatever the “it” is that makes the restaurant so successful – better tread carefully on changing any of it –

    And no matter the themes or ambiance – if the food or service is bad doesn’t matter what else you have.

  8. There are a couple of very nice places in my immediate neighborhood, and one particular premise that I think must be cursed. No restaurant in it has lasted more than a couple of years. The last one had a run of about six years, but it’s been shuttered for I don’t know how long. There is another place – Bay Seas Seafood which does mostly Cajun and southern, and it is magnificent, but they’ve gone through about three locations that I know of; they started very small, moved into a place too big, then fell back onto a small storefront location – and now they are opening again in another one.
    A pizza and Italian place called “The Purple Garlic” has bounced around too – itty bitty storefront in an upscale strip mall, then to a bigger place on the Austin Highway – and that one crashed and burned, but about three years ago they opened again. The food – sandwiches, pizza and pastas are great, and they seem to be doing OK now – they are right next to a Domininos, which probably only gets business when the Purple Garlic is crowded.
    Chinese place called “Chin San” has been around forever – family owned and run; tiny storefront again – got burned out after a car crashed into the place next door and set fire to it. In the middle of the night the fire flared up again and took out Chin San, but fortunately, they rebuilt and reopened.

  9. I was at the twisted spoke recently. We sat on the roof, and the food was good and the beer list was amazing.

    Agreed to let people like to sit outside in Chicago whenever they can.

    My son and I ate lunch outside today, at the Jerusalem Café on Lake Street in Oak Park.

    I am afraid we are going to have a very cold and very protracted winter season this year.

  10. SWMBO has her BA in business admin, with minor in nutrition, because she wanted to work in the resort industry when she was in school. After we’d been married for a while, I was talking about retirement, and maybe opening a little restaurant in our neighborhood. We lived in an area with 3 very popular private colleges, so I thought something sporty with burgers etc. would be a natural.

    She looked me with her special, “don’t even think about trying that one” look and explained that not only would it be expensive, requiring all our assets be committed, but that the hours would be brutal, the returns meager, and the great majority of restaurants fail in less than 2 years.

    That was the end of that big idea. I’ve been grateful ever since.

  11. I can’t speak for Chicago, which has its own corruption problems; but I did grow up in Chinese restaurants. The restaurant business is ….. unique.

    Many restaurants are started by immigrants because it is essentially something that can be done without technical qualifications. A CIA degree is not necessary to start a family joint. And everybody has some family favorites they can prepare.

    My dad came here, 12 years old, alone, not speaking English. The Tong made him learn a trade [the hard way, working from the bottom up] and English. The trade being the restaurant business. He owned several restaurants in his life.

    If you are the Chef, you work 6 days a week, 12 hours a day. If you are the owner, you work 6-7 days a week, 18 hours a day. But if you can negotiate your way through the regulatory maze, you can support a family in a new and strange country.

    It is harder to start and run a restaurant nowadays, because the regulations have multiplied. As has the corruption. In all the time I was growing up, I never saw an honest health inspector. They all had to be paid off, even if your place was spotless. The usual payoff was a free meal for himself and his family either once a month or once a week. Now there are more inspectors and regulators to pay off.

    Another advantage of a restaurant is that you can hire your own kids, and use them without pay, to keep the wages in the family. I know a lot of Chinese kids who grew up in restaurants, and as soon as they were old enough to go on the books legally, they did so, with the wages staying in the family, or going into college savings.

    As you grew up, you learned the business and could move into higher paying jobs. I paid for college working on summer and Christmas breaks, cooking on the line. In the 1960’s, a Chinese cook with my qualifications in Nebraska got $600 a month “Chinese style” [business absorbs the taxes, the wage quoted is after taxes] to come to work there as a standard wage. That was because getting Chinese to come there and put up with the racist locals required a premium. That works out to about $4100 a month, net, today after accounting for inflation. Mind you, that was 6-7 days a week, 12-15 hours a day, in a kitchen that ranged from 109-188 degrees.

