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The Thrill of Losing Money by Investing in a Manhattan Restaurant
- trendia 10y agothrill is misspelled (ignore this post)
- themartorana 10y agoTwo posts down from a missing apostrophe as I write this. Am I being trolled?
- ProxCoques 10y agoI think "trill" would actually make a better headline. Reminiscent of little birds...
- fokinsean 10y agoor Houston hip hop
- dang 10y agoNope. I slept in.
- nstj 10y ago@dang ?
- dang 10y agoAmusingly, the New Yorker (of all places) has the HTML title as 'trill'. But we put an 'h' in there since that's what the page heading has.
- jakemor 10y agoI literally looked up 'trill' to see if there was a definition for the word that i was missing lol
- johansch 10y agoHere's the real content, found at the end: "New restaurants, with too-easy access to financing from people like me, invest too much in design, tableware, food, and service, driving up every customer’s expectations of every restaurant in a cyclone of unprofitability. Landlords, with enough dreamers to fill their spaces, can command nightmare rents."
- telotortium 10y agoAnd of course, the explicit connection drawn to the raison d'être of this site: "Manhattan restaurants seem to be the original example of the business model taken to its extremes by Uber and others in Silicon Valley, of investor capital subsidizing, semi-permanently, the customer experience."
- AJJB10 10y agoMinimal viable product/lean startup. This is not that. For a restaurant that means: 1. Have good food, that sells. Nothing else matters. No big up front investments. Have a killer product, which you make in your home kitchen if you have to. I thought Americans knew this, with their food trucks and shared kitchens. I see this all the time. People thinking about how to name their company, how the logo looks, or in this case which forks to use. These things matter, but only in the long run, when you're able to sell your product successfully already. Access to money and people like the author make this difficult, you aren't forced to survive. A restaurant near me has started without a name, no interior decoration and a less than good but not too bad location. After six months they had a line out the door, every night. After a year they had a name. After two years they renovated, but just a little bit. Now it's 5 years later, it looks fancy, they have a logo and it's nicely renovated. But they started with the product. I think it's a good idea to do everything in reverse, especially when we are worried how we are perceived. We see finished, well working things and think we need to emulate everything they are doing, including the expensive business cards, when it's really the other way around. Product first, being forced to survive, the details come later. Makes for a much more relaxing atmosphere as well, with much less meetings that go nowhere.
- tomcam 10y ago1. You can't sell homemade food in a restaurant with the exception of a few items like bread that don't require refrigerators or a grease trap or a ventilation system (stove hood). There are slight variations on this theme per locality 2. Compliance, permitting, inspections and so on make your idea of a restaurant MVP literally impossible in Manhattan and the state of New York.
- jackweirdy 10y agoPeople seem to forget the principle that while a great salesman can sell dirt, any idiot can sell gold.
- AJJB10 10y agoAnd people think they are great salesmen like they think they are great drivers.
- qaq 10y agoDoes this hold true for bars as well?
- dejv 10y agoI am in wine business (owner-winemaker of small winery) and it hold true, so I guess it applies to bars as well
- qaq 10y agothat's sad, I guess I need a new retirement idea :)
- bluedino 10y agoProbably even worse. Most states require you to buy an expensive 'liquor license' to sell alcohol. And if your municipality doesn't have any to offer you, you might end up buying one for hundreds of thousands of dollars on the open market.
- paulsutter 10y agoYou know those tiny lunch places in downtown San Francisco? Closet-sized and to-go only? That's what people should try as their first restaurant. Unfortunately, people usually try that second.
- oneloop 10y agoThe author writes as if he was looking for entertainment, not profit. The journey from investing* to losing half of it over 7 years does sound entertaining, so I guess he got what he wanted. * he says he invested "a car", so $10-40k?
- nxzero 10y agoOnly restaurants I've known that did well owned the real estate they were in or were super cheap high margin places that were popular with a good location. Lots of restaurants are just fronts for money laundering.
- solidsnack9000 10y ago> Lots of restaurants are just fronts for money laundering. I've heard this before, but I've never been able to find any corroboration. How does it work? Half your palettes of milk never get delivered?
