Summary ■ 167 CASE ST UDY: Steuben’s Food Service Company Background A Worthy Proposal Steuben’s Food Service was founded in 2006 by Josh Wolkon, a successful restaurateur in Denver, Colorado. Steuben’s Food Service includes an independent restaurant in uptown Denver specializing in unique comfort cuisine, as well as a food truck service, which regularly circuits through the city providing both residents and travelers alike with quality food and exceptional service. At Steuben’s, heavy emphasis is placed on providing a unique dining experience that cultivates a sense of comfort and familiarity. The menu consists of a variety of regional American classics, which serve to inspire memories of favorite dishes from their customer’s pasts. This is where Steuben’s differentiates itself from other restaurants in Denver, bringing national appeal to a local spectrum. In 2011, Wolkon was approached by a third-party business, who presented an investment proposal for a licensing agreement to use Steuben’s brand and concept to open a location in Denver International Airport. At the time, airports in large cities were looking to better represent their city by adding more independent and less commercial restaurants. By partnering with this business, Wolkon believed he would be doing a great service to the local Denver traveler, as well as worldwide visitors, by providing the experience, service, and food quality of the Steuben’s brand in the airport’s Terminal C. The licensing agreement would not require Wolkon to put up any money on his end, and he would receive a piece of the location’s proﬁt in the form of a licensing fee. QUESTIONS Inspiring Success When Steuben’s opened in 2006, it was busy from day one. In the ﬁrst year of operation, Steuben’s raked in approximately $70,000 per week ($364,000 annual revenue). From that point on, Steuben’s made a name for itself, which resulted in annual business growth due to a successfully run operation and positive word of mouth. From 2010 to 2011, Steuben’s experienced 17% sales increase, and then in 2011, Steuben’s was featured on Food Network’s Diners, Drive-Ins and Dives. Subsequently, demand continued to grow and sales increased an additional 12 percent from 2011 to 2012, amounting to approximately $6 million in annual revenue. 1. Do you think Steuben’s should license its brand to a third-party and expand its business or remain as an independent operator in one location? How does planning play into this decision? 2. Are there other opportunities to expand the brand without possibly compromising Steuben’s current brand and philosophy? 3. How would Wolkon beneﬁt from the licensing agreement for the Terminal C proposal in terms of the expenses of purchasing kitchen equipment? 4. What are the advantages and disadvantages of offering a food truck service, in terms of equipment? Endnotes 1. Courtesy of John C. Cini, president and CEO of Cini Little, July 3, 1999. 2. Ibid. 3. Arthur C. Avery, “Up the Productivity,” Commercial Kitchens, Baltimore, Maryland, American Gas Association, 1989, pp. 205–214. 4. Dan Bendall, “Back of the House Green,” Restaurant Hospitality, 92 (1) (January, 2008), pp. 60–62. 5. Dan Bendall. “Green Friendly Equipment,” Food Management, 43 (4) (April 2008), pp. 76–78. 6. Ibid. c05PlanningandEquippingtheKitchen.indd 167 9/20/13 6:05 PM J O H N R . WA L K E R , D B A , C H A , F M P McKibbon Professor of Hotel and Restaurant Management and Fulbright Senior Specialist, University of South Florida Sarasota-Manatee The Restaurant F R O M C O N C E P T T O O P E R A T I O N Se venth Edition FMTitlePage.indd i 9/13/13 5:34 PM To Donald Lundberg, PhD, my mentor, colleague, and friend. Don was admired and respected in the halls of academia as a scholar and pioneer of hospitality and tourism education. And to you, the professors, students, and future restaurant owners, wishing you success and happiness. Photos were taken by the author unless otherwise noted. This book is printed on acid-free paper. Copyright © 2014, 2011, 2008 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. 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Library of Congress Cataloging-in-Publication Data Walker, John R., 1944The restaurant : from concept to operation / John Walker.—Seventh edition. pages cm Includes bibliographical references and index. ISBN 978-1-118-62962-8 (hardback) 1. Restaurant management. I. Title. TX911.3.M27W352 2014 647.95068—dc23 2013018940 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 FMTitlePage.indd ii 9/13/13 5:34 PM Contents Preface ix Acknowledgments Part One xiii Restaurants, Owners, Locations, and Concepts 1 The Concept of B. Café Chapter 1 Introduction 3 Early History of Eating Out 5 French Culinary History 6 Birth of Restaurants in America 7 Challenges of Restaurant Operation 12 Buy, Build, Franchise, or Manage? 14 Starting from Scratch 17 Restaurants as Roads to Riches 18 Global Issues 19 Case Study: Castelli’s Restaurant at 255 21 Chapter 2 Restaurants and Their Owners 24 Kinds and Characteristics of Restaurants 25 Sandwich Shops 29 Quick-Service Restaurants 30 Quick Casual Restaurants 32 Family Restaurants 33 Casual Restaurants 33 Fine-Dining Restaurants 35 Hotel Restaurants 36 Steakhouses 37 Seafood Restaurants 40 Ethnic Restaurants 40 Theme Restaurants 43 Coffee Shops 46 Chef-Owned Restaurants 47 Celebrity Chefs 51 Centralized Home Delivery Restaurants 54 Case Study: EVOS 56 FMTOC.indd iii 9/17/13 10:21 AM iv ■ Contents Chapter 3 Concept, Location, and Design 60 Restaurant Concepts 61 Defining the Concept and Market 66 Successful Restaurant Concepts 67 Restaurant Life Cycles 71 Concept Adaptation 72 Restaurant Symbology 75 Multiple-Concept Chains 75 Sequence of Restaurant Development: From Concept to Opening Planning Services 77 Common Denominators of Restaurants 77 Mission Statement 84 Concept and Location 85 Criteria for Locating a Restaurant 86 Location Information Checklist 98 Case Study: Wurstkuche 100 Part Two Menus, Kitchens, and Purchasing 76 103 Daniel Boulud Chapter 4 The Menu 105 Considerations in Planning a Menu 107 Capability/Consistency 108 Equipment Capacity and Layout 108 Availability of Ingredients 108 Price and Pricing Strategy 109 Nutritional Value 112 Flavor 119 Accuracy in Menus 120 Menu Items 123 Menu Types 126 Menu Engineering 129 Menu Design and Layout 131 Standardized Recipes 132 Menu Trends 132 Case Study: Salt “Gastropub” 137 Chapter 5 Planning and Equipping the Kitchen 142 Back-of-the-House Green 146 Open Kitchen 147 Kitchen Floor Coverings 150 FMTOC.indd iv 9/17/13 10:21 AM Contents ■ v Kitchen Equipment 150 Equipment Stars 155 Maintaining Kitchen Equipment 163 Meeting with the Health Inspector 165 Case Study: Steuben’s Food Service 167 Chapter 6 Food Purchasing 169 Sustainable Purchasing 170 Food-Purchasing System 172 Types of Purchasing 177 Buying Meat 178 Buying Fresh Fruits and Vegetables Case Study: Farm Burger 185 180 Part Three Restaurant Operations 187 Concept of Aria Restaurant Chapter 7 Bar and Beverages 189 Alcoholic Beverage Licenses 190 Bar Layout and Design 192 Beverages 194 Bartenders 198 Basic Bar Inventory 199 Wines 200 Responsible Alcoholic Beverage Service 211 Third-Party Liability 212 Controls 212 Coffee and Tea 214 Case Study: Classic Restaurant Concepts 216 Chapter 8 Operations, Budgeting, and Control 219 Restaurant Operations 220 Front of the House 220 Back of the House 227 Control 229 Liquor Control 231 Controllable Expenses 234 Labor Costs 235 Guest Check Control 241 Productivity Analysis and Cost Control 242 Case Study: Big Shanty Smokehouse 244 FMTOC.indd v 9/17/13 10:21 AM vi ■ Contents Chapter 9 Food Production and Sanitation Our Culinary Heritage 246 247 Native American Influence 247 African American Influence 248 Italian Influence 248 French Influence 249 Receiving 253 Storage 254 Food Production 255 Production Procedures 258 Staffing and Scheduling 260 Foodborne Illness 260 Hazard Analysis of Critical Control Points Common Food Safety Mistakes Approaches to Food Safety 270 Food Protection as a System 271 Case Study: PDQ 268 269 274 Part Four Restaurant Management 277 Concept of Niche Restaurant Chapter 10 Restaurant Leadership and Management 279 Leading Employees 280 The Nature of Leadership 283 Employee Input, and What’s in It for Me? Policies and Procedures Management Topics 285 285 Restaurant Management Issues Case Study: Eat Here Chapter 11 284 290 301 Organization, Recruiting, and Staffing 304 Job Descriptions 305 Organizing People and Jobs Staffing the Restaurant Civil Rights Laws 307 309 317 Questions to Avoid on the Application Form and During the Interview 320 Careful Selection of Staff 324 Case Study: Short Street Cakes FMTOC.indd vi 327 9/17/13 10:21 AM Contents Chapter 12 ■ vii Training and Service 330 Orientation 331 Part-Time Employees 332 Training and Development 332 Methods for Training Employees 341 Service 344 Tact: Always 356 Case Study: Ophelia’s on the Bay Chapter 13 358 Technology in the Restaurant Industry 361 Technology in the Restaurant Industry Table Management PCI DSS 374 POS Systems 375 Mobile Phone Technology 376 Web-Based Enterprise Portals 378 Gift Card and Loyalty Programs Guest Services and Websites 379 379 Restaurant Management Systems 380 Case Study: Carmel Café & Wine Bar Part Five 362 372 382 Business Plans, Financing, and Legal Matters 385 Concept of Paniﬁcio Café and Restaurant Chapter 14 Restaurant Business and Marketing Plans 387 What Business Entity Is Best? 388 Buy–Sell Agreement with Partners 394 Legal Aspects of Doing Business 394 Business Plan 398 The Difference between Marketing and Sales Marketing Planning and Strategy 402 403 Market Assessment, Demand, Potential, and Competition Analysis 406 Marketing Mix—The Four Ps Case Study: Old Salty Dog FMTOC.indd vii 408 422 9/17/13 10:21 AM viii ■ Contents Chapter 15 Financing and Leasing 425 Financing 426 Sufficient Capital 426 Preparing for the Loan Application 427 Uniform System of Accounts for Restaurants Securing a Loan Leasing 448 What Is a Restaurant Worth? Case Study: Hopleaf Glossary Index FMTOC.indd viii 432 438 455 458 461 473 9/17/13 10:21 AM Preface I recently spoke with a former student, now the owner of a new independent restaurant venture in a large city full of delectable dining spots. This restaurant, over time, had established itself as a pillar of the community. This particular restaurateur had been in business for just over two years; and from day one, his seats were filled with eager and optimistic guests who had either heard the hype or already experienced the wonder this establishment was known to offer. I asked him how he managed to continuously garner so much business in an area known for being a dining “mecca.” Moreover, how had he managed to maintain relevance and peak interest in a city that both opens and closes more restaurants than anywhere else in the country? His response was simple, but it spoke wonders about what I have been trying to accomplish as a teacher and writer of restaurant books. He said: I went to school, I read your book, and I paid attention to the details. Now in its Seventh Edition, The Restaurant: From Concept to Operation continues the success of previous editions, providing the skills and information needed to succeed in this highly competitive and rewarding industry. The opportunity to be the leader of a highly efficient and enthusiastic team is appealing—the responsibility for the business rests on your shoulders. With The Restaurant, Seventh Edition, you will learn how to lead and empower a welltrained team to increase guest satisfaction, revenues, and return on investment. After all, isn’t profit the goal? In today’s competitive market, a well-thought-out concept and location are paramount to the success to the operation. Whether your concept is for a small town or large city, strip mall or free-standing operation, franchise or new concept, the basic rules outlined in The Restaurant will apply. About This Book FOR THE