Saturday, September 27, 2014

The Restaurant and Bar Business

I am far from an expert on the Restaurant and Bar Business segments but as a long time resident of Chicago in various areas packed with these establishments from Wrigleyville to Bucktown to River North I am at least a frequent regular qualified to throw my 2 cents in. I hadn't thought too much about the economics of this until I talked to a friend who recently opened two great pizza places where he is the owner about what you get when you buy a used restaurant.
You get nothing... you have to re-model and start over the food concept. And when you sell, the next guy does the same.
What makes a good restaurant as a business? There are a lot of variables and I am only speculating, but certainly timing and location are key elements. For instance you have the Twisted Spoke, a bar on Grand Avenue in what used to be a pretty sketchy part of town that is rapidly gentrifying, and they have the iconic "skeleton on a motorcycle" on permanent rotation in front. This bar has survived for a long time with a mix of hipster / biker cool, an astoundingly good drink / beer mix, and surprisingly good food and interesting / witty / iconic employees. I'd bet that back in the day this place was actually full of bikers but nowadays the crowd looked like the usual hipsters in plaid shirts. And don't forget the enormous benefit of a rooftop - it astounds me how many bars / restaurants ignore the fact that Chicago people LOVE to sit outside during the few nice days that we receive every year and they drink like fish and eat until they can't even move.

A River North restaurant, Sushi Samba, was enormously successful for many years in the heart of River North. We used to give a general description of where we lived as "near Sushi Samba" because everyone either went there or knew about it. The place is enormous with an upstairs that opened up in the summer and was packed with beautiful scantily clad people and cars lined up for valet parking around the block. But recently I walked right by and saw this...

Their furniture was being carted away and sold off and the restaurant was shut down. In recent months / years the crowds had dwindled as dozens (literally) of big new restaurants opened all over River North. I don't know if they couldn't keep pace or perhaps their real estate was so valuable that they were simply priced out of the market - depending on "air rights" you could build a multi-million dollar condo unit or even large building on that large space facing Wells. From my economic perspective they could have (or maybe did) sold out to someone else at the height and pocketed the money and let the other guy ride the popularity wave back down. Before it was Sushi Samba it was the Hudson Club which also was hugely successful and busy for a while long before I moved to River North. So perhaps it will become another huge successful restaurant, as well.

Cross Posted at Chicago Boyz


Dan from Madison said...

Madison has more restaurants per capita than most places in the world and is frequently used as a test market for concepts. I always joke with my wife that we need to go to a certain restaurant before it become something else. We have actually made plans to go to a restaurant and showed up there to find it has transformed into a new concept. They turn over so quickly there must be a million stories about people losing their a@@ on a restaurant or bar.

I have no idea why anyone would get into this business. The margins are razor thin and you have to have a trusted hand on staff at all times to be sure you aren't looted.

The only bar concept I can see that can make money for the long run is a place like O Malleys in college where there is zero overhead, and you would just open from happy hour to close and then hose the place down for the next day (similar to Monday's here in Madison). It was an added bonus when we were there because of the infusion of tons of cigarette smoke back in the day. I am surprised that the coyote ugly deal failed in Chicago. I would think that would be a winning concept as well but what the hell do I know.

Carl from Chicago said...

Agreed that it is a brutal business. Ha ha the problem w/O Malley's and even Mondays is that sooner or later someone who is completely over served is going to drop dead or kill someone and then the place will go out of business that way.

But these are all short term businesses. Likely even if they go under there's lots of under the table cash and you just start up somewhere else.

For coyote ugly... probably that place was too damn big and expensive or it was poorly run or the chain died. But it seemed like a great concept to me.

Someday we need to get into the "club" economics of bottle service now that's a different model entirely.

Dan from Madison said...

Bottle service, aka "table rental" is a completely different animal and worthy of study that is for sure. I imagine you could write a masters thesis on the subject and it would be fun to research. Our results from the last few years in Reno prove that you don't need a table to have a good time and in fact I would argue that it limits the good time you will have if you aren't already there with a group of people. In other words, I think the table is more like a boundary like Les Nessman's office where you need to knock before you can be acknowledged and come in - something strangers aren't really going to do. But damn I am peering WAY down into the rabbit hole.

There are still Coyote Ugly locations in the US (I went to the one in Vegas last year) and am still surprised that is failed in Chicago but like I said wtf do I know about this business.