Restaurant Realities: You Won’t Get Rich…

This kind of thing happens to me and my business partner several times a year: A restaurant in our part of town that we thought was a sure winner for concept, quality and service goes out of business – usually without warning. And Erin and I wonder if we could have done it better…

Closed Restaurant - © Ted Pritchard - thechronicleherald.caAn all-too-common sight on our streets these days…

This time, it was a large (dozens of seats) sit-down ‘Smokehouse’ style resto with both a bar (advertising ‘nightlife’) and a family dining area. They sent around the usual take-out menu by junk mail soon after opening but did very little else thereafter to promote themselves. That, we recon, was their first error: Too little budgeted for advertising and promo. I don’t remember seeing anything about special events or promos at the eatery in adds the local weekly newspapers, either.

Reviews I read online varied from great to gross. That’s a bad sign. It sometimes means that the resto’s owners have asked, or paid, ‘ringer’ reviewers to post overly positive reviews while the civilians (diners not related to the owners or employees) contribute mostly negative reviews. Sure, all eateries have their of nights. The Chef is sick and the Sous Chef just isn’t up to the job. Or the usual ingredients from the usual trusted suppliers are not available. But no real resto could ever be successful operating so haphazardly as to generate such polemically opposite reports on the food and service from night to night.

Of course, they did go out of business. So, maybe, their operation lacked what we might call ‘reality’.


I’ll bet there isn’t anyone out there reading this who hasn’t fantasized, at one time or another (or continually, like Erin and I do), about opening a restaurant and becoming a famous community fixture, like Cheers in Boston or Delmonico’s in New York. Or even just ‘the spot with the best Pizza in town’… Alas, many who dare to play the restaurant game lose. There are many reasons, and they tend to pile up on the unwary beginner quickly.

First, you have to have lots of financial capital behind you to be successful,. Don’t go in without at least three months of operating money in the bank. Six months is even better. Even before that, remember that it takes anywhere from $100k to $250k up-front to actually build the place.

Next, price your menu properly. Lots of folks want to put prices on their food that they, as customers, would like to pay, rather than higher prices necessary to stay afloat, let alone prosper. The rule is, your food costs cannot exceed 30 per cent of your menu price for any dish. There are even apps to figure that out instantly, these days. And, before you can even make that crucial calculation, you have to formalize your recipes so that your food costs are consistent from serving to serving.

What’s behind the magic pricing formula?

Why does the menu cost have to be three times the food cost? Because of all the things a first time restaurateur (often also a first-time business operator) doesn’t think about before signing the lease. There are design and safety inspections, city licences, business incorporation and registration fees, liquor licences (usually), insurance, utilities and services such as used grease/oil removal and the occasional deep cleaning of the kitchen by outside specialists. Appliances and refrigeration gear are constantly breaking down. You have to budget monthly amounts for such events, which may come upon you at any time.

Then factor in server wages and benefits, and back-of-house staff costs, and your own wages if you plan to pay yourself to run the place rather than simply taking home the profit. Now, add private garbage removal service, uniform and linen laundering costs, and the cost of non-food consumables ranging from paper table napkins to take-out containers to register receipt tapes.

And make an overall ten per cent allowance for ‘breakage’ and ‘shrinkage’.

As we mentioned previously, you really have to budget for the cost of special events to keep up interest in the community. On top of advetising, that may include ‘loss leader’ menu items such as ‘Two-for-One Appetizer Night’ or some kind of drinks special to dress up live music nights. If you elect not to charge a cover charge for the music, you’ll have to pay the band out of your pocket, and that’s your profit walking out the door. Happy Hour may be an oldie promotion, but it’s still a goodie. Just make sure it’s truly ‘happy’!

And decide early if your place is going to be a ‘Sports Bar’ or not. Then stick rigidly to that decision. Otherwise, you’ll end up disappointing everybody.

If you are a neighbourhood joint angling for family business, send out your latest menu by junk mail to local residential addresses two or three times a year and encourage your patrons to take one or two copies home, for their own reference and to pass on to friends. If you want to boost lunchtime business, send out flyers advertising  a few ‘light’ luncheon specials at a ‘light’ price by junk mail to businesses in the area. And guarantee that time-strapped lunchtime diners will be served these special plates in fifteen minutes or less. Offer no more than half a dozen ‘luncheon specials” to keep it simple for your staff and be prepared to keep your ‘fifteen minute’ service promise.


How do you feel about opening that restaurant now?

~ Maggie J.