STUDENT Opening a restaurant is a distinct challenge. It is also a thrill that gives one the opportunity for tremendous creative expression. Developing the menu, creating a new dish, designing the décor, attending to the level of service, and establishing an ambience—all of these factors contribute to exceeding guest expectations. The Restaurant will help those who are interested in learning more about the restaurant industry. It will help students gain the knowledge they need to be successful in an easy-to-read style with several pedagogical features—such as sidebars, case studies, and profiles of successful restaurateurs—that impart the knowledge of experts for the benefit of students. FOR THE INSTRUCTOR The Restaurant is a comprehensive primer for restaurant management courses at the college and university level. It is used for a variety of restaurant courses and covers everything from the concept; types of ownership; types of restaurants; menus, planning, FMPref.indd ix 9/13/13 9:50 AM x ■ Preface and equipping the kitchen; purchasing; bar and beverages; operations, budgeting and control; food production and sanitation; restaurant leadership and management; organization and staffing; training and development; service and guest relations; technology; business and marketing plans; financing and leasing; and legal and tax matters. The Restaurant assumes no specific knowledge other than a general familiarity with restaurants. It can be used at any course level in a restaurant, hospitality, or culinary arts program. It is also suitable for seminars and continuing education courses. Helping to meet continuing restaurant challenges is the oncoming wave of students who have studied culinary arts and restaurant management, and those who view the restaurant business as a career of choice. A restaurant can be fun to operate, and the profit margins can be substantial. It is interesting to learn that at least one billionaire, Tom Monaghan, made his fortune in the pizza business, and that dozens of millionaires have acquired fortunes in restaurants. Some of their stories are told in this book. New To This Edition For The Restaurant, Seventh Edition, revisions include: New reorganization of the chapters: This edition is condensed to 15 chapters, now better fitting a traditional semester schedule and consolidated for a more coherent read. ■ A Case Study has been added to each chapter: These new case studies will help improve students’ critical thinking skills. A shorter version of the Case Study is included at the end of each chapter, while an extended version is available on the Wiley Book Companion website (www.wiley.com/ college/walker) for this new edition. ■ Information on pop-ups, food trucks, gluten-free cooking, and menu items is now included ■ Examples and discussions of new restaurant concepts and their founders are now included. ■ New sections on successful strategies in healthy eating, veganism, and vegetarianism, and how they all relate to the restaurant business, are now included. ■ A new section on food allergy safety precautions and properly training staff to handle allergy attacks is now included. ■ An updated discussion on how it’s easy being “green”: The themes of sustainability and sustainable restaurant management have been updated throughout this new edition. ■ An increased focus toward the independent restaurateur has been continued for this new edition. ■ An updated and extended section on purchasing meat has been added to Chapter 6: Food Purchasing. ■ New sections on wine have been added to Chapter 7: Bar and Beverages. ■ Additional emphasis on restaurant business plans, restaurant management, training, and restaurant operations is included in this new edition. ■ FMPref.indd x 9/13/13 9:50 AM Preface ■ xi Additionally, each chapter has been revised, updated, and enhanced with numerous industry examples, sidebars offering advice, charts, tables, and photographs. All these additions and changes enhance the contents, look, and usefulness of the book. ORGANIZATION The Restaurant, Seventh Edition is carefully structured for teaching and learning. Now consolidated into 15 chapters, The Restaurant is organized into five parts that take the reader step-by-step through the process of creating, opening, operating, and managing a restaurant: Part One: Restaurants, Owners, Locations, and Concepts Chapter 1. Introduction Chapter 2. Restaurants and Their Owners Chapter 3. Concept, Location, and Design Part Two: Menus, Kitchens, and Purchasing Chapter 4. The Menu Chapter 5. Planning and Equipping the Kitchen Chapter 6. Food Purchasing Part Three: Restaurant Operations Chapter 7. Bar and Beverages Chapter 8. Operations, Budgeting, and Control Chapter 9. Food Production and Sanitation Part Four: Restaurant Management Chapter 10. Restaurant Leadership and Management Chapter 11. Organization, Recruiting, and Staffing Chapter 12.Training, and Service Chapter 13. Technology in the Restaurant Industry Part Five: Business Plans, Financing, and Legal Matters Chapter 14. Restaurant Business and Marketing Plans Chapter 15. Financing and Leasing LEARNING FEATURES The writing in The Restaurant, Seventh Edition, is clear, engaging, and written in a conversational style using numerous industry examples for ease of understanding. Following are pedagogical features found within each chapter: Clearly stated Learning Objectives help students and faculty monitor learning progress. ■ Numerous Industry Examples are interspersed throughout to help students understand the topics and concepts being discussed. ■ FMPref.indd xi 9/13/13 9:50 AM xii ■ Preface Interesting Sidebars engage students with highlighted facets of the restaurant industry. ■ New Photos enliven the text, while updated diagrams, flowcharts, and sample materials provide examples and focal points for discussion. ■ Restaurant Profiles are featured at the beginning of each of the five parts of the book. These profiles highlight a particular restaurant and detail all components of its organization. ■ Summary sections are found at the end of each chapter, recapitulating the overall major points for students and instructors to reference. ■ Key Terms and Concepts are highlighted in the text and described in the glossary. A list of these key terms is also provided at the end of every chapter. ■ Review Questions help hone the students’ skills and offer critical-thinking opportunities. ■ A new Case Study feature with critical thinking questions has been added to each chapter. ■ Internet Exercises provide opportunities to go beyond the book in search of information relating to each of the chapters. These exercises are available online on the Wiley Book Companion website (www.wiley.com/college/ walker) for this edition. ■ Additional Resources To aid students in retaining and mastering restaurant management concepts, there is a Student Study Guide (ISBN: 978-1-118-62960-4) that includes chapter objectives, chapter outlines, and practice quizzes with key term and concept review. Additionally, a comprehensive online Instructor’s Manual with Test Bank accompanies this book and is available to instructors to help them effectively manage their time and to enhance student learning opportunities. The Test Bank has been specifically formatted for Respondus, an easy-to-use software program for creating and managing exams that can be printed to paper or published directly to Blackboard, WebCT, Desire2Learn, eCollege, ANGEL, and other eLearning systems. Instructors who adopt this book can download the Test Bank for free. A password-protected Wiley Instructor Book Companion website devoted entirely to this book (www.wiley.com/college/walker) provides access to the online Instructor’s Manual and the text-specific teaching resources. The Respondus Test Bank and the Lecture PowerPoints are also available on the website for download. John R. Walker, DBA, CHA, FMP McKibbon Professor of Hotel and Restaurant Management and Fulbright Senior Specialist, University of South Florida Sarasota-Manatee FMPref.indd xii 9/13/13 9:50 AM Acknowledgments For their insightful suggestions on this and previous editions of the text, I thank James McManemon, University of South Florida Sarasota-Manatee, for his excellent work on the case studies; Joe Askren, University of South Florida Sarasota Manatee for his contribution to the menu chapter; Ed Norman, for his advice on the Planning and Equipping the Kitchen chapter; all the restaurants that allowed a case study to be written; all the restaurants that allowed photos to be used in the text; Ken Rubin, CPA; Dr. Cora Gatchalian, University of the Philippines; Volker Schmitz of California Cafe Restaurants; Dr. Jay Schrock of the University of South Florida; Dr. Greg Dunn of Metropolitan State University Denver and Dr. Katerina Annaraud of the University of South Florida Sarasota-Manatee; Karl Engstrom of Mesa College, San Diego; Brad Peters of Mesa College, San Diego; Dr. Andy Feinstein of California Polytechnic University, Pomona; Dr. Karl Titz, University of Houston; Anthony Battaglia, Glendale Community College; Dr. Paul G. VanLandingham, Johnson and Wales University; Dan Beard, Orange Coast College; Marco Adornetto, Muskingum Area Technical College; Thomas Rosenberger, College of Southern Nevada; C. Gus Katsigris, El Centro College; Karl V. Bins of the University of Maryland—Eastern Shore; Marcel R. Escoffier of Florida International University; H. G. Parsa of the University of Denver; and Chef John Bandman. Thanks to the National Restaurant Association and to the restaurants that allowed me to include their menus or photos, and to these restaurant companies for their provision of resource information: Burton M. Sack, Past President of the National Restaurant Association Chris Sullivan Bob Basham Charlie Trotter John Horne Red Lobster Restaurants Gary Harkness T.G.I. Friday’s Stephen Ananicz The Lettuce Entertain You Group The Hard Rock Cafes David Cohn and the Cohn Restaurant Group Dick Rivera Sean Murphy, The Beach Bistro Jim Lynde, Senior Vice President People, Red Lobster The Garcia Family FMPref.indd xiii 9/13/13 9:50 AM xiv ■ Acknowledgments John C. Cini, President and CEO of Cini Little U.S. Bank The Childs Restaurant Group Danny Meyer Restaurant Magic Outback Steakhouse, Inc. Union Square Hospitality NCR ALOHA Technologies SYSCO Food Service Aria Restaurant B. Café Niche Panificio 21 Club David Laxer, Bern’s Restaurant Richard Gonzmart, Columbia Restaurants I am especially grateful to the reviewers of this text for their diligence and suggestions—the book is better because of your efforts. Bill Burk, Mira Costa Community College Elizabeth Dugan, The Art Institute of Pittsburgh, Online Division Marcella Giannasio, Johnson & Wales University Zaher “Zach” Hallab, California State University Sotiris Hji-Avgoustis, Indiana Purdue University And, finally, to the numerous restaurant operators who have graciously given their time and ideas, photographs, and menus, my sincere appreciation. FMPref.indd xiv 9/13/13 9:50 AM P A R T ONE Restaurants, Owners, Locations, and Concepts The Concept of B. Café B. Café is a Belgian-themed bistro offering a wide variety of beer and a cuisine that is a Belgian and American fusion. B. Café has three owners, Skel Islamaj, John P. Rees, and Omer Ipek. Islamaj and Ipek are from Belgium, and Rees is American. The owners felt that there was a niche in New York for a restaurant with a Belgian theme. Out of all the restaurants in New York, only one or two offered this type of concept, and they were doing well. Since two of the owners grew up in Belgium, they were familiar and comfortable with both Belgian food and beer. Today B. Café offers over 25 Belgian brand beers, and the list is growing. Courtesy of B. Café LOCATION B. Café is located on 75th Street in New York City. The owners looked for a location for two years before po01RestaurantsOwnersLocationsandConcepts.indd 1 ﬁnding the right place. They came across