The Writing on the Wall, Part Three

If you’ve been following me on Twitter or Facebook, the reason for this jarring departure in blog content should be no secret by now. Just one last literary tidbit before I return home, and then I’ll have plenty of new stories to share- Involving food and recipes, yes! Thanks for bearing with me and providing such insightful comments all along. To complete this trio of essays, I’ll leave you with a general overview of the less romantic side of the hospitality industry… The expenses and the odds of survival.

Risky Business

It’s a dream shared by many office workers caught up in the drudgery of a thankless job: to leave their thankless positions, open up a restaurant, and share their favorite foods within the community sounds like a gig that’s too good to be true. Unfortunately, in most cases, it is. Restaurants can be the most difficult type of small business to start and become financially successful. It’s been estimated that within the first three years of operation, over 60% of all new restaurants in the US will have already failed and closed. There are many reasons that a restaurant may go under, but some of the most common culprits include the astronomical start up costs, a very competitive market place where big industry still rules, and profit margins that are very slim in the best of situations. It is certainly possible to run a profitable restaurant, as numerous small businesses throughout the country have proven, but that success is hard-won and well deserved. While any small business is a difficult endeavor, restaurants especially pose some of the greatest risks, and least promising returns.

There’s a good reason why restaurateurs frequently solicit investors to help get their concept off the ground, and it has to do with steep cost of turning their ideas into concrete reality. Rental fees for the space itself are just the start, but a prime location can quickly take a big bite out of the budget. A street-front store is more than just convenient; it’s almost like free advertising, since passersby are more likely to notice it and drop by on a whim. The financial hit may be hard to swallow, and other expenses can be taken on slowly, upgrading equipment as is possible, but a location can’t be changed without incurring even greater costs. The equipment, however, is no small expense either. Buying used can save a bit of money, but even the most basic set of tools such as ovens, refrigerators, and pans is liable to set one back between $100,000 – $300,000. That’s presuming that high-end specialty items aren’t needed, like fancy espresso machines or crystal-clear ice cube makers.

Banks are becoming increasingly reluctant to take a gamble and offer loans to newcomers in the restaurant business due to their high rate of failure. A rookie mistake would be to mortgage one’s home; it’s a move doomed to create further money woes in the future, or at the very least, put undue stress on anyone worried about losing it all. It’s important that one be financially stable before quitting one’s day job just so that they can break into the field. On top of the aforementioned start-up costs, don’t forget, there are expensive permits to cover, such as insurance, a liquor license, and food handlers permits for every employee hired. It can add up very quickly. After all that, there’s not even been a mention of the raw materials themselves- The food!

Food prices are at an all-time high all over the globe. Just in the past year, coffee and peanut-butter prices rose 19% and 27%, respectively. No one has been feeling that strain more acutely than those in the restaurant business. Although buying wholesale through specialty purveyors who deal only with restaurants will save money over buying food at retail prices, it’s a constant expense that will always need to be accounted for. Prices rise only higher for organic food, which can be a big selling point these days, but may or may not be worth the investment, depending on one’s customer base. Sometimes menus must be limited due to the costs of certain ingredients, which may spoil the original concepts of some owners. Luxury items like truffles or saffron can add up very quickly on their own, and most customers won’t be willing to make up the difference in the final bill. Immense pressure has been put on restaurateurs to keep costs down and offer affordable meals in this economic environment, so it can be incredibly challenging to formulate a menu that will strike potential consumers as a good deal, and still bring in a profit. On any given check for a full-service restaurant, after factoring in the costs of food, labor, and other incidentals, one can only expect to make between 1.8% to 3.5% profit in most cases. At that rate, it’s easy to see how it could truly take years to merely pay for the start-up costs and break even, let alone actually make a living wage.

Any additional competition added to the restaurant scene can cause strain on even established eateries, but that pressure is tenfold when national chains move in next door. In the race to offer the most affordable options, no one has the market cornered quite like restaurants franchises, and especially fast food establishments. Value menus are a boon to both indiscriminate eaters and the executives that think them up, because chains are able to buy very cheap food at incredible volumes so that each serving will cost them pennies, if that. Almost everything that the customer pays for is pure profit. Healthy food is more expensive, and that can be a deal breaker for some people, which in turn makes competition with these kings of cheap food near impossible for many new eateries, especially quick-serve establishments that fall in about the same category.

As romantic as the notion of opening up a restaurant from scratch may sound, the reality of the endeavor almost never matches up to the dream. The expenses that must be taken care of before the doors are even opened on a new restaurant typically are largely beyond what most newcomers would ever imagine, and are subsequently unprepared to take them on, even with the help of investors. Turning a profit is challenging on a good day, but when paired with the strain of making up those initial costs, most restaurateurs will never see a profits and losses report that is favorable. Add in the pressure of competing with the big boys of powerful, nation-wide chains that offer food at incredibly low prices to hungry consumers, and it’s no wonder that most restaurants can’t even survive their first year in business. It takes an enormous amount of determination, good planning, and a serious dose of luck for anyone to survive in such a hostile industry.

