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Philly is similar to Portland in that there's a huge restaurant scene here. Yeah, there's a lot of failure, but some people seem to "make it" not just once but

Philly is similar to Portland in that there's a huge restaurant scene here. Yeah, there's a lot of failure, but some people seem to "make it" not just once but multiple times as chef-owners who operate 2 or more restaurants. Yes, if you look at overall failure rate for new restaurants it is very high and it is sad to see first time owners fail, but there are some who enjoy serial success (who also fail sometimes, but can afford it). The ones which I know personally who are successful all had LONG histories of working under-the-wing of a master, literally starting as a line cook and progressing to sous-chef. Along the way they get savvy to the business, make an enormous set of connections and learn their market intimately. When they break out, they start very small and later take calculated risks to expand as they're able to survive failures. Other ways people have found success is by starting as food trucks or as catering services or as suppliers (eg bakery, patisserie) to restaurants.

SmellTheGlove 9y ago
I'm not in the restaurant business, so take what I say with a grain of salt (heh), but from the people I know in that business there's a wide variance in the actual business knowledge they possess. You need enough capital to actually open the doors - that means not leasing the space with knob and tube wiring, residential drainage and a leaky roof. If that's all that's out there, you could simply not open yet and keep looking. In the OP, it sounded like that money was burning a hole in the owner's pocket and he had to open now. Patience. Then once the doors are open, you need detailed, ongoing knowledge of your costs. There is no $29 chicken if it costs out to $31. If no one is going to pay $35 so that you can make a profit, it doesn't go on the menu. But you don't, as the author put it, sell $40 in cost for $29 simply because no one would pay $40. Then you get into ordering and spoilage, where even me as a total outsider, could tell you there's often money rotting in the walk-in. Point is, you must know your real operating costs before you ever even stand a chance. Then you have to go out there and not suck. For a chef opening a restaurant, this is probably the part they're focused on. Problem is, you could be sunk before you even get to this stage. The guys that are successful and worked under successful people for a long time probably learned quite a bit about running the business, and is why they have better odds. tl;dr - Under-capitalization is a leading cause of failure for many businesses. You can't make up your operating losses in volume. Don't open any business if you aren't prepared to live and breathe the minutiae of your costs.
- crispyambulance 9y ago
  Well, there are good reason for selling stuff under-cost if the loss can be more than made-up for in other charges. Doing this is as old as retail itself-- a "sale" in the retail world. In the restaurant business under-cost prices for a particular item can get more people in the door who then buy drinks, appetizers and other menu items while enjoying the great deal of a $20 chicken. That's easier said than done, of course.
  - rtkwe 9y ago
    Selling for a loss in a retail as a lot of benefits that don't really translate well to restaurants though. One of the biggest I'd think is the 'shelf life' of products. In retail items move in and out throughout the year but an item in stock doesn't really go bad so the main reasons to sell at a loss are just to clear out space for other newer items that might sell better. (Also even fairly deep sales aren't even necessarily actually losses for the business because wholesale prices are much cheaper) In the restaurant business there's not really a good analogue on a regular menu, a loss leader isn't clearing out any stock because the items are constantly just degrading naturally so you'd be better off just pulling the item if it costs more to make and not constantly making it. It'd be like if JiT manufacturing was a thing and stores made shirts for a loss in the store from raw materials, it just doesn't make sense unless that item has consistent accessories (your drinks and apps) that sell for much larger margins. It's a dangerous game because you're counting a lot on consistent consumer behavior.
    - munificent 9y ago
      > a loss leader isn't clearing out any stock People need something to chew on while drinking the wine that has a very large markup on it. Consumer expectation is a big part of pricing. For whatever reason, people are OK shelling out cash for wine and beer at a restaurant, so those get a big markup. That gives you wiggle room to sell some entrees at cost or a loss, which you need because consumers aren't as comfortable with a big markup on chicken since "I could cook this at home" (even though, like the article states, their home-cooked chicken probably hasn't been marinating in duck confit for the past 48 hours...). Restaurants also need to have a certain amount of variety on the menu to deal with the one picky eater in a party. That's why every seafood restaurant still has one token chicken dish, every steakhouse has a vegetarian dish, etc.

SmellTheGlove 9y ago

I'm not in the restaurant business, so take what I say with a grain of salt (heh), but from the people I know in that business there's a wide variance in the actual business knowledge they possess. You need enough capital to actually open the doors - that means not leasing the space with knob and tube wiring, residential drainage and a leaky roof. If that's all that's out there, you could simply not open yet and keep looking. In the OP, it sounded like that money was burning a hole in the owner's pocket and he had to open now. Patience. Then once the doors are open, you need detailed, ongoing knowledge of your costs. There is no $29 chicken if it costs out to $31. If no one is going to pay $35 so that you can make a profit, it doesn't go on the menu. But you don't, as the author put it, sell $40 in cost for $29 simply because no one would pay $40. Then you get into ordering and spoilage, where even me as a total outsider, could tell you there's often money rotting in the walk-in. Point is, you must know your real operating costs before you ever even stand a chance. Then you have to go out there and not suck. For a chef opening a restaurant, this is probably the part they're focused on. Problem is, you could be sunk before you even get to this stage. The guys that are successful and worked under successful people for a long time probably learned quite a bit about running the business, and is why they have better odds. tl;dr - Under-capitalization is a leading cause of failure for many businesses. You can't make up your operating losses in volume. Don't open any business if you aren't prepared to live and breathe the minutiae of your costs.

crispyambulance 9y ago
Well, there are good reason for selling stuff under-cost if the loss can be more than made-up for in other charges. Doing this is as old as retail itself-- a "sale" in the retail world. In the restaurant business under-cost prices for a particular item can get more people in the door who then buy drinks, appetizers and other menu items while enjoying the great deal of a $20 chicken. That's easier said than done, of course.
- rtkwe 9y ago
  Selling for a loss in a retail as a lot of benefits that don't really translate well to restaurants though. One of the biggest I'd think is the 'shelf life' of products. In retail items move in and out throughout the year but an item in stock doesn't really go bad so the main reasons to sell at a loss are just to clear out space for other newer items that might sell better. (Also even fairly deep sales aren't even necessarily actually losses for the business because wholesale prices are much cheaper) In the restaurant business there's not really a good analogue on a regular menu, a loss leader isn't clearing out any stock because the items are constantly just degrading naturally so you'd be better off just pulling the item if it costs more to make and not constantly making it. It'd be like if JiT manufacturing was a thing and stores made shirts for a loss in the store from raw materials, it just doesn't make sense unless that item has consistent accessories (your drinks and apps) that sell for much larger margins. It's a dangerous game because you're counting a lot on consistent consumer behavior.
  - munificent 9y ago
    > a loss leader isn't clearing out any stock People need something to chew on while drinking the wine that has a very large markup on it. Consumer expectation is a big part of pricing. For whatever reason, people are OK shelling out cash for wine and beer at a restaurant, so those get a big markup. That gives you wiggle room to sell some entrees at cost or a loss, which you need because consumers aren't as comfortable with a big markup on chicken since "I could cook this at home" (even though, like the article states, their home-cooked chicken probably hasn't been marinating in duck confit for the past 48 hours...). Restaurants also need to have a certain amount of variety on the menu to deal with the one picky eater in a party. That's why every seafood restaurant still has one token chicken dish, every steakhouse has a vegetarian dish, etc.