the location after checking the area and ﬁnding a brand-new restaurant whose owner offered to sell. According to owner Islamaj, going with a building that held 9/17/13 10:49 AM 2 ■ Part One Restaurants, Owners, Locations, and Concepts occupancy as a restaurant was “a good way to control cost.” They did some renovations and adapted what already existed. MENU B. Café’s third partner, John P. Rees (who is also the culinary director and executive chef) created the menu. The men wanted a menu that was a fusion of Belgian and American, but did not want to compromise their ethnic backgrounds. They created a menu with many options that was not too ethnic as to alienate people. By doing this they hoped to target the mainstream. PERMITS AND LICENSES The building where B. Café is located today was previously a restaurant. This made the obtaining of permits and licenses a bit easier than it would have been had the building not been a restaurant before. Some of the licenses were transferred over. The owners hired lawyers to obtain other permits and licenses needed to gain occupancy. B. Café is a limited liability corporation (LLC) with three owners. The owners of B. Café strongly recommend going with a preestablished site when opening a new restaurant. MARKETING The owners of B. Café were lucky to be well known in the food critic po01RestaurantsOwnersLocationsandConcepts.indd 2 and journalism community. Their preopening marketing consisted of contacting old connections, which landed them an article in a newspaper. They recommend that anyone who is considering opening a restaurant should send out a onetime press release. CHALLENGES The ﬁrst main challenge for the owners of B. Café was ﬁnding the right staff. They also found organizing vendors and purchasing products (such as their beer) in quantity to be challenging because when you ﬁrst open, “you have to buy, buy, and buy” to be sure that you have enough, but you don’t know what quantities you will need. You should also expect to go over budget. At minimum, you should take what your expected budget is and then add on 20 percent. FINANCIAL INFORMATION Annual sales at B. Café are expected to reach $1 million in the ﬁrst year. They have about 540 guest covers a week. Guest checks average $38 per person. A breakdown of sales percentages follows. Percentage of sales that goes to rent: approximately 9 percent ■ Percentage of food sales: 85 percent ■ Percentage of beverage sales: 15 percent ■ ■ They cannot estimate their percentage of proﬁt (it is 0 percent so far), as the Café opened three weeks prior to this interview. WHAT TURNED OUT DIFFERENT FROM EXPECTED? The sales the ﬁrst week were as expected. Sales in the second week went down due to the holidays. This was not anticipated. Other than this, all went as planned. MOST EMBARRASSING MOMENT When I asked Skel Islamaj what his most embarrassing moment during opening was, he responded that on the day of opening, a customer ordered coffee. That is when “we realized that we forgot to order coffee!” There was none! All was okay though; a server went to a coffeehouse and purchased some to get them through. ADVICE TO PROSPECTIVE ENTREPRENEURS FROM THE OWNERS OF B. CAFÉ 1. Understand the business before you get into it. 2. Location, location, location! 3. Believe in your business, never give up, and be persistent. 9/17/13 10:49 AM C H A P T E R 1 Introduction LEARN ING OBJECTIVES After reading and studying this chapter, you should be able to: Discuss reasons why some people open restaurants. ■ List some challenges of restaurant operation. ■ Outline the history of restaurants. ■ Compare the advantages and disadvantages of buying, building, and franchising restaurants. Courtesy of the Cohn Restaurant Group ■ c01introduction.indd 3 9/20/13 5:49 PM 4 ■ Chapter 1 Introduction Money Buyout Potential Reasons for going into the restaurant business: Challenge A Place to Socialize Habit A Firm Lifestyle Express Yourself FIGURE 1.1 Reasons for going into the restaurant business. Restaurants play a significant role in our lifestyles, and dining out is a popular social activity. Everyone needs to eat—so, to enjoy good food and perhaps wine in the company of friends and in pleasant surroundings is one of life’s pleasures. Eating out has become a way of life for families. Today, more meals than ever are being eaten away from home. The successful restaurant offers a reasonable return on investment. One restaurant, then two, then perhaps a small chain. Retire wealthy. To be a winner in today’s economy requires considerable experience, planning, financial support, and energy. Luck also plays a part. This book takes you from day one—that time when you dream of a restaurant—through the opening and into operation. The kind of restaurant concept you select determines, to a large extent, the kind of talents required. Talent and temperament correlate with restaurant style. Managing a quick-service restaurant is quite different from being the proprietor of a luxury restaurant. Each choice makes its own demands and offers its own rewards to the operator. This book shows the logical progression from dream to reality, from concept to finding a market gap to operating a restaurant. Along the way, it gives a comprehensive picture of the restaurant business. Going into the restaurant business is not for the faint of heart. People contemplating opening a restaurant come from diverse backgrounds and bring with them a wealth of experience. However, there is no substitute for experience in the restaurant business—especially in the segment in which you are planning to operate. So why go into the restaurant business? Here are some reasons others have done so, along with some of the liabilities involved. Figure 1.1 shows reasons for going into the restaurant business. Money: The restaurant is a potential money factory. According to the National Restaurant Association (NRA) the restaurant industry totals $632 billion in sales Successful restaurants can be highly profitable.1 Even in a struggling economy the NRA predicts the restaurant-industry employs 12.9 million in 970,000 locations.2 A restaurant with a million-dollar sales volume per year can generate $150,000 to $200,000 per year in profit before taxes. But a failing restaurant, one with a large investment and a large payroll, can lose thousands of dollars a month. Most restaurants are neither big winners nor big losers. ■ The potential for a buyout: The successful restaurant owner is likely to be courted by a buyer. A number of large corporations have bought restaurants, especially small restaurant chains. The operator is often bought out for several million dollars, sometimes with the option of staying on as president of his or her own chain. The older independent owner can choose to sell out and retire. ■ A place to socialize: The restaurant is a social exchange, satisfying the needs of people with a high need for socialization. Interaction is constant and varied. Personal relationships are a perpetual challenge. For many people there is too much social interplay, which can prove exhausting. On a typical day in America, more than 130 million individuals will be food service patrons.3 ■ Love of a changing work environment: A number of people go into the restaurant business simply because the work environment is always upbeat and ■ c01introduction.indd 4 9/20/13 5:49 PM Early History of Eating Out ■ 5 constantly changing. A workday or shift is never the same as the last. One day you’re a manager and the next day you could be bartending, hosting, or serving. Are you bored of sitting behind a desk day after day? Then come and join us in the constantly evolving restaurant world! ■ Challenge: Few businesses offer more challenge to the competitive person. There is always a new way to serve, new decor, a new dish, someone new to train, and new ways of marketing, promoting, and merchandising. ■ Habit: Once someone has learned a particular skill or way of life, habit takes over. Habit, the great conditioner of life, tends to lock the person into a lifestyle. The young person learns to cook, feels comfortable doing so, enjoys the restaurant experience, and remains in the restaurant business without seriously considering other options. ■ A fun lifestyle: People who are especially fond of food and drink may feel that the restaurant is “where it is,” free for the taking, or at least available at reduced cost. Some are thrilled with food, its preparation, and its service and it can also be fun to be a continuous part of it. ■ Too much time on your hands: A lot of people retire and decide to go into the business because they have too much time on their hands. Why a restaurant? Restaurants provide them with flexibility, social interaction, and fun! ■ Opportunity to express yourself: Restaurant owners can be likened to theatrical producers. They write the script, cast the characters, devise the settings, and star in their own show. The show is acclaimed or fails according to the owner’s talents and knowledge of the audience, the market at which the performance is aimed. When restaurant owners were asked by the author and others what helped most “in getting where you are today,” steady, hard work came out far ahead of any other factor. Next in line was “getting along with people.” Then came the possession of a college degree. Close also was “being at the right place at the right time.” Major concerns were low salaries, excessive stress, lack of room for advancement, and lack of long-term job security. Opening and operating a restaurant takes dedication, high energy, ambition, persistence, and a few other ingredients discussed throughout this text. As Carl Karcher, founder of Carl’s Jr., said, in America you can easily begin a restaurant as he did, on a cart outside Dodger Stadium selling hot dogs. Early History of Eating Out4 Eating out has a long history. Taverns existed as early as 1700 b.c.e. The record of a public dining place in Ancient Egypt in 512 b.c.e. shows a limited menu— only one dish was served, consisting of cereal, wild fowl, and onion. Be that as it may, the ancient Egyptians had a fair selection of foods to choose from: peas, lentils, watermelons, artichokes, lettuce, endive, radishes, onions, garlic, leeks, fats (both vegetable and animal), beef, honey, dates, and dairy products, including milk, cheese, and butter. c01introduction.indd 5 9/20/13 5:49 PM 6 ■ Chapter 1 Introduction The ancient Romans were great eaters out. Evidence can be seen even today in Herculaneum, a Roman town near Naples that in 70 a.d. was buried under some 65 feet of mud and lava by the eruption of Mt. Vesuvius.5 Along its streets were a number of snack bars vending bread, cheese, wine, nuts, dates, figs, and hot foods. The counters were faced with marble fragments. Wine jugs were imbedded in them, kept fresh by the cold stone. Mulled and spiced wines were served, often sweetened with honey. A number of the snack bars were identical or nearly so giving the impression that they were part of a group under single ownership. Bakeries were nearby, where grain was milled in the courtyard, the mill turned by blindfolded asses. Some bakeries specialized in cakes. One of them had 25 bronze baking pans of various sizes, from about 4 inches to about 1.5 feet in diameter. After the fall of Rome, eating out usually took place in an inn or tavern, but by 1200 there were cooking houses in London, Paris, and elsewhere in Europe, where cooked food could be purchased but seating wasn’t available. Medieval travelers dined at inns, taverns, hostelries, and monasteries. The first café was established in then Constantinople in 1550. It was a coffeehouse, hence the word café, the French word for coffee.6 (Both café, usually described as a small restaurant and bar, and cafeteria, find their roots here.) The coffeehouse, which appeared in Oxford in 1650 and seven years later in London, was a forerunner of the restaurant today. Coffee at the time