20 thoughts on “The Writing on the Wall, Part Three

  1. This is interesting and kind of sad :( I wish there was a way to make bad, unhealthy food expensive! Thanks for sharing your writing.
    Just a little note..I think there are a couple of typos-First para do you mean “shared BY many office workers” and last para “never matcheS up to the dream”

  2. The area where I live makes it extremely difficult for new start up restaurants. The community is very set in it’s ways with specific food likes and dislikes. You’re SO right regarding the investment hurdle for new restaurantiers. But it’s also important to consider
    the community and whether your style will be accepted.
    We love to bake and cook and when you’re as enthusiastic as we are, the ultimate dream is always to open our own cafe, shop, restaurant. But then we need to take a step back and consider if the pressure would take all the fun out of it.

  3. As the chef who taught my class in commercial cookery said “you have to make up your money in soup and desserts”…you have to be incredibly savy to initiate, run and ultimately triumph in a business in food. You not only have to be able to cook like a star, you have to isolate your niche market, you have to run it through the dancemoves to see if it can rumba and you have to do your homework. You have to be a little bit of everything and be able to do your own books, do as much as you can to minimise all other costs and be a jack of all trades and then you have to hope that your clientele isn’t just that passing cloud of gnats that descends on a new eatery just because its “new!” and then disseminate faster than a cloud of midges at a rock concert. It’s tough and you have to wonder why so many amateurs have those stars in their eyes but celebrity chefs and the plethora of cooking shows just highlight a real niche market for food to the masses and if you are going to throw your hat into the ring, you are going to have to know your stuff (and pray a lot…PRAY PEOPLE! ;) ). Another excellent article Hannah. I am quite enjoying this brief foray into “other stuff”…it proves that you are multifaceted and that we, your dear constant readers, are right to give you our blog reading loyalty :).

  4. Great article Hannah, as depressing as it is, there’s no point in sugar coating things.
    I’m one of those people sitting at their desk, fantasizing about opening a cafe, but completely understand the risk involved and would probably never do it. It seems like a fun and exciting thing to do, but there are so many things you have to consider and so much work that would need to be done, not to mention the extreme costs. Then there’s the hobby to job aspect, it may completely change the way you feel about cooking/baking if you’re required to do it for long hours every single day. That’s not to say people shouldn’t do it, but a great deal of research and a realistic outlook is greatly needed before taking the plunge.
    It’s really quite sad that the cost of healthy food is so much higher than the un-healthy stuff, it really highlights the flaws we have in our food system.

  5. It is quite romantic to sit in cafes and dream of opening up a little bakery but you are right, the expenses of today are incredible. How one can balance it all out is beyond me, and your article brings up so many practical points. Thanks for keeping me grounded :)

    Choc Chip Uru

  6. You’ve portrayed the difficulties very well. I think it’s getting harder and harder to start a business of almost any kind as prices rise and regulations proliferate. I would have never imagined a time when in some places children can’t sell cookies or lemonade because they don’t have a certified kitchen or whatever other bogus reason.

    My husband used to say that when he retired, we should open a B&B. I told him that wasn’t my idea of being retired, as attractive as it sounds!


  7. You accurately and painfully describe the Walmartization of the restaurant industry. Every now and then a well meaning friend or coworker with a mouth full of cookie or cake tells me as a compliment “You should open a bakery!” and I just shudder at the thought for all the reasons you’ve so eloquently given.

    I hope you’ve had a wonderful trip and return refreshed and look forward to your new recipes!

  8. Thank you for keeping our goals and expectations within the parameters. The grass always looks better on the other side of the fence but with it comes a lot of cost…weed killer, grass fertilizer , watering, but it sure is nice to look at the goals and dream for a bit. Great article…BAM

  9. I hear ya, but keep in mind that so many people crawl before they can walk, and just barely wriggle along before they can crawl… and there is proof out there that it is indeed possible to build, and build, and build… slowly. Not quickly. Not talking about the offerings of the restaurants specifically, but look at the stories of Paula Deen or Gordon Ramsay. It takes time to build… but it isn’t impossible. I’ll bet you’ve beaten the odds for successful bloggers or authors by significantly more than the odds any new restaurant owner has of running a successful place. I have a feeling you are encouraging us (the audience) to agree that it is just too hard. I know NOTHING about the restaurant business, but I respectfully disagree. Restaurants (great ones and poor ones) abound, but my favorites have mostly been open 20 years or more, and I live in New York City. Name a harder market than that, right?