- nxzero 10y agoCorrect, half of the pallets get delivered and the dairy farm is owned by the launder too via a series of shell companies. Best way to learn about money laundering (ML) is to study anti-money laundering (AML), since most laundering outfits aren't going to write a book about how they do what they do. Most interesting thing about ML is that in cooking the books, they've got to keep very good records of what's been done, otherwise they've got no idea what's going on; which is counter intuitive, since you would think they would not keep records.
- oneloop 10y ago> That is, New York City, with all its pastrami-and-pizza-hungry tourists and residents fleeing their pocket-size kitchens and young people too busy taking phone pictures of one another to cook, generates enormous demand for restaurants. There are twenty-four thousand of them in the five boroughs. That demand should (...) 24,000 restaurants is not demand, it's supply. This is the Mr. Market fallacy.
- adevine 10y agoThe author understands that. "That demand" is referring to the tourists, residents, young people, etc.
- oneloop 10y agoI understand that the author understands that "that demand" is tourists. What I meant is that you can't measure the amount of demand (tourists) by looking at the amount of supply (restaurants), which the author does.
- CPLX 10y agoThat's not a sound way of thinking about economics. Seeing that a certain level of supply remains stable over time tells you a great deal about the amount of demand present. Of course it does. Much like looking at the skyline allows you to make some basic assumptions about aggregate demand for office space in Manhattan versus Kearney, Nebraska.
- deleted 10y ago[deleted]
- grkvlt 10y agoExcept where it doesn't work, such as in the restaurant business, where some non-trivial percentage of the supply is superfluous and will go out of business. Of course, they will be replaced, so there is an argument that it is at least stable, even despite the high turnover - perhaps that's what you're meaning?
- NumberCruncher 10y agoSpot the guy ho knows what he is doing! - Andrew Yang, the principal investor of a successful restaurant [...] who comes from a restaurant family or - Gary Sernovitz is a writer and a managing director of a private-equity firm
- M_Grey 10y agoEveryone who thinks about opening a restaurant should be forced to read 'Kitchen Confidential' half a dozen times, especially the sections about what it actually takes to win in the business.
- Mendenhall 10y agoBad math edit :)
- adevine 10y agoYour math is way off. 2 million annually works out to about 40k a week, so not sure where your 1600 a day comes from.
- deleted 10y ago[deleted]
- Mendenhall 10y agoIn my head I divided by 52 but then for some reason divided again by 4 thinking that was per month.
- nstj 10y ago$2,000,000 / (6 * 52) = $6,410 sales per day, assuming a 6 day work week. average NY check = $48.56 according to Zagat[0], so you can back that out the above number to 132 diners per night. [0]: https://www.zagat.com/b/new-york-city/48.56-what-can-you-get-for-nycs-average-meal-cost https://www.zagat.com/b/new-york-city/48.56-what-can-you-get...
- lordnacho 10y ago> Manhattan restaurants seem to be the original example of the business model taken to its extremes by Uber and others in Silicon Valley, of investor capital subsidizing, semi-permanently, the customer experience. That's the key take-away (haha). I liken it to poker. If you're at a table with an idiot, you'll get his money. If you're at a table with a bunch of them, they'll get yours.
- canada_dry 10y agoAnd for anyone dreaming-the-dream, but thinking a hip new food truck is the way to go... a reasonably well equipped truck will run you upwards of $400K+.
- johansch 10y agoOr quite a lot less: http://prestigefoodtrucks.com/custom-food-trucks-for-sale/ http://prestigefoodtrucks.com/custom-food-trucks-for-sale/
- misiti3780 10y agoI have always wondered why more people in NYC dont start with food trucks. That would be the most "antifragile" approach to starting a restaurant -- if the food isnt working, change it, if the location isnt working, drive somewhere else you could approach the restaurant game like you are a/b testing a sign up page until you got it right, then nail down a location etc. disclaimer: I have never worked in the food industry
- venomsnake 10y agoRegulations? Inability to test some types of food/techniques.
- wmil 10y agoThere's a long wait list for street food vendor permits, so it's not as simple as you think. But the bigger issue is that's it's glamorous to own a restaurant. You can take your friends there and brag about owning it. Taking your friends to your poutine truck just doesn't impress them.