was considered a cureall. As one advertisement in 1657 had it: “. . . Coffee closes the orifices of the stomach, fortifies the heat within, and helpeth digesting. . . is good against eyesores, coughs, or colds * . . .” Lloyd’s of London, the international insurance company, was founded as Lloyd’s Coffee House. By the eighteenth century, there were about 3,000 coffeehouses in London. Coffeehouses were also popular in Colonial America. Boston had many of them, as did Virginia and New York. In the eighteenth century, with the exception of inns that were primarily for travelers, food away from home could be purchased in places where alcoholic beverages were sold. Such places were equipped to serve simple, inexpensive dishes either cooked on the premises or ordered from a nearby inn or food shop. Tavernrestaurants existed in much of Europe, including France and Germany, which had Winestuben serving wine, Delicatessen (delicious food), sauerkraut, and cheese. In Spain bodegas served tapas. Greek taverns served various foods with olive oil. French Culinary History The first restaurant ever was called a “public dining room” and originated in France. Throughout history France has played a key role in the development of restaurants. The first restaurant that actually consisted of patrons sitting at a table and being served individual portions, which they selected from menus, was founded in 1782 by a man named Beauvilliers. It was called the Grand Taverne de Londres. However, this was not the beginning of the restaurant concept. * http://restaurantmanagementandoperations.blogspot.com/2013/04/early-history-of-eating-out.html retrieved on April 30, 2013. c01introduction.indd 6 9/20/13 5:49 PM Birth of Restaurants in America ■ 7 The first restaurant proprietor is believed to have been A. Boulanger, a soup vendor, who opened his business in Paris in 1765.7 He sold soups at his all-night tavern on the Rue Bailleul. He called these soups restorantes (restoratives), which is the origin of the word restaurant. Boulanger believed that soup was the cure to all sorts of illnesses. However, he was not content to let his culinary repertoire rest with only a soup kitchen. By law at the time, only hotels could serve “food” (soup did not fit into this category). In 1767, he challenged the traiteurs’ (hotel restaurateurs’) monopoly and created a soup that consisted of sheeps’ feet in a white sauce. The traiteurs’ guild filed a lawsuit against Boulanger, and the case went before the French Parliament. Boulanger won the suit and soon opened his restaurant, Le Champ d’Oiseau. In 1782, the Grand Tavern de Londres, a true restaurant, opened on the Rue de Richelieu; three years later, Aux Trois Frères Provençaux opened near the PalaisRoyal. The French Revolution in 1794 literally caused heads to roll—so much so that the chefs to the former nobility suddenly had no work. Some stayed in France to open restaurants and some went to other parts of Europe; many crossed the Atlantic to America, especially to New Orleans. Birth of Restaurants in America The beginning of the American restaurant industry is usually said to be in 1634, when Samuel Coles opened an establishment in Boston that was named Coles Ordinary. It was a tavern—the first tavern of record in the American colonies. It was quite successful, lasting well over 125 years.8 Prior to the American Revolution, establishments selling food, beverages, and a place to sleep were called ordinaries, taverns, or inns. Rum and beer flowed freely. A favorite drink, called flip, was made from rum, beer, beaten eggs, and spices. The bartender plunged a hot iron with a ball on the end into the drink. Flips were considered both food and a drink. If customers had one too many flips, the ordinaries provided a place to sleep. In America the innkeeper, unlike in Europe, was often the most respected member of the community and was certainly one of its substantial citizens. The innkeeper usually held some local elected office and sometimes rose much higher than that. John Adams, the second president of the United States, owned and managed his own tavern between 1783 and 1789.9 The oldest continually operating tavern in America is the Fraunces Tavern in New York City, dating from about 1762. It served as the Revolutionary headquarters of General George Washington, and was the place where he made his farewell address. It is still operating today. The restaurant, as we know it today, is said to have been a byproduct of the French Revolution. The term restaurant came to the United States in 1794 via a French refugee from the guillotine, Jean-Baptiste Gilbert Paypalt. Paypalt set up what was likely the first French restaurant in this country, Julien’s Restaurator, in Boston. There he served truffles, cheese fondues, and soups. The French influence on American cooking began early; both Washington and Jefferson were fond of French cuisine, c01introduction.indd 7 9/20/13 5:49 PM 8 ■ Chapter 1 Introduction and several French eating establishments were opened in Boston by Huguenots who fled France in the eighteenth century to escape religious persecution. DELMONICO ’S Other early American restaurants include the Union Oyster House in Cambridge, Massachusetts, opened in 1826 by Atwood and Bacon and still operating,10 and Delmonico’s, located in New York City. Delmonico’s opened its doors in 1827. The story of Delmonico’s and its proprietors exemplifies much about family-operated restaurants in America. John Delmonico, the founder, was a Swiss sea captain who retired from ship life in 1825 and opened a tiny shop on the Battery in New York City. At first, he sold only French and Spanish wines, but in 1827 with his brother Peter, a confectioner, he opened an establishment that also served fancy cakes and ices that could be enjoyed on the spot. New Yorkers, apparently bored with plain food, approved of the petits gateaux (little cakes), chocolate, and bonbons served by the brothers Delmonico. Success led in 1832 to the opening of a restaurant on the building’s second story, and brother Lorenzo joined the enterprise. Lorenzo proved to be the restaurant genius. New Yorkers were ready to change from a roast-andboiled bill of fare to la grande cuisine—and Lorenzo was ready for New Yorkers. A hard worker, the basic qualification for restaurant success, Lorenzo was up at 4:00 a.m. and on his way to the public markets. By 8:00 a.m. he appeared at the restaurant, drank a small cup of black coffee, and smoked the third or fourth of his daily 30 cigars. Then home to bed until the dinner hour, when he reappeared to direct the restaurant show. Guests were encouraged to be as profligate with food as they could afford. In the 1870s a yachtsman gave a banquet at Delmonico’s that cost $400 a person, astronomical at the time. Delmonico’s pioneered the idea of printing a menu in both French and English. The menu was enormous—it offered 12 soups; 32 hors d’oeuvres; 28 different beef entrees, 46 of veal, 20 of mutton, 47 of poultry, 22 of game, 46 of fish, shellfish, turtle, and eels; 51 vegetable and egg dishes; 19 pastries and cakes; plus 28 additional desserts. Except for a few items temporarily unobtainable, any dish could be ordered at any time, and it would be served promptly, as a matter of routine. What restaurant today would or could offer 371 separate dishes to order? Delmonico’s expanded to four locations, each operated by one member of the family. Lorenzo did so well in handling large parties that he soon was called on to cater affairs all over town. Delmonico’s was the restaurant. In 1881 Lorenzo died, leaving a $2 million estate. Charles, a nephew, Courtesy of Delmonico’s Restaurant took over, but in three years he suffered a The famous Delmonico’s Restaurant in New York City. c01introduction.indd 8 9/20/13 5:49 PM Birth of Restaurants in America ■ 9 nervous breakdown, brought on, it was believed, by overindulgence in the stock market. Other members of the family stepped in and kept the good name of Delmonico’s alive. Delmonico’s continued to prosper with new owners until the financial crash of 1987 forced it to close, and the magnificent old building sat boarded up for most of the 1990s. Delmonico’s has since undergone renovations to restore the restaurant to its former brilliance. Restaurants bearing the Delmonico name once stood for what was best in the American French restaurant. Delmonico’s served Swiss-French cuisine and was the focus of American gastronomy (the art of good eating). Delmonico’s is also credited with the invention of the bilingual menu (until then French was the language of worldwide upscale restaurant menus, so diners could understand the menu in any part of the world and order their choice of dishes knowing what would be served), Baked Alaska, Chicken a la King, and Lobster Newberg. The Delmonico steak is named after the restaurant. Few family restaurants last more than a generation. The Delmonico family was involved in nine restaurants from 1827 to 1923 (an early prohibition year), spanning four generations.11 The family had gathered acclaim and fortune, but finally the drive for success and the talent for it were missing in the family line. As has happened with most family restaurants, the name and the restaurants faded into history. In the case of Delmonico’s, however, the restaurant was resurrected due to its familiar name. AMERICAN-STYLE RESTAURANTS Although Delmonico’s restaurant is to be admired for its subtlety, grace, and service, it will probably remain more of a novelty on the American scene than the norm. While it won the kudos of the day and was the scene of high-style entertaining, there were hundreds of more typical eating establishments transacting business. It has been so ever since. It should be pointed out that there is also an American style in restaurants; in fact, several American styles. There are coffee shops, quick-service restaurants, delis, cafeterias, family-style restaurants, casual dining restaurants, and dinner house restaurants, all now being copied around the world. They meet the taste, timetable, and pocketbook of the average American and increasingly that of others elsewhere. The Americans used their special brand of ingenuity to create something for everyone. By 1848, a hierarchy of eating places existed in New York City. At the bottom was Sweeney’s “sixpenny eating house” on Ann Street, whose proprietor, Daniel Sweeney, achieved the questionable fame as the father of the greasy spoon. Sweeney’s less-than-appealing fare (“small plate sixpence, large plate shilling”) was literally thrown or slid down a well-greased path to his hungry customers, who cared little for the social amenities of dining.12 The next step up was Brown’s, an establishment of little more gentility than Sweeney’s, but boasting a bill of fare, with all the extras honestly marked off and priced in the margin. In 1888, Katz’s deli (a fancy word for sandwich shop) was opened by immigrants in the Lower East Side of New York City. Long before refrigeration, smoking, pickling, and other curing methods of prolonging the useful life of food had been perfected. The Lower East Side was teeming with millions of newly emigrated families c01introduction.indd 9 9/20/13 5:49 PM 10 ■ Chapter 1 Introduction and, given the lack of public and private transportation, a solid community of customers was readily available. Katz’s reputation for serving the flavors of the Old World created a loyal following for many generations of residents and visitors to New York.13 More and more, eating places in the United States and abroad catered to the residents of a town or city and less to travelers. The custom of eating out for its own sake had arrived. Major cities all had hotels with fine restaurants that attracted the rich and famous. The nineteenth century also saw the birth of the ice cream soda, and marbletopped soda fountains began to make their appearances in so-called ice cream parlors. This century