A veteran of the restaurant business and a fellow blogger, Waiternotes, posted a piece on his site recently that brought up some sobering thoughts about restaurants, specifically individual, non-chain restaurants, and their ability to survive in the current economy. Waiternotes writes an excellent blog, and I heartily recommend a visit to his site. More than just the usual rants of the vindictive waiter, he is a guy like me, who has been through the wars, seen both boom times and bust; he’s done the corporate thing and the Mom and Pop shops; and as such has developed his survival skills. He has a sense of humor and perspective on our business that only comes with years of experience.
The entry, called “Money, The Ultimate Hammer,” starts out as a discussion on guests haggling with restaurants over wine list prices. Specifically, guests who offer less than the listed price on the more expensive bottles to see if the management would bite, simply to move the inventory. He noted a supply/demand relationship, as incidents of corkage have increased (more and more guests doing the BYOB thing) and upper end wine sales have decreased, that might encourage management to take an “offer they can’t refuse”. This is a truly frightening trend; and the reality is that many restaurateurs are desperate for some cash flow, and are being held hostage by both their guests and the competition. They are succumbing to what would have in the past been considered outrageous demands. Diners and wine-drinkers have become drunk with power lately, as they discover that more and more wineries, restaurants, and retail stores have become more and more desperate for their dollars than ever before.
With things being the way they are in the world these days, there has been a steady shift to the paradigm of a buyer’s market in restaurants, with many mid-level or higher-end places offering special prix-fixe menus, waiving corkage, offering half-price wines on certain days of the week, and a lowering of prices overall just to put the butts in the seats. Many of these restaurants are the same ones that enjoyed packed houses and higher-than-insane wine mark-ups during the dot-commer boom of the 90’s and all the real estate “paper millionaires” of the 00’s. It has been my philosophy, since all this began in earnest last winter, that if you live by the discount, you die by the discount. That is, if you lower your prices to fill the chairs, all those chairs will be empty when the economy improves and you attempt to re-establish the pricing structure that was intended to make your place profitable in your original business model.
Now, this kind of high-minded philosophy is all well and good if you have a corporate backer, or a money-man with a bottomless pit of cash to help you make payroll and keep the product rolling in the back door. But what about independent operators, or even those smaller “restaurant groups”, who have built up a couple of successful spots through hard work and sweat, have a fairly steady clientele, and now face increased pricing competition and an ever-tightening credit market? Many can no longer draw upon a “line of credit” at their local bank to get them through the winter or off-season months. Many of those “local banks” (and many larger banks as well) are either no longer in existence, or their interest rates and lending policies have become prohibitively tight. There has always been one hard and fast rule in banking when it comes to restaurants: Don’t lend money to restaurants. With a 50% or higher failure rate in small businesses in general, and higher than 85% in the restaurant universe, even in boom times banks were hesitant. Now? Pretty scary if you’re a small businessman and you are looking at a $10,000 stack of invoices, fixed costs of $50,000 a month, plus payroll for a crew of 40 every week, with a checking account that has a $4000 balance. Suppliers also are tightening their belts and getting more aggressive on collections for accounts they used to let go for 60 days or more.
Many places that fall into this group are simply in “Restaurant Hospice.” That is, they are hanging by a thread, hoping that the economic tide will rise and float all boats before they are forced to lock their doors. If you see a place that has never done breakfast suddenly flying a banner that says “Now Serving Breakfast!” you can bet their slow-death march has begun. Staff at one local spot arrived yesterday to find doors padlocked and a note saying they have closed. No notice, no severance. Merry Fucking Christmas. It can be argued that the place in question has had more that its share of ownership changes and management miscues, and is now lying on the bed they made themselves. Anyone with any sense and foresight could see the signs: declining cover counts, a building that was frayed around the edges because of a lack of maintenance money; but all of that is little consolation to the servers, cooks, busboys, and managers that are out of a job in the dead of winter.
I know, I know. This is not my usual light-hearted banter about life in the restaurant business. But for many of us, this is the reality of today’s economy. I have the good fortune to be gainfully employed at a successful, well-run operation that is in fairly strong fiscal shape and has a dedicated, regular clientele; and despite the aforementioned closure, the local economy is showing signs of life. A couple of new spots are opening, some empty spaces are being leased for future openings with a couple of big-name, big-draw Chefs signing on, and we are lucky enough to be in a tourist-driven area that people can still afford to visit on a regular basis. So maybe we are not heading inevitably towards the dystopian future depicted in that really bad Sly Stallone/Sandra Bullock movie “Demolition Man” where “all restaurants are Taco Bell.” Oh, the horror.