Restaurant survival tactics

May 2nd, 2015  |  Published in Business, Uncategorized

Issues: The struggles of the small restaurateur

The restaurant packed blocked of East 20th Street between 5th Avenue and Park Avenue South. Photo: Jordan Muto.

The restaurant-packed block of East 20th Street between 5th Avenue and Park Avenue South. Photo: Jordan Muto.


East 20th Street in Gramercy Park is a one-block restaurant row. There’s Gramercy Tavern, owned by restaurateur Danny Meyer, a few doors down from Trattoria Il Mulino, the laid back version of Il Mulino, and across the street from newcomer Élan, from Chanterelle chef David Waltuck. Mexican hotspot Cosme is around the corner, and neighborhood places fill in the spaces in between.

Each year about 130 new restaurants open in New York City, according to data from the website NYCgo. Last year, 160 new restaurants opened, the highest number ever, according to the New York State Restaurant Association, but 82 restaurants closed, which as New York magazine explains is double the 2013 figure.

In an increasingly competitive market, where economies of scale matter, restaurateurs either need to expand or look for alternative ways to survive. For most restaurateurs owning several restaurants isn’t possible, forcing them to think creatively about increasing profitability.

Rent prices are an unavoidable expense of any restaurant. However, as the city’s prices rise, rent can often determine the location of new spots, especially for small food groups, as it influences margins and ultimately success.

“Location, location, location is everything. It’s clichéd for a reason,” wrote Gabriel Stulman, founder of Happy Cooking Hospitality, in an email.

The front of Élan on East 20th Street. The restaurant serves lunch and dinner. Photo: Jordan Muto.

The front of Élan on East 20th Street. The restaurant serves lunch and dinner. Photo: Jordan Muto.


For Élan’s co-owners, George Stinson and Waltuck, who previously owned Chanterelle, rent prices dictated location.

“Bigger restaurants can pick up and coming neighborhoods,” said Stinson, referring to the size of the restaurant group. “We needed a more established neighborhood. At least established enough to support smaller restaurants.”

With Élan, which has 48 seats in the dining room and 12 at the bar, they wanted local, repeat customers. They focused their search in places with a neighborhood vibe like Gramercy Park, Flatiron District, Little Italy, East Village and Upper West Side below 96th Street. After looking at 48 properties in a year, in what Stinson recalled as a depressing search, they chose Gramercy Park.

“We really wanted an existing restaurant to keep the capital as low as possible with the opening. This is a huge attraction to someone on the smaller side,” said Stinson. “The rent used to be 20 percent to 25 percent of your revenue. Now it’s 35 percent to 37 percent and how to make your business work around the rent. It’s your biggest expense. It’s so highly competitive and takes monthly prioritizing. It always restricts you.”

Converting a space into a restaurant adds thousands to the initial outlay — or in the case of one Connecticut establishment, $1 million in continuous improvements over the course of several years.

“When you sign a lease, you have to make capital investments that you don’t own. When the lease is up the landlord owns the building,” said Rebecca Kirhoffer, owner of Rebecca’s restaurant in Greenwich, Conn. “We spent a million dollars in capital investments in 15 years.”

Kirhoffer, who’s been in the industry for almost 30 years and worked in the kitchen of places like the 21 Club, dreamed of owning a spot in the city with her husband Reza Khorshidi. But finding the right restaurant to take over was a challenge.

In 1997, Kirhoffer found a place on Lexington Avenue and 74th Street that was available for $195,000. Kirhoffer and Khorshidi quit their jobs, but lost the space to Payard Patisserie and Bistro, the first venture of pastry chef Francios Payard.

After that, Kirhoffer headed out to Connecticut, where the culinary market was less saturated. In Greenwich, Kirhoffer leased a space already designed for a restaurant and outside of the business district to keep start-up costs low.