brought about enormous changes in travel and eating habits. Tastes were refined and expanded in the twentieth century and it is interesting to note that 35 restaurants in New York City have celebrated their one-hundredth birthdays. One of them, P.J. Clark’s, established in 1890, is a real restaurant-bar that has changed little in its hundred years of operation. On entering, one sees a large mahogany bar, its mirror tarnished by time, the original tin ceiling, and a tile mosaic floor. Memorabilia ranges from celebrity pictures to Jessie, the house fox terrier that guests had stuffed when she died and who now stands guard over the ladies’ room door. Guests still write their own guest checks at lunchtime, on pads with their table number on them (this goes back to the days when some servers could not read or write and were struggling to memorize orders).14 The public restaurant business grew steadily, but even as late as 1919 there were still only 42,600 restaurants in this country. For the average family in small cities and towns, dining out was an occasion. The workman’s restaurant was strictly meat and potatoes. In 1919, the Volstead Act prohibited the sale of alcoholic beverages and forced out of business many restaurants that depended on their liquor sales for profit. It also forced a new emphasis on food-cost control and accounting. In 1921, Walter Anderson and Billy Ingram began the White Castle hamburger chain. The name White Castle was selected because white stood for purity and castle for strength. The eye-catching restaurants were nothing more than stucco building shells, a griddle, and a few chairs. People came in droves, and within 10 years White Castle had expanded to 115 units.15 Marriott’s Hot Shoppe and root beer stand opened in 1927. About this time, the drive-in roadside and fast-food restaurants also began springing up across America. The expression carhop was coined because as an order-taker approached an automobile, he or she would hop onto the running board. The drive-in became an established part of Americana and a gathering place of the times. In 1925, another symbol of American eateries, Howard Johnson’s original restaurant, opened in Wollaston, Massachusetts. Howard Johnson is credited with being the first restaurant to franchise. His first store was an ice cream parlor. In 1928, he had convinced a friend to build a restaurant and sell Howard Johnson’s ice cream. Johnson’s profit came from selling Howard Johnson’s ice cream to the restaurant. By 1939 there were 107 Howard Johnson’s restaurants operating in six states. After the stock market crash of 1929 and the Great Depression, America rebounded with the elegance and deluxe dining of the 1930s à la Fred Astaire. The Rainbow Room opened in 1934. This art deco restaurant championed the reemergence of New York as a center of power and glamour. c01introduction.indd 10 9/20/13 5:49 PM Birth of Restaurants in America ■ 11 Trader Vic’s opened in 1937. Although the idea was borrowed from another restaurant known as the Beachcomber, Trader Vic’s became successful by drawing the social elite to the Polynesian-themed restaurant where Vic concocted exotic cocktails including the mai-tai, which he invented.16 At the World’s Fair in 1939, a restaurant called Le Pavillon de France was so successful that it later opened a nightclub in New York. By the end of the 1930s, every city had a deluxe supper club or nightclub. The Four Seasons opened in 1959. The Four Seasons was the first elegant American restaurant that was not French in style. It expressed the total experience of dining, and everything from the scale of the space to the tabletop accessories was in harmony.17 The Four Seasons was the first restaurant to offer seasonal menus—spring, summer, fall, and winter, with its modern architecture and art as a part of the theme. Joe Baum, the developer of this restaurant, understood why people go to restaurants—to be together and to connect with one another. It is very important that the restaurant reinforce why guests choose it in the first place. Restaurants exist to create pleasure, and how well a restaurant meets this expectation of pleasure is a measure of its success.18 RESPONSES TO CHANGING TIMES The savvy restaurateur is adaptable. Being quick to respond to changing market conditions has always been the key to success in the restaurant business. An interesting example of this was demonstrated in the early 1900s by the operator of Delmonico’s. As business declined during a recession in the 1930s, Delmonico’s opened for breakfast, then began delivering breakfast, lunch, dinner, and other fare to Wall Street firms for late-evening meetings. Next, Delmonico turned his attention to the weekends when Wall Street was quiet. He built up a weekend catering business and developed a specialty of weddings. Later he connected with tour groups going to Ellis Island and encouraged them to stop off for meals.19 World War II was the watershed period that made eating away from home a habit to be enjoyed by millions of people and thought of as a necessity by other millions. Since World War II, a number of social and economic trends have favored the restaurant business. The most important has been the rise in family income, the principal source of which has been the working woman. The more disposable income available, the greater the likelihood of eating out. Lifestyle changes have also been important for restaurant sales. Millions at work or traveling eat away from home at restaurants out of necessity, forgoing a “brown bag.” Despite economic cycles, many people perceive restaurant eating to be something deserved or even a different kind of necessity. The tremendous increase in divorce and the number of singles living alone, coupled with smaller living quarters, favors dining out as an escape.20 FAST-FOOD RESTAURANTS Following World War II, North America took to the road. There was a rapid development of hotels and coffee shops. They sprang up at almost every highway intersection. The 1950s saw the emergence of a new phenomenon—fast food.21 Perhaps one of the most colorful of the franchise stories involves the originator of Kentucky Fried c01introduction.indd 11 9/20/13 5:49 PM 12 ■ Chapter 1 Introduction Chicken, “Colonel” Harland Sanders. He had been a farmhand, carriage painter, soldier, railroad fireman, blacksmith, streetcar conductor, justice of the peace, salesman, and service station operator. At the age of 65, he found himself operating his own Kentucky restaurant/motel with little business because a new interstate highway bypassed it by 7 miles. His only income was a social security check of $105 per month.22 He had previously experimented with frying chicken in his restaurant and found that preparing it in a home-sized pressure cooker produced an especially tender product in seven minutes. He set off on a trip around the country to sell restaurant operators a franchise to produce and sell what he now called Kentucky Fried Chicken (KFC). He often slept in the back of his old car wrapped up in a blanket because he could not afford a motel room. Since it was a promotion package and procedure only for cooking chicken, the franchise could be used in an existing restaurant. The initial investment was low, only enough to buy a few needed pieces of cooking equipment. The franchisee would pay the Colonel 5 cents for every order served.23 The Colonel’s thoughts on marketing: “If you have something good, a certain number of people will beat a path to your doorstep; the rest you have to go and get.”24 A $5,000 investment in KFC in 1964 was worth $3.5 million five years later. Of all the hospitality entrepreneurs, none have been more financially successful than Ray Kroc. Among the remarkable things about him was that it was not until the age of 52 that he even embarked on the road to fame and fortune. The accomplishment is all the more astounding because Kroc invented nothing new. In fact, the concept was leased from two brothers who had set up an octagonal-shaped, fast-food “hamburgatorium” in San Bernadino, California. Kroc was impressed with the property’s golden arches, the McDonald’s sign lighting up the sky at night, and the cleanliness and simplicity of the operation. Even more fascinating was the long waiting line of customers.25 Kroc’s genius came in the way of organizational ability, perseverance sparked with enthusiasm, and an incredible talent for marketing. His talents extended to selecting equally dedicated close associates who added financial, analytical, and managerial skills to the enterprise. The McDonald’s Corporation is the projected image of one man, entrepreneur par excellence, who believed with a passion that business means competition, dedication, and drive. The empire was built in good part as a result of his arch-competitiveness, best illustrated by his reply to this question: “Is the restaurant business a dog-eat-dog business?” His reply: “No, it’s a rat-eat-rat business.” The 1960s and 1970s saw the introduction of new establishments like Taco Bell, Steak and Ale, T.G.I. Friday’s (now Friday’s) Houston’s, Red Lobster, and others. Several new chains have emerged and are discussed in the subsequent chapters from time to time, and the “indy” (independent) restaurateur is also discussed throughout the text. Challenges of Restaurant Operation Long working hours are the norm in restaurants. Some people like this; others get burned out. Excessive fatigue can lead to general health problems and susceptibility to viral infections, such as colds and mononucleosis. Many restaurant operators have to work 50 hours or longer per week, too long for many people to operate effectively. Long hours mean a lack of quality time with family, particularly c01introduction.indd 12 9/20/13 5:49 PM Challenges of Restaurant Operation ■ 13 when children are young and of school age. Restaurant owners have little time for thinking—an activity required to make the enterprise grow. In working for others, managers have little job security. A shift of owners, for example, can mean discharge. Although restaurant owners can work as long as the restaurant is successful, they often put in so many hours that they begin to feel incarcerated. Family life can suffer. The divorce rate is high among restaurant managers for several reasons. Stress comes from both the long hours of work and the many variables presented by the restaurant, some beyond a manager’s control. One big challenge for owners is the possibility of losing their investment and that of other investors, who may be friends or relatives. Too often, a restaurant failure endangers a family’s financial security because collateral, such as a home, is also lost. Potential restaurateurs must consider whether their personality, temperament, and abilities fit the restaurant business. They must also factor the economy into the equation. New restaurants are always opening, even in a failing economy. New restaurant owners can count on the fact that, even in a bad economy, people still have to eat, even if they go out less often and spend less when they do.26 Consumers are carefully watching how they spend their hard-earned money, and restaurant dining is a part of discretionary income, meaning people will spend first on essentials and then on niceties like dining out. They may trade down and dine at quick-service or casual restaurants instead of using fine-dining restaurants. Even grocery stores are going head to head with restaurants, trying to lure budget-conscious and time-starved consumers away from eateries toward a variety of prepared foods.27 Christopher Muller, a restaurant professor at the Rosen College of Hospitality Management, says that it would not surprise him if around 10 percent of restaurants closed in this the most challenging times for restaurants in decades.28 A few years ago, the well-known and highly successful football coach Vince Lombardi described the perfect football player as “agile, mobile, and hostile.” In a restaurant context, he or she is someone who enjoys serving people, can handle frustration easily, and is tireless. Lacking one or more of these traits, the would-be restaurant operator can consider a restaurant as an investor only and find someone else to operate the restaurant. Operating a restaurant demands lots of energy and stamina. Successful restaurant operators almost always are energetic, persevering, and able to withstand pressure. Recruiters for chain restaurants look for the ambitious, outgoing person with a record of hard work. The trainee normally works no fewer than 10 hours a day, five days a week. Weekends, holidays, and evenings are usually the busiest periods, with weekends sometimes accounting for 40 percent or more of sales. The restaurant business is no place for those who want weekends off. Knowledge of food is highly desirable—a must in a dinner house, of less importance in fast food. Business skills, especially cost controls and marketing, are also necessities in all foodservice businesses. Plenty of skilled chefs have gone broke without them. A personality restaurant needs a personality; if the personality leaves, then the restaurant changes character. Whatever the true rate of business failure, it is clear that starting a restaurant involves high risk, but risks must be taken in order to achieve success. Restaurants may require a year or two, or longer, to become profitable and need capital or credit to c01introduction.indd 13 9/20/13 5:49 PM 14 ■ Chapter 1 Introduction survive. A landmark study by Dr. H. G. Parsa found the actual failure rate of restaurants in Columbus, Ohio, was 59 percent for a three-year period. The highest failure rate was during the first year, when 26 percent of the restaurants failed. In the second year, 19 percent failed, and in the third year, the failure rate dropped to only 14 percent. Dr. Parsa’s study is valid because it used data from the health department in determining when the restaurants opened; some studies obtain their data from other sources, including the Yellow Pages. Parsa adds that many restaurants close not because they did not succeed financially, but because of personal reasons involving the owner or owners.29 If a restaurant survives for three years, its chances of continued operation are high. This suggests that in buying a restaurant, you should choose one that is more than three years old. One reason family-owned restaurants survive the start-up period is that children and members of the extended family can pitch in when needed and work at low cost. Presumably, also, there is less danger of theft by family members than from employees who are not well known. Chain restaurant owners reduce the risk of start-up by calling on experienced and trusted personnel from existing units in the chain. Even restaurants started by families or chains, however, cannot be certain of a sufficient and sustainable market for success. When a new restaurant opens in a given area, it must share the market with existing restaurants unless the population or the per-capita income of the area is increasing fast enough to support it. Many restaurants fail because of family problems. Too many hours are spent in the restaurant, and so much energy is exerted that there is none left for a balanced family life. These factors often cause dissatisfaction for the spouse and, eventually, divorce. In states such as California, where being married means having communal property, the divorce settlement can divide the couple’s assets. If a divorcing spouse has no interest in the restaurant but demands half of the assets, a judgment of the cost can force a sale of the operation. When a husband and wife operate a restaurant as a team, both must enjoy the business and be highly motivated to make it successful. These traits should be determined before the final decision is made to finance and enter the business. Buy, Build, Franchise, or Manage? A person considering the restaurant business has several career and investment options: To buy an existing restaurant, operate it as is, or change its concept To build a new restaurant and operate it ■ To purchase a franchise and operate the franchise restaurant ■ To manage a restaurant for someone else, either an individual or a chain ■ ■ In comparing the advantages and disadvantages of buying, building, franchising, and working as a professional manager, individuals should assess their own temperament, ambitions, and ability to cope with frustrations as well as the different risks and potential rewards. On one hand, buying a restaurant may satisfy an aesthetic personal desire. If the restaurant is a success, the rewards can be high. c01introduction.indd 14 9/20/13 5:49 PM Buy, Build, Franchise, or Manage? ■ 15 If it fails, the financial loss is also high, but usually not as Career & Investment high as it would have been if the investment were made Options in a new building. When buying an existing restaurant that has failed or is for sale for some other reason, the purchaser has information that a builder lacks. The buyer Buy & Build & may know that the previous style of restaurant was not Manage a Purchase & Operate an Operate a Restaurant Operate a successful in that location or that a certain menu or style Existing New Franchise of management was unsuccessful. Such information cuts in Operation Restaurant Restaurant risks somewhat. On the other hand, the buyer may find it FIGURE 1.2 Restaurant career and investment options. difficult to overcome a poor reputation acquired by the previous operator over a period of time. There are no quick fixes in overcoming a poor reputation or a poor location, but clearly, knowledge of these circumstances decreases risk. Figure 1.2 illustrates the restaurant career and investment options. Without experience, the would-be restaurateur who builds from scratch is taking a great risk. Million-dollar investments in restaurants are fairly common. Finding investors who are ready to join in does not reduce that risk. A 100-seat restaurant, fully equipped, costs anywhere from $6,000 to $10,000 or more per seat, or $600,000 to $1 million. In addition, a site must be bought or leased. Examples can be given of inexperienced people who have gone into the business, built a restaurant, and been successful from day one. Unfortunately, more examples can be given of those who have failed. By contrast, a sandwich shop can usually be opened for less than $30,000. As one entrepreneur put it, “All you really need is a refrigerator, a microwave oven, and a sharp knife.” Franchising involves the least financial risk in that the restaurant format, including building design, menu, and marketing plans, already has been tested in the marketplace. Some franchises require less than $10,000 to start, including the franchise fee and other operational expenses.30 Even so, franchises can and have failed. The last option—being a professional manager working for an owner—involves the least financial risk. The psychological cost of failure, however, can be high. Luckily, no one has to make all of the decisions in the abstract. Successful existing restaurants can be analyzed. Be a discriminating copycat. The advantages and disadvantages of the buy, build, franchise, or manage decision are shown in Figure 1.3. Original Investment Needed Buy Build Franchise (A) Ex. Subway Medium Highest Low to medium Franchise (B) Ex. Applebee’s High Manage None Experience Needed Potential Personal Stress Psychological Cost of Failure Financial Risk Potential Reward High High Low High High Medium High Highest Medium High Highest Medium High High Medium to high Medium High Medium High None High High Medium to high High Medium FIGURE 1.3 Buy, build, franchise, or manage—advantages and disadvantages. c01introduction.indd 15 9/20/13 5:49 PM 16 ■ Chapter 1 Introduction Borrow the good points and practices; modify and improve them if possible. It is doubtful that any restaurant cannot be improved. Some of the most successful restaurants are surprisingly weak in certain areas. One of the best-known fast-food chains has mediocre coffee; another offers pie with a tough crust; yet another typically overcooks the vegetables. Still another highly successful chain could improve a number of its items by preparing them on the premises. The restaurant business is a mixed bag of variables. The successful mix is the one that is better than the competition’s. Few restaurants handle all variables well. Michelin has been in the business of evaluating and recommending restaurants and hotels for over a century.31 For restaurants, Michelin stars are based on five criteria: quality of the products, mastery of flavor and cooking, “personality” of the cuisine, value for the money, and consistency between visits.32 In all of France, only 18 to 20 restaurants are granted the Michelin three-star rating. In the United States, hundreds of restaurants do what they were conceived to do and do it well—serve a particular market, meeting that market’s needs at a price acceptable to that market but they do not earn a Michelin three-star rating. The person planning a new dinner house should know that even huge companies like General Mills can make big mistakes. Once owner of two profitable dinner house chains, Olive Garden and Red Lobster, General Mills bombed with Chinese, steak, and health-food restaurants. The small operator lacks the purchasing power of the chain, which can save as much as 10 percent on food costs through mass purchasing. The new operator is usually unsophisticated in forecasting. Compare this with Red Lobster’s system, which provides the manager with the number of each menu item to be prepared the next day. Each night, the manager uses a computer file on sales records to forecast the next day’s sales. Based on what was served on the same day in the previous week and on the same day in the previous year, sales dollars for each menu item are forecast for the next day. Frozen items can be defrosted and preprepped items produced to meet the forecast. Wholesale purchasing and mass processing give the chain an additional advantage. The Red Lobster chain processes most of its shrimp in St. Petersburg, Florida. The shrimp are peeled, deveined, cooked, quickfrozen, and packaged for shipping daily to Red Lobster restaurants. Swordfish and other fish are sent to several warehouses, where they are inspected and flown fresh to wherever they are needed. Quality control is critical; all managers should carry thermometers in their shirt pockets so they can check at any time that food is served at exactly the correct temperature. For example, clam chowder must be at least 150°F when served; coffee must be Courtesy of Sean Murphy at least 170°F; and salads at 40°F or lower. Swordfish is grilled no more than four or The Beach Bistro, Anna Maria Island, Sean Murphy’s award-winning restaurant. c01introduction.indd 16 9/20/13 5:49 PM Starting from Scratch ■ 17 five minutes on a side with the grill set at 450°F. A 1-pound lobster is steamed for 10 minutes. In chains, illustrated diagrams tell cooks where to place a set number of parsley sprigs on the plate. Individual operators can institute similar serving-temperature and cooking controls. They may be able to do a better job of plate presentation than chain unit managers can. Independent operators can develop a personal following and appeal to a niche market among customers who are bored with chain operators and menus. This puts individual owners at an advantage over chain competitors. Being on the job and having a distinct personality can really make the difference. Courtesy of the San Diego Convention & Visitors Bureau The restaurant business has both the Dining at the popular La Jolla restaurant in California. element of production (food preparation) and of delivery (takeout). Food is a unique product because in order to experience the exact taste again, the customer must return to the same