    1. It’s absolutely possible, and that’s why so many people do (and should) keep pushing forward. Any new venture and especially any small business is inherently going to be a risk, but a risk that must be taken in order to beat back the big businesses before they dominate the whole landscape. I’m not trying to dissuade anyone from entering into that fight, I just feel like the downsides and pitfalls aren’t discussed nearly enough, which sets so many hopefuls up for failure. Rather than promise rainbows and sunshine, it’s important to present the other side of the issue and keep expectations realistic. After being burned so badly once, if I can prevent that same pain in someone who may not be aware of the entire scope of the industry, I feel obligated to tell it like it is.

  10. I can’t even imagine the amount of work that goes into starting a restaurant. But sometimes the small guys do win! This summer 2 local ice cream places in my town (from scratch, so delicious, and local ingredients!) caused a Ben and Jerry’s to go under. (all 3 places are within a block of each other) I was sad since I know the franchise owner is also a local person, but a part of me was rooting for the two new locally grown places!

  11. I’m glad I waited to comment on Part Two, I’ve really enjoyed reading this three-part departure from recipe blogging. I’m very sorry to hear about the closure of Health in a Hurry, it was obviously heartbreaking for Sue, as well as yourself. Thank you for sharing your dream about opening a bakery too, I hope that by putting it the out into the world like this you are able to manifest something wonderful.
    In regards to part two, I’ve never considered using those Groupon or group buying schemes. I would normally describe myself as pretty frugal, but when I am shopping or dining out I like to pay what a product or meal is worth. While I think these schemes are optimistically designed to attract a new client base, I find a lot of time they ultimately attract a mix of people who wouldn’t actually patron your business if there isn’t a deal running.
    Now for part three, the thought of trying my hand at a restaurant makes me want to cower in fear. Working in retail, I’ve seen a myriad of shiny new chain stores or small businesses appear with a bang and then disappear without much fanfare. The retail and restaurant environment is tough and often dominated by a handful of conglomerates; I can only imagine how much harder it is to succeed as a healthy food cafe or restaurant. Not only do you have to present people with a good quality product with value-for-money, you are often expected to cater to a wide range of dietary choices, allergy and intolerance needs. This isn’t a bad thing, but can mean a lot of careful menu planning and extra inventiveness is required for ingredient choices and therefore costing. There is a huge investment hurdle bundled up with all the other concerns of any new business – location, target demographics, staff, menu, competition. There’s also the competition of fast food, well-known restaurant chains and similar established businesses. It’s hard work! Thank you for a brilliant article, it’s further convinced me that working in the food industry is not for me, and not a prospect to be taken lightly!
    I was asked a little while ago to help at a cafe a friend was going to run and offhandedly said yes (as I’m sometimes prone to do in excitement). I ended up being somewhat pleased when her plans changed however. I know I’m much better suited at work for someone in my current capacity (Store Manager at a health food store, plus soon-ish as a Naturopath in consultation).

    1. I’m so glad that both pieces really resonated with you, and I’m incredibly grateful for your thoughtful response! I really hesitated to bring up such serious issues, especially since I try to keep the blog all light and bright. It’s truly a relief to know that I won’t send you to the hills the moment I post something without pictures. ;)

      My hope is that maybe I can make some sort of difference… As long as everyone keeps thinking, keeps considering all angles and asking questions, then we’ll all be better off. I’m glad you have enough wisdom to know what sort of work suits you best, too. Hope that you love the consultation, that sounds like a wonderful (and truly inspiring) path!

  12. I had thought that it would be difficult but not this difficult to open and run my own little corner somewhere.. that dream anyway will be a dream.. there are other things i want to do before that.

  13. I had the dream of opening a vegan bakery. I spent $20k alone in legal fees, inspection fees, and consulting fees to help me navigate the complex city departments in a major city – all before one hammer got swung. The cost of the build-out would have been close to $100k – not to mention the cost of equipment, inventory, and supplies. Rents are also very high in my neck of the woods. It ultimately was too much money for the risk. People still keep trying to get me do it. Most of them have no idea the issues new food businesses face. I have a new respect for all small businesses.

  14. Having grown up working at the family’s restaurant business, I personally wouldn’t ever go into the restaurant business. But that’s me – been there, done that. And it was a lot of work, I’m sure it’s just as hard now as it was then. But there’s also new opportunities today like with food trucks or a food cart or even a booth at the local farmer’s market. California just pass a law that allows for certain foods to be made at home instead of a commercial kitchen. All of which could help small businesses get off the ground.

    You never know what could happen, you could be working a photo shoot and decide to bring along a few cupcakes to share. The client loves it and hires you to cater his kid’s birthday party. The parents all rave about the baked goodies and hire you for their kid’s parties. Before you know it, you got a cupcake bakery going. :-)

    1. Very true- The new law about in-home food businesses in California does give me some measure of hope. I could certainly consider a small side bakery project if I could stay in the comfort of my own kitchen, without having so much red tape and start-up expenses to get past. Never say never… They just need to enact the same standards across all 50 states now!

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