    But when we were young, we could do it.

    Those restaurants are gone now. Because they served the purposes intended. They supported the family, and just as importantly paid for college for the kids. Once they got their degrees, and a career, they did not need the restaurant. If there is not a family member to take the place over, when the parents retire, it is gone.

    It is a hard enough job, that I preferred spending my working life dealing with Darwin and felons while wearing a badge.

    Nowadays, it is harder to start up, harder to keep going, and 6 years into the Obama Recovery no one has any disposable income to spend in a restaurant. Family places cannot compete with corporate deep pockets, so they go belly up.

    Subotai Bahadur

  12. OOPS.

    Mind you, that was 6-7 days a week, 12-15 hours a day, in a kitchen that ranged from 109-188 degrees.

    That should be 109-118 degrees. I was tough, but not that tough.

    Subotai Bahadur

  13. }}} I used to watch that Gordon Ramsey program where he would come into troubled restaurants and tell them what was wrong and how to fix them – discounting the usual reality show dramatics it was interesting to really see the inner workings of the business.

    It’s still on. In fact, if you hunt for it (Hulu? I don’t know) there are a number of eps of the UK version. It’s funny, he’s nowhere near as obnoxious to the owners in that one.

    I think most of the time it’s pretty clear that he’s right, regardless. He knows how to recognize what will sell in an area, and how to do a restaurant right (he’s a more honest, honorable version of those restaurant makers MikeK refers to above. If you listen to him, AND know how to run a business properly (which is also always a trick) then you can probably do well.

    I went the restaurant route to pay for college. And I’ve known people running such businesses. And I’ve seen non-restaurant businesses by the half-dozen or more rise and fall.

    With restaurants, you have to pay attention to your food costs. You have to be careful not to waste money getting things that the customer CAN’T detect, and get/use stuff the customer CAN detect. Sometimes this is your cook or head chef. If the latter, clearly you’re vulnerable. Part of it is making sure you’re paying people adequately enough that they can’t quit and go work somewhere else for just as much. I know one guy who paid his night manager only about 50 cents above minwage. The guy didn’t hesitate to walk out the back door with a bag of fresh bread. It adds up. And the manager was actually a pretty good guy, he just felt like he was ridiculously — not slightly, but ridiculously — underpaid. That restaurant no longer exists, though it had been around for 35 years and had a lot of steady college-town alumni business during football season. And the food wasn’t bad, either, along with having a signature sandwich that was relatively unique and highly tasty.

    Food taste alone won’t beat bad management. You can have the best damned stuff in the world and not make it.

    And the thing that holds with restaurants as much as any business (pardon my being crude, but it’s important to stress it):
    Spend cash flow like it was found money. But spend reserve capital like it was inches off your penis.

    Amazing how many businesses I’ve had a non-controlling eyeball on and watched fail almost entirely for failing to grasp this. At the very least, if they’d paid attention to it they’d have been able to TRY a lot longer, a year, two years, who knows if they catch on then?

    Restaurants are like this, too — spend your startup money on the things you MUST have to open and “look decent”. Then use your cashflow to upgrade. Buying everything “top notch” out of your reserve capital cuts down on the time you have to catch peoples’ attention, and that is NEVER good. You should plan on operating with no income and no customers for at least two, preferably three years. Yeah, that may mean “don’t open” or “lose that great spot that just opened up”. but it’s a major crapshoot if you don’t.

    What’s always interesting is when the people who are opening restaurants SO badly underestimate their startup costs that the place gets partway open (to the point of obtaining signage) and then never, ever opens. THAT is a restaurant that was doomed from the start. Seen a couple of those in the last decades, too.

  14. }}} That should be 109-118 degrees. I was tough, but not that tough.

    It’s probably more doable than you think. Hydration and mineral replacement is the main trick.