restaurant. The atmosphere is important to the patrons. Some would argue that restaurants are in the business of providing memorable experiences. Starting from Scratch Occasionally, a faculty colleague from another discipline (usually arts and sciences) says that he or she is thinking of opening up a restaurant and do I have any advice. My reply is: “Let me bring a few of my friends over to your house for dinner for the next month, and then after that we’ll talk about it.” So far, no takers. Joking apart, doing all it takes to prepare 100’s of meals night in and night out is very different from having a few friends over for dinner because, for one thing, there are multiple choices on the menu. Would-be restaurant operators may have already worked in their family’s restaurant, perhaps starting at an early age. Hundreds of thousands of aspiring restaurant operators have tasted the restaurant business as employees of quickservice restaurants. For others, their first food business experience was in one of the 740 cooking school programs offered in vocational school or community college programs or at cooking institutes. Yet the industry still does not have nearly enough employees, and the turnover rate is high. The tens of thousands of young people who work in restaurants know that, but also welcome the experience and enjoy working with other young people who never consider the job as a career. One message comes through loud and clear: The restaurant business is highly competitive and requires inordinate energy, the ability to work long hours, and the willingness to accept a low salary. According to the National Restaurant Association, the c01introduction.indd 17 9/20/13 5:49 PM 18 ■ Chapter 1 Introduction restaurant industry is expected to add 1.3 million jobs by 2020, for total employment of 14.1 million in 2019.33 Following the European tradition, students who wish to become known as master chefs often seek jobs at the name restaurants in big cities. Many go abroad for the same reason, building their skills and rounding out personal resumes. Restaurants as Roads to Riches Probably the biggest reason thousands of people seek restaurant ownership is the possible financial rewards. With relatively few financial assets, it is possible to buy or lease a restaurant or to purchase a franchise. Names like Ray Kroc of McDonald’s, Colonel Sanders of KFC, and Dave Thomas of Wendy’s exemplify the potential success one can experience in the restaurant business. Dozens of McDonald’s franchise holders are multimillionaires, yet some McDonald’s restaurants fail. Some owners and franchisees of KFC stores are also wealthy. A surprise billionaire is Tom Monaghan, the Domino’s Pizza entrepreneur. Hundreds of lesser-known people are also making it big, some by building or buying restaurants, others by becoming franchisees. Declining consumer confidence took a bite out of restaurants’ sales and profits in 2007–2012, leading to bankruptcy filings at casual dining chains like Bennigan’s and the closure of more than 600 Starbucks locations.34 With the economy still struggling, all segments of the restaurant industry are feeling the effects. Consider all the effects of a weak economy. While prices of food and energy costs (heating, lighting, kitchen equipment, etc.) go up, sales slow down. Here are some of the things this book will help you with: Ownership: Sole proprietorship, partnership, company, or franchise. Development of a business plan: A good business plan may take a while to develop, but you’re not going to obtain financing without one. ■ Marketing/sales: You need to know who your guests will be and how many there are of them. ■ Location: Will your location be freestanding, in a mall or a city center, suburban, or something else? ■ Who is on your team? Your chef and staff, lawyer, accountant, insurance, sales, marketing, and public relations. ■ Design/Ambience: What design/ambience will you select? ■ Menu: What will your menu feature? How many appetizers, entrées, and desserts will you offer? ■ Beverages: Who will develop your beverage menu, and what will be on it? ■ Legal: What permits do you need? ■ Budgets: What will your budget look like? ■ Control: What kind of control system will you have, and how will it work? ■ Service: What style of service will you select, and how will it operate? ■ Management: How will your restaurant operate? ■ Operations: An overview of restaurant operations. ■ ■ c01introduction.indd 18 9/20/13 5:49 PM Summary ■ 19 Global Issues Many of the world’s top restaurants have similar concerns and overall goals in regards to competing in today’s hospitality industry: Innovative menu concept Successful marketing (price and promotion strategies) ■ Site selection ■ Remodeling/capital investments ■ ■ Creating a unique menu that is noticed and appreciated by their guests is probably at the top of the list. Menu innovation needs to be ongoing in order to keep up with today’s demanding diner. The restaurateur has realized that matching their culinary capabilities with their guest’s greatest desires is the key to a successful menu. The successful restaurateur will have a menu that also supports their overall theme. Just as hotels depend on a successful marketing department, so should today’s restaurants. After the perfect product is created, the restaurant will need to decide on an overall pricing structure that is accepted by the customer. Finding unique ways to promote the restaurant has also changed drastically over the past decade. Restaurants are getting away from expensive advertising that mass market their business and are using more focused forms of promotion such as social media and public relations. Using social media gives the restaurant the ability to target specific groups of guests that may have certain noticeable buying behaviors. A public relations initiative, which can also be combined with the social media tool, has the powerful third party endorsement characteristic that positively affects the guest response. Even corporate chain restaurants are finding that getting in touch with the local community can be very powerful and often times more effective than expensive advertising. Site selection, remodeling, and capital expenditures are also some global concerns that restaurants have. Today’s technology has shrunk the playing field for most businesses. Corporate restaurants understand that continuous growth is important. However, trying to predict the success of future sites can be challenging. Many companies have found that conducting marketing tests and profitability studies will help answer the many questions when making these decisions. Outside consulting groups are available for tests and studies such as these. Optimizing their investments in remodeling and capital expenditures is the ultimate goal. For example, after remodeling, the restaurateur will expect their location to increase menu prices and/or capture more guests in the long-term. Summary The purpose of this book is to take the would-be restaurateur through the steps necessary to open a successful restaurant. Sitting in a busy restaurant can be a fascinating experience. Food servers move deftly up and down aisles and around booths, guests are greeted and seated, orders are placed and picked up, the cashier handles c01introduction.indd 19 9/20/13 5:49 PM 20 ■ Chapter 1 Introduction a steady stream of people paying their bills and leaving. The flow of customers, the warm colors, and the lighting create a feeling of comfort and style. The fascinating history of eating out and the birth of restaurants in America is discussed with examples from leading restaurants and operators. Food servers are usually young, enthusiastic, and happy; the broiler cooks tend to their grilling and sandwich making with a fierce concentration. Food orders are slipped onto a revolving spindle to be taken in succession or pop up on the electronic printer in the kitchen; the orders are prepared, plated, and placed on the pickup counter. A silent buzzer informs the food server that an order is ready. The entire operation could be likened to a basketball team in action, a ballet of movement. Among the players, the restaurant personnel, the emotional level is high. This ensures that each player performs his or her assigned role, one player’s actions meshing with those of the other players. The observer may perceive an elaborate choreography paced to the desires of the customer; the restaurant is orchestrated and led by a conductor, the floor manager. How intricate, how complex, how exciting, how pleasurable—perhaps. When the characters are in their places, know their assigned roles, and perform with enthusiasm, the restaurant operates smoothly and efficiently. To keep it that way means attention to detail and to the product, its preparation, its service; the personnel, their training and morale; cooking equipment, its maintenance and proper use; cleanliness of people, the place—and don’t forget the toilets. A hundred things can go wrong, any one of which can break the spell of a satisfying restaurant experience for the guest. Few jobs have the degree of staff turnover found in a restaurant. Few jobs require the attention to detail, the constant training of staff, the action, the movement, the reaction to and the attempt to satisfy the multitude of personalities appearing as customers and staff, day after day, week after week, year after year. The variables that must be controlled to ensure a smoothly operating restaurant can be overwhelming; the restaurant can, indeed, become a multivariate nightmare. Good luck on your way to becoming a small-town or, perhaps, a large-town, dignitary! Key Terms and Concepts Franchise National Restaurant Association Quality control Restaurant Restaurant concept Review Questions 1. Give three reasons why someone would want to own and operate a restaurant. 2. Success in any business requires effort, perseverance, self-discipline, and ability. What other personality traits are especially important in the restaurant business? 3. In entering the restaurant business as an owner/operator, the individual has a choice of buying, building, or franchising. Which would you choose for minimizing risks? For expressing your own personality? For maximizing return on investment? c01introduction.indd 20 9/20/13 5:49 PM Summary ■ 21 4. How important do you think it is to have restaurant experience before entering the business as an owner/operator? 5. Give three reasons people patronize restaurants. 6. What can we learn from the history and development of restaurants? 