Restaurants risky business, expert warns
Long hours, thin margins afflict restaurateurs
by Ellen Roseman, Toronto Star, May 24, 1999
 
If you’ve ever dreamed of starting your own restaurant, consultant, Doug Fisher has one word of advice: Don’t.

Restaurants are high-risk businesses, he says. Eighty per cent go bust in the first three years. Only women’s clothing stores have as high a failure rate.

So why do so many starry-eyed entrepreneurs think they’ll make a fortune selling bagels, burgers or beer?

"It’s sexy," says Fisher. "People see themselves standing at the door greeting people, helping them celebrate. And everyone’s mother was a good cook."

The franchise route is safer, he argues.

A high-quality franchise like McDonald’s, Second Cup or Tim Horton’s has the systems to keep you out of trouble. The failure rate is only 5 to 10 per cent.

Fisher’s book, Successful Restaurants Strategies: From Start-up to Franchising ($39.95) is sold at Chapters and Indigo stores and on the Internet at www.amazon.com and www.fhgi.com.

Part of the book’s proceeds will be used to start a scholarship program to help students take graduate courses in food service management.

Fisher, 43, has a master’s degree in food service management from Florida International University in Miami, and boasts a 15-year track record as a restaurant consultant.

He says that when he meets someone who wants to go into the business, he spends the first hour urging them to find something easier.

There are challenges that newcomers don’t recognize:

• Margins are tight. The average restaurant has a 9.8 percent operating profit (and a 4.5 per cent pretax profit), compared to 20 to 25 per cent operating profit for U.S. restaurants. Canada’s lower margins are the result of higher labour costs, higher taxes and higher prices on foods controlled by marketing boards.
• Hours are long. A coffee or doughnut shop opens at 6 a.m., which means you’re there at 4:30 a.m. You stay late after closing to clean up and count the cash. And you work six to seven days a week. "You give up a lot of family and personal time to do it successfully."
• Capital investment is heavy. You need a restaurant of 2,500 square feet (80 seats) to repay your debts. Space costs a minimum of $125 a square foot, so you’ll pay $300,000-plus for 80 seats. "You’ll need 130 to 150 seats to make significant money," he says. "It’s hard to put together that large an investment."

From what Fisher says, it’s easy to see why restaurants fail so often. Owners go in with too little capital and they’re not prepared to spend time building a base of loyal customers.

And don’t forget dishonest employees.

Fisher has a fascinating chapter on bar scams, which are easy to implement and hard to prevent.

"Honest bartenders—those who pour full shots for customers, charge the correct amount and place the receipts in the till—are becoming a rare breed," he says. "Generally, bartenders who scam do so with pride and without conscience. They don’t only take from their employer, but their customers and co-workers as well."

His advice to restaurant owners: "Inform your staff there are controls in place (even if there are not) and that alone may be your biggest control."

Where are the hot trends in restaurants?

Coffee is a trend, he says, while bagels are a fad. (Trends last seven to 10 years. Fads last only a couple of years.)

Wraps—a sandwich made with tortillas — are a trend, he says. Asian foods, such as sushi and noodles, are trendy too.

Steak houses—such as Morton’s of Chicago or Ruth’s Chris, which charge $30 to $40 for a hunk of meat—are back in style. Vegetarian restaurants? Forget it. There’s no market, in his view.

Non-smoking restaurants? A non-starter. Smokers are good customers: They eat out more, they stay longer, they buy more cocktails.

But cigar bars are out.

His final advice? Get ready for hard times.

"In my career," says Fisher, "I’ve seen a downturn in the economy every six or seven years, followed by three or four very difficult years."

Determine where you are in the cycle and when the next recession will hit. Then, assess whether you can survive the crunch.