  15. I’ve been to Twisted Spoke on the roof. I remember at the time it was the first place I saw in Chicago that had Bell’s Oberon, back when no one knew about it.
    It was a sketchy neighborhood, but it has definitely come around since, although it still has it’s share of colorful people.
    Lots of loft living around there.

  16. I remember Old Jerusalem too. Good Lebneh IIRC.
    It was located next door to my alltime favorite Italian restaurant, Orso’s.
    While that place was definitely sketchy in the “Chicago way”, if you know what I mean, it was always warm and inviting. They used to grow their own grapes above the patio and harvest them in the fall. Really nice.

  17. SB, I used to have an acquaintance in Chicago whose father ran a Chinese restaurant in Superior, WI. I’m guessing that her father’s background was similar to your father’s background.

    When I was young and naive I thought it was great to have a family business and that immigrants had the right idea. Only later did I realize that immigrants who run restaurants and similar businesses generally do so because they don’t have better options. Typically their children go into different lines of work.

    WRT corruption, John Kass, the Chicago Tribune columnist whose Greek-immigrant father ran a grocery store or restaurant, wrote bitterly about how petty Chicago officials had routinely abused his father. I have a Chicago friend whose father and uncles ran restaurants. My friend told me that when he was a child he mistakenly believed, for obvious reasons, that it was normal for health inspectors and other officials to charge for their services.

    Opening a restaurant is the worst sort of negative-gamma speculation. You have all kinds of potentially ruinous liabilities, long hours, unpleasant working conditions, you can’t easily take time off, and in most cases the upside is limited. Why would you do it if you had better alternatives?

  18. My father, in his later years, ran a tavern on the South Side where he served great hamburgers. The local police captain sent his bag man around every week to collect the bribe. If you didn’t pay, every customer got a parking ticket. If you did, nobody ever got a parking ticket. When he died, I sold the tavern to a white guy who owned it for years. My nephew went by there one day a few months ago. The front door was locked and you had to knock. They opened it and told him he had better get out of the neighborhood before he got killed.

  19. Is anyone else bothered by the acoustics that seem to come with the “internatonal” or faux industrial or whatever of the latest chains?

    I appreciate good food but am no expert and my idea of goodness is pretty plebian – but I would like a place where you can hear each other talk, the ice tea is refilled thoughtfully and discretely. My husband and his friends meet for dinner once a week at the same local Mexican restaurant we took our kids to 35 years ago (and they didn’t mind 2 year olds that left a mess). Not surprisingly, the owner is getting old, but he still walks around every once in a while and greets people. One of the book store owners said he took all his employees there just before the rush of the first week of school for a free dinner but also to see a model of thoughtful service. And you can talk there. You can talk for hours.

    That’s a restaurant that is a family restaurant in all its meanings. We always take the kids there as well as visiting scholars – the Czechs are surprised by Bohemia. Moving into retirement, he sold out the restaurant on the other side of town; it became a fussy ladies who lunch place with elaborate jazz and Sunday brunches. It died in a couple of years.

    (Indian restaurants always seem to die here, but now some Mediterranean ones are springing up.)

  20. “…It’s still on. In fact, if you hunt for it (Hulu? I don’t know) there are a number of eps of the UK version. It’s funny, he’s nowhere near as obnoxious to the owners in that one.

    I think most of the time it’s pretty clear that he’s right, regardless. He knows how to recognize what will sell in an area, and how to do a restaurant right (he’s a more honest, honorable version of those restaurant makers MikeK refers to above. If you listen to him, AND know how to run a business properly (which is also always a trick) then you can probably do well….”

    One thing I got from watching that program was to limit menu choices and of course watch the inventory. Like almost any business, inventory (and accounts receivable) can kill you.

    Ramsey is right of course – he runs numerous restaurants in the US and UK – I think his “drill sgt” persona is a schtick for reality TV nonsense. But you listen to his critiques to the restaurant owners, he seems to be spot on.