7. Which comparisons can be made between the past and present of restaurant operations? CASE ST UDY: Castelli’s Restaurant at 255 Four Generations of Castelli’s Castelli’s Restaurant at 255 is a casual, family-owned restaurant serving traditional Italian-American comfort food made from secret recipes that have been handed down from generation to generation of the Castelli family. The restaurant is located in Alton, Illinois, a small farming community that sits just outside of St. Louis, Missouri. In approximately 75 years of existence, spanning four generations of rich family history, Castelli’s has remained relevant by sticking to the basics with its menu items and ingredients, maintaining a family tradition of striving to provide excellent quality and service, and offering fair prices. However, like many long-running restaurants, Castelli’s has had to overcome its share of difﬁculties throughout the years. In the mid-2000s, Castelli’s began experiencing ﬁnancial difﬁculties, which continued to escalate when the economy began struggling. The fourth generation of the Castelli family, great-grandchildren Matt and Tracy, dropped what they were doing and moved back to Illinois to reassume control of their family’s business and eventually purchase the building back from the bank. Back to the Basics After they assumed ownership of the restaurant, Matt and Tracy did not change a lot about the restaurant concept. They kept the original recipes and ingredients that have been in the family for generations. The reason was that their biggest customer base consists of the Alton, Illinois, locals. Many of these people are long-time patrons from an older c01introduction.indd 21 generation, who are familiar with the concept and menu items and love it for what it is. At Castelli’s, the mentality has always been to give the customers whatever they want. This had been passed down from the beginning by the original owners, Alfonso and Theresa. Because of this mentality, Castelli’s offers a large and impressive menu with over 75 items to choose from. It also offers carryout party packs and carry-out combo meals to feed larger groups in need of a little comfort food. Castelli’s is open on weekdays from 11 A.M. to 9 P.M., and on weekends from Friday 11 A.M. to 10 P.M. The restaurant is busiest on weekends and holidays, at times serving up to 800 guests on a Saturday night. Success Moving Forward Matt and Tracy’s philosophy for success revolves around the idea that they need to be in the restaurant constantly, watching over their business. They believe it is important to establish relationships with customers to ensure they have a good time at the restaurant. And in return, Castelli’s has done well for itself under new ownership. With that being said, Matt and Tracy are still faced with many challenges every day. It is a challenge to maintain consistency in both the front of house and back of house operations by getting everyone to work as a team and produce a smooth and steady ﬂow of service every shift. A few years ago Castelli’s annual revenue was approaching $2 million. Recently, the restaurant has seen a gradual increase in annual revenue and business demand, which reached $2.5 million at the end of 2012. With that in mind, their food and beverage cost was 38 percent in 2012 and their labor cost was 9/20/13 5:49 PM 22 ■ Chapter 1 Introduction 25 percent. Matt and Tracy’s goal is to increase revenue by 5 to 10 percent, lower their food and beverage cost to 30 to 35 percent and lower their labor cost to 22 percent in 2013. Ultimately, their long-term goal is to increase annual revenue to $3 million and eventually expand the business to a second location. QUESTIONS 1. Chapter 1 discusses different challenges of res- taurant operation. What are some of the challenges the Castelli family has faced operating the restaurant over the years? 2. Does the current concept have lasting longevity? Should the owners alter the concept in any way? 3. What are some things the owners could do to increase their annual revenue? a. How can they lower food and beverage cost? b. How can they lower labor cost? 4. What are some things the owners could do to generate more business demand with younger generations between the ages of 25 to 45? a. What can you do to give people a reason to travel to Alton, Illinois, and visit the restaurant? Endnotes 1. National Restaurant Association. July, 27, 2012. Available at http://www.restaurant.org/aboutus/ and www.restaurant.org/research/ind_glance.cfm. 2. Ibid. 3. Ibid. 4. This section draws on Donald E. Lundberg, The Hotel Restaurant Business, 6th ed. (New York: Van Nostrand Reinhold, 1994, pp. 216–218). 5. Joseph J. Deiss, Herculaneum, Italy’s Buried Treasure (New York: Thomas J. Crowell Co., 1969). 6. Peter Montagne, ed., Larousse Gastronomique, author, Larousse Gastronomique (London: Clarkson Potter, 2001), p. 194. 7. “A. Boulanger.” Encyclopedia Britannica. 2009. Encyclopedia Britannica Online. www.britannica. com/EBchecked/topic/75484/A-Boulanger. June, 2009. 8. Paul R. Dittmer and Gerald G. Griffin, Dimensions of the Hospitality Industry: An Introduction (New York: Van Nostrand Reinhold, 1993), p. 60. 9. John R. Walker, Introduction to Hospitality, 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 11. 10. Donald E. Lundberg, The Hotel Restaurant Business 6th ed. (New York: Van Nostrand Reinhold, 1994), p. 217. 11. Thomas Lately, Delmonico’s a Century of Splendor (Boston: Houghton Mifflin, 1967). 12. John R. Walker, Introduction to Hospitality 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 13. 13. www.katzdeli.com. Retrieved November 16, 2009. 14. Linda Glick Conway (ed.), The Professional Chef, 5th ed. (Hyde Park, NY: The Culinary Institute of America, 1991), p. 5. 15. John Mariani, America Eats Out (New York: William Morrow, 1991), pp. 122–124. 16. Ibid. 17. Martin E. Dorf, Restaurants That Work (New York: William Morrow, 1991), pp. 122–124. 18. Ibid. 19. Ibid. 20. Lundberg, p. 215. 21. Richard A. Wentzel, “Leaders of the Hospitality Industry or Hospitality Management,” An Introduction to the Hospitality Industry, 6th ed. (Dubuque, IA: Kendall Hunt, 1991), p. 29. 22. Lundberg, p. 295. 23. Ibid. c01introduction.indd 22 9/20/13 5:49 PM Summary ■ 23 24. Colonel Harland D. Sanders, Finger Lickin’ Good (Carol Stream, IL: Creation House, 1974). 25. Lundberg, p. 299. 26. “Despite economic woes, new restaurants open.” Miami Herald. www.miamiherald.com/457/ story/782910.html (January 2009): p. A1. 27. Sandra Pedicini, “Slump will take toll on restaurants,” Orlando Sentinel (January 12, 2009). 28. Ibid. 29. H. G. Parsa, presentation at the ICHRIE Conference 2003, Indian Wells, California, August 2003. 30. Seay, B. “How much money do I really need?” Franchise Prospector. franchiseprospector.com/ money-financing/franchise-article-3.php. June, 2009. 31. Michelin Guide. www.michelinguide.com/us/guide.html. June 2009. 32. Ibid. 33. National Restaurant Association. http://www.restaurant.org/careers/. Retrieved on July 28, 2012. 34. http://seattletimes.com/html/businesstechnology/2008028854_starbucks02.html. c01introduction.indd 23 9/20/13 5:49 PM C H A P T E R 2 Restaurants and Their Owners LEARNING OBJECTIVES After reading and studying this chapter, you should be able to: ■ List and describe the various kinds and characteristics of restaurants. ■ Compare and contrast chain, franchised, and independent restaurant operations. ■ Describe the advantages and disadvantages of chef-owned restaurants. ■ Identify several well-known celebrity chefs. ■ Deﬁne what a centralized home-delivery restaurant is and what it offers. Courtesy of Sysco c02RestaurantsandTheirOwners.indd 24 9/20/13 6:02 PM Kinds and Characteristics of Restaurants ■ 25 Kinds and Characteristics of Restaurants Broadly speaking, restaurants can be segmented into a number of categories: Chain or independent (indy) and franchise restaurants: McDonald’s, Union Square Cafe, or KFC ■ Quick service (QSR), sandwich: Burgers, chicken, and so on; convenience store; pasta; pizza ■ Fast casual: Panera Bread, Atlanta Bread Company, Au Bon Pain, and so on ■ Family: Bob Evans, Perkins, Friendly’s, Steak ’n Shake, Waffle House ■ Casual: Applebee’s, Hard Rock Cafe, Chili’s, T.G.I. Friday’s ■ Fine dining: The French Laundry, Morton’s The Steakhouse, Fleming’s, The Palm, Four Seasons ■ Other: Steakhouses, seafood, ethnic, dinner houses, celebrity, and so on ■ Of course, some restaurants fall into more than one category. For example, an Italian restaurant could be casual and ethnic. Leading restaurant concepts in terms of sales have been tracked for years by the magazine Nation’s Restaurant News and Restaurants & Institutions. An extrapolation of segment chains by US sales is summarized in Figure 2.1.1 CHAIN OR INDEPENDENT The impression that a few huge quick-service chains completely dominate the restaurant business is misleading. Chain restaurants have some advantages and some disadvantages over independent restaurants. The advantages include: Recognition in the marketplace Greater advertising clout ■ Sophisticated systems development ■ Discounted purchasing ■ ■ When franchising, various kinds of assistance are available, which is discussed later in the chapter. Ranking Concept Sales 1 2 3 4 5 6 7 8 Burgers Casual dining Sandwiches/bakery-cafe Coffee/tea/donuts Family dining Mexican: Limited service Seafood: Full service Mexican: Full service $102,132,100,000 $27,152,900,000 $25,053,200,000 $19,835,600,000 $14,797,200,000 $10,512,100,000 $6,080,600,000 $1,706,200,000 c02RestaurantsandTheirOwners.indd 25 FIGURE 2.1 Top 400 segment ratings. 9/20/13 6:02 PM 26 ■ Chapter 2 Restaurants and Their Owners Independent restaurants are relatively easy to open. All you need is several thousand dollars, knowledge of restaurant operations, and a strong desire to succeed. The advantage for independent restaurateurs is that they can “do their own thing” in terms of concept development, menus, decor, and so on. Unless our habits and taste change drastically, there is plenty of room for independent restaurants in certain locations. Restaurants come and go. Some independent restaurants will grow into small chains, and larger companies will buy out small chains. Once small chains display growth and popularity, they are likely to be bought out by a larger company or will be able to acquire financing for expansion. A temptation for the beginning restaurateur is to observe large restaurants in big cities and to believe that their success can be duplicated in secondary cities. Reading the restaurant reviews in New York City, Las Vegas, Los Angeles, Chicago, Washington, DC, or San Francisco may give the impression that unusual restaurants can be replicated in Des Moines, Kansas City, or Main Town, USA. Because of demographics, however, these high-style or ethnic restaurants will not click in small cities and towns. FRANCHISED RESTAURANTS Franchising is a possible option for those who lack extensive restaurant experience and yet want to open up a restaurant with fewer risks than starting up their own restaurant from scratch. Or, if you’re a go-getter, you can open up your own restaurant, then another, and begin franchising. Remember that franchisors (the company franchising the rights to you and others) want to be sure that you have what it takes to succeed. They will need to know if you: Share the values, mission, and ways of doing business of the franchisor Have been successful in any other business ■ Possess the motivation to succeed ■ Have enough money not only to purchase the rights but also to set up and operate the business ■ Have the ability to spend lots of time on your franchise ■ Will go for training from the bottom up and cover all areas of the restaurant’s operation ■ ■ Franchising involves the least financial risk in that the restaurant format, including building design, menu, and marketing plans, has already been tested in the marketplace. Franchise restaurants are less likely to go belly-up than independent restaurants. The reason is that the concept is proven and the operating procedures are established with all (or most) of the kinks worked out. Training is provided, and marketing and management support are available. The increased likelihood of success does not come cheap, however. There is a franchising fee, a royalty fee, advertising royalty, and requirements of substantial personal net worth. For those lacking substantial restaurant experience, franchising may be a way to get into the restaurant business—providing they are prepared to start at the bottom and take a crash training course. Restaurant franchisees are entrepreneurs who prefer to own, operate, develop, and extend an existing business concept through a form of c02RestaurantsandTheirOwners.indd 26 9/20/13 6:02 PM Kinds and Characteristics of Restaurants ■ 27 contractual business arrangement called franchising. Several franchisees have ended up with multiple stores and made the big time. Naturally, most aspiring restaurateurs want to do their own thing—they have a concept in mind and can’t wait to go for it. Here are samples of the costs involved in franchising: A Miami Subs traditional restaurant for a single unit has a $30,000 fee, a royalty of 6 percent of monthly gross sales, a payment of 3 percen…
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