How to run a restaurant business in hard times

Industry veteran and Rockpool founder Neil Perry, right, is cooking up new business. “In corporate Australia now, people are losing jobs. Certainly in the corporate sector [at Rockpool Bar & Grill] in Hunter Street we feel it a bit.” Photo: Jim Rice

Downturns hit the restaurant trade quickly. Chef Bill Granger saw it in October 2008 when the global financial crisis struck Australia.

“I saw it drop straight away in trading that October. It dropped 30 per cent for the month. It was frightening,” recalls Granger, then running three restaurants in Sydney. He immediately turned to the two costs he could control – labour and food, each about 30 per cent of the total. “You tighten it. You ask: ‘Can we run this floor with three good people instead of four mediocre people?’”

Granger cut costs wherever he could – every half hour of staff time he could do without, whatever he could from suppliers. After an initial plunge, trading picked up again the next month.

But Granger’s need to slash highlights a crucial lesson – it takes very little time to throw out a business’s fortune in an industry that tends to have a 4 per cent profit margin. With such little scope for error, those in the business need to move fast and watch everything to survive.

“Restaurants are about micromanagement every day,” he says. “I get [the past week’s] takings on a Sunday evening/Monday morning ... all the figures by Wednesday. As soon as there’s a danger moment coming, I can see it.”

It is difficult to say if the downturn in consumer spending is worse than ever. After all, spending on out-of-home consumption of food and drink is suffering less than spending in retail stores. In April, sales at cafes, restaurants and takeaway food services showed a (longer-term adjusted) trend growth of 1 per cent. By contrast, the figure for department stores was 0.3 per cent.

Things are still tough, however. Industry veteran and Rockpool founder Neil Perry says yields are two to three percentage points below normal. “We’re certainly noticing that lunches aren’t as strong as they once were,” Perry notes. “Spend per head has gone down marginally. In corporate Australia now, people are losing jobs. Certainly in the corporate sector [at Rockpool Bar & Grill] in Hunter Street we feel it a bit.”

Chefs around the world are changing the way they deal with tighter consumer spending and uncertainty. In Italy, a country dancing on the precipice of an economic crisis, Massimo Bottura, the chef patron of Modena’s Michelin three-starred Osteria Francescana restaurant, opened an informal brasserie last year.

“My slogan to combat the economic crisis is to ‘give more and exceed expectations’,” Bottura says in an email to BRW. “Quality is the only way out of this crisis – not cutting corners or being cheap. People think very hard about how they spend their money.”

Bottura’s new brasserie, Francheschetta58, serves small plates that are designed to be shared of meat, cheeses and pastas for a fixed price of €7.

“Our idea was to stimulate people to go out to eat without being afraid of breaking their savings,” he says. “People are having fun at this informal restaurant, the noise level is always out of control and people are sitting on top of each other but that is also another ‘anti-crisis’ medicine – togetherness.”

Experienced chefs say the business constantly goes through ups and downs.

“You see ebbs and flows all the time,” the owner of Universal restaurant in Sydney’s Darlinghurst, Christine Manfield, says. “It is no different to what happened in the late 80s, early 90s with the fringe benefits tax [on employee restaurant dining]. It’s just a different beast, same story.”

Of course, the beast respects no one, not even experienced players. Last month chef Justin North placed his group of restaurants, which includes Sydney’s upmarket Becasse, into voluntary administration.

The business had grown to an “overwhelming” size and needed to be restructured, he told The Sydney Morning Herald.

In 2003, Manfield opened East @ West in London’s Covent Garden. It lasted just 18 months, winning London Tatler magazine’s Best New Restaurant 2004 award before its owners sold it.

British celebrity chef Gordon Ramsay’s Maze Grill in Melbourne’s Crown Metropol Hotel went into liquidation in August last year.

“The business is not sustainable,” his company said at the time. It had already closed Maze restaurants in Cape Town and Prague as well as La Noisette and Connaught venues in London.

Perry’s Wokpool venture in Darlinghurst foundered in 2000. “We signed a really bad lease deal,” Perry says. “We couldn’t make money out of it.”

The latest official figures show that the nation’s net number of cafes and restaurants continues to grow. This number rose from 27,890 on June 30, 2007, to 31,959 in June last year.

All chefs say the business is more complex now than it was. “We were so lucky in the 80s and 90s,” Manfield says. “We got through on a wing and a prayer.”

Perry describes the trade as manufacturing with “a service component over it”, warning that the pace at which things happen can make it brutal. “People come in, try and fail,” he says.

“The sad thing about it is that by the time they figure out they’ve failed they’re up to $700,000 in debt. That’s how much it can mount up.”

Still, the well-run businesses are expanding. Perry, whose company already owns seven restaurants, will open a new Italian restaurant called Rosetta in Melbourne’s Crown complex in September.

Granger, who opened his first British restaurant in London’s Notting Hill in November and wants to have a second one by the end of the year despite the gloom of the British economy, says essential business skills will weed out the weaker operators.

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