Ironically, competition seems to improve business, not put a dent in it. Both Fairfield and Westchester counties have experienced the infiltration of restaurant empires. In the past 10 years, Mario Batali, Michael White, Jean-Georges Vongerichten, Laurent Tourondel, Sue Torres and Graham Elliot have all opened restaurants. But Kirhoffer doesn’t view these new high-end places as a threat.

“The more better restaurants there are in the area in an area the better for business. I feel when people come to my restaurant they are comparing their experience elsewhere to mine,” said Kirhoffer who charges about $20 for appetizers and $45 for main courses during dinner service.

James Mallios, owner of the Upper East Side’s Mediterranean spot Amali, saw the same thing happen. When Amali first opened on the Upper East Side in 2011, the area of East 60th Street between 5th Avenue and 2nd Avenue had a handful of restaurants, according to Mallios.  Over three years later 60th Street is packed with upscale dining destinations like Il Mulino and Phillipe.

“You take a hit at the beginning,” said Mallios. “But a lot more people start coming to this neighborhood. The busier the neighborhood the better it is.”

However, the level of competition can often seem more stifling than inspiring.

“The competition here is brutal. In other parts of the world there is competition, but not as much,” said Scott Stamford, general manager of The River Café in Brooklyn. “Costs are high. You have to be very careful about what you put on the menu.”

To alleviate rising food costs, The River Café in Brooklyn switched to a prix fixe menu, offering three courses for $120. The restaurant changes the menus preparation six to seven times per year.

“Prix fixe ensures that we will be able to generate enough income on a certain service, so we know we will always get a certain amount of money,” said Stamford who predicts more restaurants will experiment with tasting menus because they require less variety and cut down on spoilage.

But Élan’s Stinson disagrees.

“Very few restaurants have the power to have to have prix fixe. People need to have the power to control their experience,” he said. “People want to sit down and decide how much they want to spend.”

Some small restaurant owners worry about the cost of the type of popularity that can come with being part of a successful empire. Mallios believes that something can get lost in bigger groups.

“Even amongst their other properties, there is a reason that Le Cirque will always be the crown property because there is only Siro Maccioni with the grace, charm and hospitality. You can’t clone him,” said Mallios, referring to the Maccioni Group. “It can’t be duplicated or born out of a focus group. The only way is to operate independently.”

But Stulman disagrees. He sees owning multiple restaurants as a way to provide more creative opportunities and create different personalities for each restaurant.

“You can reach more people if you have different concepts. Different restaurant cuisines appeal to different people,” said Stulman who opened all of his six restaurants in proximity to each other, so he could manage them better.

Likewise, Nat Milner, owner of Gabriela’s Restaurant and Tequila Bar, on 93rd Street and Columbus Avenue, opened Elizabeth’s Neighborhood Table next door out of fear of someone else becoming his competition. The proximity allows him to better utilize resources like staff.

Milner's Elizabeth's Table and the restaurant right next door is Gabriela's Tequila Bar on the corner of West 93rd and Columbus Avenue. Photo: Jordan Muto.

Milner’s Elizabeth’s Table and the restaurant right next door is Gabriela’s Tequila Bar on the corner of West 93rd and Columbus Avenue. Photo: Jordan Muto.

“The Israeli guys that own 5 Napkin Burger can call another restaurant and get a cook. With your own restaurant, your only bench are people who are off that day and may or may not pick up their phone,” said Mallios.

Small groups often look for nontraditional ways to grow. Milner doesn’t have the financial means to expand with more restaurants, so he recently opened Gabriela’s Taqueria, which is a taco stand, in City Kitchen

“I don’t have access to millions of dollars to open a new restaurant, but I do have $300,000 to open a place like that,” said Milner.

Mallios is opening a Greek street food restaurant this summer. Kirhoffer is debating a retail concept as she now rents additional space for her catering business.

“It’s kind of easier to have three restaurants than one because you have more resources coming to you,” said Stinson who wants to open two more restaurants. “I would have trouble expanding beyond the three restaurant threshold and feel it’s spreading us in the same creative and passionate way.”

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