    I have found too in restaurants, the good ones, that presentation is 50% of the meal. The Japanese really seem to get this – some of their plates are so beautifully prepared I want to photograph them. Let’s say Presentation 25%, general ambiance (decoration) 25%, service quality 25% and meal quality 25%. Maybe meal quality should be higher – after all, a really lousy meal and the rest can’t compensate but a great meal in a lousy setting won’t do, either.

    One thing that seems to be “haute cuisine” – having mashed potatoes with something piled on top of them.

    Reminds me of the Army.

    I don’t get that.

    Maybe I’m too plebeian.

  21. I like to go to restaurants to eat fish. I can do steaks and chops at home about as well as they do. Fish is another matter. There is a nice chain out here called McCormick and Schmicks that began in Seattle and does fish well. There is no comparison with Simon and Seafort’s in Anchorage which is the best fish anywhere but I have to go to Anchorage and I only do that every decade or so.

    I’m going to take my grandchildren to Alaska next summer. I did it with my kids 20 years ago and my son’s wife missed out as they had started dating just before we went. Now, I’ll take her and their three kids. We rented a motorhome and drove all over. The last two nights are for Anchorage and Simon and Seafort’s. The highlight is usually Homer but the restaurants there are no comparison. We camp out on Homer Spit and the sun goes down about 3 AM in June. Worth the trip.

  22. MikeK – I think I was at that restaurant in Anchorage years ago – Simon & Seaforts. I am not that fond of seafood other than crab & lobster, but the halibut was out of this world as I recall.

  23. “Why would you do it if you had better alternatives?”

    Low barriers to entry in many cases, as long as you can manage the local regulations and customs and keep your overhead low.
    It doesn’t require huge capital expenditures initially – rent, food ingredients, pots and pans, etc. are within reach of a motivated entrepreneur.
    Confidence that you can leverage your intellectual capital – human resources (family), trade secrets (recipes), and customer relations – and high valuation of it.

  24. >>Low barriers to entry

    When I was young I worked for a guy who’d been born in the 1920’s. He told me that, during the depression, someone rented an empty storefront, installed some fryers and cabinets, set up counters of wood planks on saw horses, and sold donuts. You could get a doughnut and coffee for a dime. He said they did really well. How’s that for a low barrier to entry?

  25. In the early 1900s I had one set of great-grandparents open a grocery store in the front room of their house and another start a supper club in the front room. Being immigrants they had no concept of an extra living room being for leisure.

  26. >>Good point about low barriers to entry, but nowadays they aren’t as low, due to high levels of govt regulation.

    And how do you fight that? The people who support these ideas portray themselves as angels of righteousness, saving you from the evil people who will sell you industrial waste as coffee. You really need some group willing to take on the bureaucracy and rewrite the rule books. They need to get elected. The ‘optics’ of fighting against regulation are very difficult. You’re in a position where you’re easily portrayed as evil. It would take a very talented and principled politician. Seen any of those lately?

  27. I’m aware of a mixed marriage Asian family in the Dallas TX area who learned the resturant business from their immigrant parents. Both husband and wife saw their respective eldest sibs inherit, respectively, the Chinese and Korean resturants their parents had founded. Knowing the trade, taking two shares of their families’ businesses as cash out, they opened and have succeeded with the best little ITALIAN resturant in the northern suburbs…

  28. Years ago I went to an Italian evening class. We got talking about why we wanted to learnt some Italian. A girl from Northern Ireland said that she owned a restaurant and wanted to know what the devil the waiters were saying to each other.

  29. @Mike K– when you mentioned Simon and Seafort’s in Anchorage, I got a surge of nostalgia. I lived in Anchorage 22 years, and visited Simon’s many times. happy hour in Autumn, watching the sun set behind the Alaska range…the sourest sourdough bread on the planet, and the best by far. the egg/spinach salad, with honey-mustard dressing…the incredibly good grilled shark, marlin, mako…I think you have a desperate need for a butler/driver to go along on your Alaska trip. I would be willing to make the sacrifice…

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