Monday, August 07, 2017

Dolors and Sense......

Restaurant economics for beginners:

We have been working for some months now on taking over a long abandoned kitchen and dining room.  We have the skills, equipment and licensing to get the place up and running in days, not weeks.

The new owners have finally gotten back to us about rent, etc.  They want $3800-$4800 a month…..just to rent the kitchen.  An old, abandoned kitchen.  Viel gluck, schnukiputzi!

Here are the basics:  

Food cost should be 30-33%.  In other words, a pork chop costing six dollars must sell for at least $18-20… the cost of sauces, side dishes, etc.  Same with wine.  That ten dollar wine at The Grapevine will cost you probably $30-33.  Booze, sodas, coffee, etc will be marked up ten times.

Payroll: This will also cost you 30-35% of total sales.

Rent:  There are a couple of ways of looking at this, by sales and by square footage.  Breaking even on a full service restaurant should generate $150-$250 for each square foot (per year).  You don’t make money until you hit $300-350.  Rent should also not be more than 6% of sales…..(so multiply monthly rent times 16 or so.)  Our rent at Lokal was $1500 a month, for about 1000 square feet…..we needed at least $24,000 a month to pull it off, by both measures.

$24k income
$8k staff
$6-7k food cost
$1.5k wine cost (assuming only $4k sales, ie no Lee)
$1500 rent

Our net is now down to $6-7k to spend on utilities, linen, supplies, repairs…..OH! And Management!   

Completely doable….but yes, there will be a ten dollar corkage on that wine you bought from The Grapevine, sir.

In Cachagua our rent was $2500…..needing $40k a month at least to break even.  We almost did it! (Well, we did do it for years…..until the rent creeped over $1600).

Our theoretical new spot, with 900 sq ft, and let’s say $4k rent would be looking for $20k (by square footage) to $64k (by percentage) per month of sales.

The other way to figure out potential is look at how many bodies can you seat.  In Cachagua, 50 inside; at Lokal, maybe 40… pray for no rain.  Ever.  Our new spot would be more like 25. With a check average of around $50 we could do $2500 per seating in Cachagua, maybe $2k at Lokal, and $1250 at the new place.  Cachagua was always good for a full turn and a half, sometimes two full turns.  Lokal was maybe one turn, max, because of different dining mores in town vs Cachagua.  (You can shoot a cannon through any Village restaurant after 8pm and never hurt a soul.) The new spot would be the same…..hoping for $1250 a night.  This, of course is on Saturday night, and maybe Friday. In summer.  Tuesday?  Thursday?  In winter?  Viel gluck.

Let’s say that our new spot is open five nights a week and Friday-Sunday days.  Experience tells me that doing a good job in summer might pull in $6k a week.  Go back to my figures above and subtract another $2500 from the net for the new $4,000 rent.  You now have a whopping $4.5-5k a month left to spend on utilities, linen, soap, repairs….oh, and management.  I have laid out at least a 60 hour week for those eight shifts, not counting bookkeeping.  Who is up a sixty hour week for less than three grand?  In a good month.

So….what to do?  Raise prices?  Give up on the locals and depend on tourists?  Have fun in January!  Do some of that $8k work yourself…, more than 60 hours a week?  No worries!  Do catering like crazy?  Hire two competent crews that can adequately represent you every Saturday, but one crew only works Saturdays because they're rich?  Craigslist?  No issues there!

A prudent landlord would work backwards through all these numbers and say: “It looks like $1500 a month is the base rent.  How about we charge $1500 up to $24k a month sales, and then 6% of every dollar above that?  If the place does well, we both make out."

This is what happened at Silver Jones back in the ‘90’s.  Our base rent was $1500, and our percentage was 7%.  The average rent we wound up paying was $8,000 a month.  Happy landlord….and we got to go to Bonaire every January.

Sadly…..there are few prudent landlords left.  Bryan at Lokal was an exception.  Restaurants are all about drama and cachet and fun! and action!..It’s all about the dream! Rents should be high!  And, there are investors who have the money and the dream! and don’t care.  Supposedly.

As you can see from my numbers, it is hard to make a buck on operations.  The money comes when you sell your lease after three or four years of breaking even and getting good reviews.

The saddest story I have heard this year was at the very last Sunday Brunch at Lokal.  A nice kid flew in from France to help his mom open a French restaurant in Monterey.  She has had a successful place in Aptos for twenty years, but lost their lease.   

Their new spot will be in the new building behind Alvarado Street, kitty corner from Chong’s on Washington.  Brand new, completely empty spot… we have to add the costs of building a modern commercial kitchen and outfitting a dining room to our lists.  Their rent?  ONLY $9,000 a month…..

Across the street from Chong’s.   

Do the math.  Yup, pushing $150k a month…..or a Cachagua Store dinner every day of the week. 

Live the dream.


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