HEY HR FOODIES: Stop Dreaming About Opening a Restaurant - Here's Why...

A bottle of white, a bottle of red
Perhaps a bottle of rose instead
We'll get a table near the street
In our old familiar place...
You and I, face to face
A bottle of red, a bottle of white
It all depends upon your appetite
I'll meet you any time you want
In our Italian Restaurant...

--Billy Joel

If there's one false positive in the business world, it's that a person should start a business simply because they love something.

Why doesn't that work?  Two reasons:

  1. You love something but have horrific business instincts and management skills.
  2. You love something and have good instincts and management skills, but the economics of the business SUCK.

A lot of you who read this blog are foodies. That means you've dreamed of starting a restaurant.  You might have heard that it's hard, but you still dream. You think you're the snowflake who can make it. Bill joel

You're probably not. And if you are, recent studies show that your success or failure is probably cemented before you even open the doors. More from the New York Times:

The New York City restaurateur’s perennial lament — that staying afloat is tougher here than anywhere else in the country — grows louder each time another restaurant closes. Rents are astronomical, the complaint goes; wages are rising, regulations are byzantine, and don’t even talk about the price of fresh produce.

One thing we do know: There is a rigid formula for survival. Whether a restaurant opens in hyper-competitive Manhattan or in California’s gold-rush dining scene, it has to make the same equation work: The costs of real estate, labor and food should add up to about 75 percent of its projected sales, leaving a profit margin of roughly 10 percent once smaller expenses are figured in.

Did you catch that? Let's say you're kicking ass and grossing and average of 3K a night with your idea for a different type of bistro (I like your idea by the way). The numbers tell us that you'll only keep $300 of that a night - if you're performing at a high level.  Depressing, isn't it?

A large restaurant group or chain may be able to skate below 10 percent because its volume is so high, but a chef who opens a starter full-service restaurant can end up in trouble if profits dip below that threshold.

To further break down the formula, a healthy restaurant aims to spend about 10 percent of its sales revenue on rent, utilities and other occupancy costs; 30 to 40 percent on labor (your specialty if you're readying this blog) including payroll taxes and benefits; and 30 percent on food and beverages.

This is a HR/Talent blog, so it stands to reason we should take a look at labor costs first.  More from the NYT:

The federal Bureau of Labor Statistics reports that annual mean restaurant wages in New York City in 2015 were about $49,000 for a head chef, $28,580 for a cook and $29,290 for a server. In San Francisco’s much smaller labor force, pay was about the same for a head chef, $31,120 for a cook and $32,040 for a server. Wages were lower in Los Angeles: $40,740 for a head chef, $25,300 for a cook and $27,570 for a server.

In all three cities, restaurants pay more than the federally mandated minimum hourly wage of $7.25, and each city plans an increase to $15 over the next few years. New York businesses with more than 10 employees will reach $15 in December 2018, up from the current $9; smaller businesses, a year later. San Francisco will increase its minimum wage from the current $13 in July 2018, but Los Angeles will not reach $15 an hour until 2020 or 2021, depending on staff size.

New York State allows employers to pay a lower minimum wage for tipped front-of-house employees, while California is one of seven states that have abandoned the so-called tipped minimum wage — so a New York restaurateur pays those staff members less than a California owner does.

You might be thinking of opening your bistro in a smaller metro than the three cited - doesn't really matter, since your prices will be lower and the 10% profit target will still hold true - if you're performing at a high level.

But we can't end this missive on the danger of opening your own bistro without telling you that your success or failure is likely locked up before you even open the door.  How well you find and negotiate your rent probably matters more than anything else:

CoStar, the nation’s largest source of commercial real estate data, tracks more than 980,000 listings. Though they are not broken down by use, Joseph Sollazzo, an economist with the firm, created a rough category of “restaurant friendly” spaces for us: listings from 2,000 to 5,000 square feet, a popular range for independent full-service restaurants, that met criteria like “available for all uses” and “ventilation.”

Some San Francisco landlords offer promising but unproven tenants a bit of help known as a percentage deal. If a restaurant performs below an agreed-upon level of sales, the tenant pays only the base rent. If it takes in more than the stipulated amount, the landlord collects an additional percentage, which can double the monthly rent.

 Some New York tenants paying as much as 13 percent for occupancy costs, which he considers a danger zone. “You get past 15 percent and you get into trouble,” he said.

What's that all add up to? Your dream of opening a restaurant is undoubtedly cool.  But it's a bad deal as a business proposition. Do great things related to negotiating your lease, have a great idea and drive traffic and you could be the recipient of a 10% profit margin.

Find another idea, HR and Talent foodies...

Miss on any of those items? You could lose your retirement.

Better to play a song like Scenes from an Italian Resturuant and dream.