- spacehome 10y ago> There's a long wait list for street food vendor permits Maybe there shouldn't be?
- fatjokes 10y ago> if the location isnt working, drive somewhere else If that location is working, it's probably already occupied and you will get physically attacked [1] [1] http://www.nydailynews.com/new-york/food-vendor-slashes-rival-back-west-side-turf-feud-article-1.2683855 http://www.nydailynews.com/new-york/food-vendor-slashes-riva...
- tptacek 10y agoBesides permits and competition, some other issues with trucks: * You might not be able to make much money on liquor sales. * There's a price point for food truck food ($10-$15 for the whole meal) and it's much lower than that of a fine dining restaurant. * Even with an off-site kitchen, your menu is probably limited --- that's why two of the food truck people I've met in Chicago opened restaurants after a year --- and also possibly why their trucks went idle (in one case, parked behind the restaurant) once the restaurant opened.
- rgovind 10y agoWhat are some good resources to understand costs of setting up a restaurant in bay area? I know the general concepts involved, but its hard to get specific info like labour rates, rents etc
- feklar 10y agoFriend of mine runs a tiny and successful to-go cafe. His most unexpected problem was competitor restaurants around him constantly phoning city hall to "complain" about his business in hopes they regulate him off the street. The most common complaint at first was cooking smell, so the tiny cafe is forced to install expensive filtration exhaust.Then the complaints turned to signage. A city inspector showed up numerous times to measure his sign, how far his little sandwich board was placed in the sidewalk out front, the brightness of the lights on his sign, that the artwork on the sandwich board was offensive or violated one of the thousands of regulations regarding public advertising. Then the complaints turned to patio, there was too much noise, chairs were too far into the street, garbage was left too long on tables, ect. Anybody with a restaurant/cafe startup idea should have some kind of contingency plan to deal with the inevitable use of city hall to try and close you down.
- matwood 10y agoSee also Uber and AirBnB, just on a much larger scale.
- 467568985476 10y agoIs the takeaway here, "Be prepared to be responsible for the negative externalities your business creates"?
- noonespecial 10y agoI'd say it more like "get to know some folks at city hall because fairness is going to be seen about as often as a Kadupul flower blooming."
- richard_mcp 10y agoBut Uber and AirBnB are giant companies that actively flaunt city policies. I imagine OP's friend probably doesn't have an army of lawyers and probably wasn't aware he was violating any.
- Red_Tarsius 10y ago
- tptacek 10y agoYou can’t own one-forty-second of the next Zadie Smith novel. Really? It seems like you kind of can, these days. I wonder also whether restaurants are the kind of investment that only works if you can have a portfolio of them.
- jimmywanger 10y agoThe fact of the matter is, this article explains why restaurants are money losing. It's an intrinsic good to own a restaurant. You get satisfaction from simply owning a restaurant, no matter if you make or lose money. It feels good to treat your friends, and get preferential treatment at your own place. Making money sometimes is secondary. It's sort of like programming for the games industry. A lot of people just want to be in the games industry, cause it's "cool". That's why they accept long hours and poor pay. The ROI for a scrap metal yard or a sewage plant will always be higher than the ROI for a comparably priced restaurant.
- fitzwatermellow 10y agoCounterpoint. The Halal Guys going from a single cart to 300+ restaurants: "How Halal Food Became a $20B Hit in America" http://www.bloomberg.com/news/articles/2016-09-14/america-loves-muslim-food-so-much-for-a-clash-of-civilizations http://www.bloomberg.com/news/articles/2016-09-14/america-lo... In their case, it was certainly because of the overpowering yet enticing smell of fresh grilled spicy lamb kebobs wafting across the block that drew the "I wouldn't eat meat off the street in a million years" nabobs ;)
- cool-RR 10y agoThe problem with investing in something cool, like owning a restaurant or a bar, is that you're competing with a lot of people who are less mature than you. They are less mature than you because they're willing to risk their financial future just so they can feel that they are cool guys who own a restaurant. It's always dangerous to compete with people who are less mature than you because they are okay with losing the important things in life in order to beat you, so you'll be forced to either go down to their level or lose to them. It's like playing chicken against someone who has suicidal tendencies.
