Wednesday, December 22, 2010

Opening Soon - Are You Crazy?

There is a restaurant on my daily running route that I have noticed under construction for the last six months or so.  It’s a new build, from what I have seen, which is to say that it isn’t one of those oh so typical situations where someone is going in to take over the location of the last restaurant that failed, minimizing their investment, given the presumption that there is already a kitchen, a bar, etc…

Any of you that have been involved in construction know that the cost to take a shell of a building, and then add everything required, to turn it into a functioning restaurant (or Hotel) is considerable.  It’s probably 10 times more expensive than taking over a failed location, throwing a fresh coat of paint on the walls, making a few other improvements, slapping on some signage and announcing your new concept to the world.

For months now I have been running past this location, taking note of the construction, the various trade vehicles coming and going, and like many others, I have been wondering what is coming, and, when it would open.

Just to put this into further perspective, I should tell you that this restaurant is not located in the heart of the business or tourist district.  It is on a busy street with strong vehicular traffic, and I would guess, little foot traffic on an ongoing basis. 

A couple of months ago now I noticed that they had placed several large banners on the building that said “opening soon,” leaving me to wonder just how soon they would be opening.  I’ve seen instances where owners have erected signage such as this six months or even a year before the location was scheduled to open, hoping to create awareness in the community, a curiosity, a level of anticipation.

My question was answered, at least partially, today, when I ran passed the restaurant and saw that the brown paper was down from the windows, the interior appeared to be largely completed, and, the most telling sign – the bar was fully stocked.  

Presumably, this restaurant will open within days, in the latter half of December, which leads me to wonder one thing about the owner – is he or she rich, or crazy, or both? 

Why, in heavens name, would you open a restaurant just after everyone has done their pre-Christmas entertaining, and spending, and just as those same people are about to go into their annual self-imposed freeze on spending, while they assess the damage from Christmas and sit around calculating how long it is going to take to get their credit cards back under control.

No one is spending money in January, or at least not on discretionary items like dinner out with family and friends.  How could someone not know that?

I was involved with a company once; where I was brought on to open a Hotel, among other things.  When I first arrived I was told by the owner that he wanted to open the Hotel in November of that same year, and my immediate question was why?

Why would you want to open at a time when business is historically slow for the destination and remains slow until probably April or May when things traditionally pick-up?

Why would you want to endure months of negative cash flow, high labour costs, made even higher by the fact that you would be open over Christmas and New Year’s, requiring you to pay additional statutory wage costs, and on and on? 

It made no sense – a point that I was able to make clear after producing several budgets for the owner, based on opening at different times, and of course taking into account that there were still financing costs that needed to be taken into consideration, if we delayed opening as I was suggesting.  Regardless, it was clear that the right answer was to delay opening, which we did, resulting in a very successful, and appropriately profitable, first year of operations.

So, back to the new restaurant opening in my neighbourhood.  Do they know something that I don’t?  Have they found the secret to opening in a mediocre location, at a time of year when everyone is curtailing their spending? 

Or, has the owner got deep pockets?  I sure hope so, because in as much as I do not want to see anyone go out of business, I cannot help but think that these people have set themselves up with a significant challenge as they open their doors and try to make it in the fiercely competitive restaurant business.

Statistics show that 80% of all new restaurants do not survive past their second anniversary.  In North America, restaurant failure rates are much higher simply because most are under-capitalized and in many instances owners or managers fail to understand all aspects of the business. 

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