What not to do if you want to open a restaurant!
Advice from Andrew Rigie, Executive Director of the New York City Hospitality Alliance
The New York City Hospitality Alliance is a broad-based membership association founded in 2012 to foster the growth and vitality of the New York City Hospitality Industry. The Alliance represents all facets of the industry including restaurants, bars, lounges, destination hotels and major industry suppliers. They advocate on behalf of their members at all levels of government. The Alliance supports pro-growth public policy, encourages investment in and promotion of NYC’s hospitality industry, and evaluates the development, implementation and fairness of relevant government regulations.
1. Don't think owning a restaurant is glamorous.
Don't think because people tell you, you are a great host and a great cook, that you should open a restaurant. 99 % of your day-to-day is the unglamorous aspects of running a restaurant; cutting payroll in a basement near walk-in refrigerators, doing inventory, dealing with city inspectors, going to court to challenge fines. It is a grind. You are working nights, weekends, and holidays. While your friends and family are going out to eat in restaurants themselves, you are busy working. It is far from a glamorous life!
2. Don't think it is going to be easy to open a restaurant, especially in New York City. Don't take any shortcuts.
If you take shortcuts in any aspect of the business, they will come back to haunt you. When you are opening up a restaurant, you want to make sure you are familiar with the real estate. Is there enough gas accessible to the building for cooking? If it is an old building, is it compliant with the American Disabilities Act? Does the community want another liquor license establishment at that location? It can be very hard to get a license. Some communities don't want to have them at all. Don't think that you are going to open a lovely, little restaurant and that the neighbors will be on board with you. Some community boards are very adverse to approving new liquor licenses regardless if you are claiming that you are going to be a quiet restaurant. And, it can be quite contentious. You can go to a community board meeting, and you can have dozens of neighbors speaking out in opposition with petitions against you yelling and screaming. Because of the cost of doing business in New York City and the low margins on food, restaurants rely on alcohol with the higher profit margins to sustain their business. A lot of times, businesses are not financially feasible without a full liquor license. Real estate is very expensive. For leases, you will know for the term what your rent will be, but you have to plan for a potential increase in taxes that get passed on from the landlord to the tenant. Plus, if you are a restaurant and you sign a fifteen-year lease, you may be popular for the first couple of years after you open. But, how do you maintain that longevity especially in such a competitive restaurant marketplace like New York City.
3. Don't think that it will be easy to hire staff for your restaurant.
There is a labor shortage in the restaurant industry, especially among line cooks. It is a very transient industry. Sometimes people you hire don't even show up for work. There are talented people in the industry that are not loyal to one restaurant. They jump from well-known kitchen to well-known kitchen. The workforce issues are challenging as well. Depending on the type of restaurant or bar you open, hiring qualified people with the knowledge of wine, spirits and beers as well as hiring chefs to execute more complex dishes can be difficult.
4. Don't think you are going to make a lot of money.
The old joke in the industry is "how do you make a small fortune in the restaurant industry...start with a large fortune." A lot of restaurants opening up are not profitable. They just don't make money. They lose money, and they close. At one point restaurants could make 15% profit margin. Now many businesses are in the low single digits. You see more and more of the mom and pop, independent restaurants close. There has been the growth of the restaurant group. It only takes one lawsuit or minor violation with complex laws to put your statement in the red. Very few people become Danny Meyer. Even the most successful entrepreneurs have closed businesses. It is not enough to be a hospitable host or a great cook, you need to be a real business person. And, have a little bit of luck. We have over 60 million tourists coming to New York every year. Many restaurants are relying on tourism. If tourism were to drop, that would be a huge problem for the restaurant industry and its workforce. Because there are such tight margins, restaurants are looking for ways to generate additional income. That could be a sidewalk cafe. But, if you have bad weather like this year, the amount of time you can use the sidewalk cafe to generate revenue is significantly less. You should also be a lawyer or pay a lot of lawyers. You want to have a liquor license lawyer, a labor law attorney, an attorney that is familiar with ADA accessible websites, as well as an accountant. It is a very complex, highly regulated industry. It is also very labor intensive. Labor can be 35% of your sales.
5. Don't think you are going to open your restaurant on schedule.
You have to have a significant rainy day fund. There are multiple roadblocks that will pop up in opening a restaurant that will put you over budget and behind schedule. Construction, getting gas to the building, delays with permits, and so on will delay your opening.
But if you can accept these realities and embrace the challenges, you’re on your way to becoming a successful restaurateur in a rewarding, fun industry!