- bagacrap 10y agoThis was more or less the point of the article, although the article's author was less slanderous of the competition.
- bsder 10y agoThe standard joke: "How do you make a small fortune in the restaurant business?" "Start with a large fortune".
- theonething 10y agoSo you don't think obeying the law is a good thing? Don't you think regulations exist for a reason? In the case of the medical field for example, I'm very happy it is heavily regulated and I would expect everyone in that field to follow those regulations. Now if you think think some of your industry's regulations are unreasonable, that's a whole other discussion. But it seems like what you are complaining about here is that your business has to follow rules/law/regulations.
- newmanships 10y agoI don't think that's what he means at all. Nowhere in his statement does he say he shouldn't have to obey the law. Think the complaining is more about the vast amount of regulations that there are. I'm sure you break laws on a daily basis that you have no clue even exist (if you live in the US).
- tptacek 10y agoThere's overly complex regulation, and then there's "this type of business is required to have an air filtration system and yours has been operating without one for months". My brother just opened a coffee roaster and cafe in suburban Chicago. It's just him, my sister in law, and a couple friends, none of them with any hospitality experience. There were a lot of regulations, and they had to go several rounds with the city during their build-out. But they got through it. The weird thing about the comment upthread is that they were "forced to install" a filtration system. How did that get past inspection? The dumb little coffee shop --- no food, no cooking smells --- had to have one just to open up.
- wtbob 10y ago> There were a lot of regulations, and they had to go several rounds with the city during their build-out. But they got through it. So far as you know. The problem is that it's entirely possible that there's some little-known codicil of some code which they are in violation of, the rectification of which could at the outside cost as much as they've already invested.
- joshu 10y agoIt feels like building owners capture basically all of the excess profit of restaurants, which is to the significant detriment of the quality of a neighborhood.
- lisper 10y agoI don't get it. If your gross margin is 3% you can raise your prices by 6% and triple your operating income. Are NYC restaurant-goers really that price-sensitive?
- cloudjacker 10y agoPrices are already high, corners have already been cut, and Competitors aren't raising them higher yet You considered that right
- beachstartup 10y agothe problem is all these stats are lumped together for all types of restaurants all over the spectrum. yes, a high end place can easily raise prices and make more money. plenty of them do exactly that. low end places are squeezed both on supply and demand side, and can not easily do this, or the owners are simply afraid. if you raise your prices by 6% but business drops by 10% because your customers are price sensitive, and the same month you are hit by an unexpected cost, then what?
- 1024core 10y agoThe only way you can make money in a restaurant is via booze. I know a couple of restaurant owners, and they admit it: if they just sold food, they'd be losing money. The profit margins on alcohol are insane. A $1 bottle of beer can easily go for $5 (a 400% markup). And wine? A decent $12 bottle of wine will easily fill 6 glasses, at $7 a pop. So if you're planning on opening a restaurant, be sure to get your liquor license. You'll depend on it.
- cylinder 10y agoThe markup is the same on food. It's just that people only order one main dish each but can order several drinks, and it's altogether another additional revenue source that you need.
- 1024core 10y agoIf you read the article, you'll see that the markup on food is nowhere close to alcohol. He claims a < 3% profit.
- mturmon 10y agoOK, but done better by Anthony Bourdain in his famous book: “To want to own a restaurant can be a strange and terrible affliction. What causes such a destructive urge in so many otherwise sensible people? Why would anyone who has worked hard, saved money, often been successful in other fields, want to pump their hard-earned cash down a hole that statistically, at least, will almost surely prove dry? Why venture into an industry with enormous fixed expenses (rent, electricity, gas, water, linen, maintenance, insurance, license fees, trash removal, etc.), with a notoriously transient and unstable workforce, and highly perishable inventory of assets? The chances of ever seeing a return on your investment are about one in five. ... “The easy answer, of course, is ego. The classic example is the retired dentist who was always told he threw a great dinner party. 'You should open a restaurant,' his friends tell him. And our dentist believes them. He wants to get in the business — not to make money, not really, but to swan about the dining room signing dinner checks like Rick in Casablanca.”