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Is it true that SF restaurants barely make profits?

Or maybe this only applies to restaurants in a certain segment? Are there any restaurateurs willing to talk to me about this? I've always been curious about this but I don't know any in real life.

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  1. Restaurants are all over the map when it comes to profitability. There are some that have revenues close to $10M or maybe above, although there are probably only a handful of restaurants above $10M in SF. If you are at that level, you should have cash flow in the millions. At the same time, there are plenty more restaurants that only last for a split second. It's all over the map.

    In general, I would assume that the averages for profitability are driven down by all the amateurs opening restaurants without having a clue as to what they are doing.

    16 Replies
    1. re: nocharge

      Revenue is not profit.

      1. re: Shazam

        "Revenue is not profit."

        It is not, but if you have enough revenue, you have a lot more options for making a profit than if you lack revenue.

        1. re: nocharge

          That is true but it's impossible to generalize that a restaurant that makes 10MM in revenue is making a huge profit. If their expenses are high (for example, a restaurant like Saison I would assume has a high percentage of expenses to its revenue), then profits might not be any higher on a percentage basis than any other restaurant. You have to remember that there are two elements to consider (revenue and expenses) when looking at profitability and you can't ignore either.

          And by "cash flow in the millions" are you referring to net profit after expenses, or something else? Not to get too granular, but cash flow has a specific accounting meaning that may or may not be what the general public thinks it is.

          1. re: farmersdaughter

            Don't think that Saison makes anywhere near $10M in revenue. If you think they seat 30 people per night and each person pays $500 and you multiply that by 365, that's still just over $5M.

            I've been an investor in one of those around $10M restaurants and seen all the P&L stuff. If you run it intelligently, 1-2 million dollars in cash flow is very doable.

            1. re: nocharge

              Why don't high-end places increase their prices further, to get a higher profit margin? I would think that their clientele is less price-sensitive. Perhaps Saison is at the ceiling of what people would pay - but others?

              1. re: mutton biryani

                I'd say that smart restaurants in downtown SF take customers for as much as possible. Downtown SF has tons of expense account dining stemming from the Financial District, Moscone convention goers, etc. And you have the B&T crowds that come here on a first date wanting to impress. Helps keeping up the check averages.

                1. re: nocharge

                  What does 'B&T' stand for?

                  1. re: mutton biryani

                    "Bridge and Tunnel." It's a New York term that's expanded to mean, I think, yokels or suburbanites just about everywhere.

                    1. re: mutton biryani

                      B+T = Bridge and Tunnel. a disparaging remark that IIRC began in NYC referring to people from Jersey and the Outer Boroughs, not really accurate anymore if one is trying to be dismissive.

                      1. re: mutton biryani

                        I think that for the purpose of this discussion, it just stands for people coming to downtown SF from other parts of the Bay Area for a night out.

                      2. re: nocharge

                        As I understand it, the tech crowd are more and more living in and sometimes their companies are in SF and they're spending loads of money.

                        Also I kinda don't like the the "take customers for as much as possible." No one has to spend any more than they choose.

                        1. re: c oliver

                          "Also I kinda don't like the the "take customers for as much as possible." No one has to spend any more than they choose."

                          Any competitive business will take customers for as much as possible. And in order to stay alive in the competitive world of downtown SF, you can't leave a whole lot of money on the table out of the goodness of your heart. Plus, it's an expensive area to do business.

                          But well-run restaurants have all that figured out, menu pricing and all.

                          1. re: nocharge

                            You're more cynical than I obviously. Making a fair profit - in any business - is different than gouging which seems to be what you're implying.

                            1. re: c oliver

                              I'm not suggesting there is gouging, just that restaurants in downtown SF can get away with higher price points for the reasons I mentioned And like I said, the cost of running a restaurant downtown probably includes a premium. But there must be a reason for why Quince moved downtown. And Saison. Supposedly Aziza is on its way.

                2. re: nocharge

                  You invest in restaurants and the got terms revenue and profit conflated?

                  Are you sure you actually invest in restaurants?

                  1. re: Shazam

                    Who conflates revenue and profits? I'd be embarrassed to make such a trivial statement as "revenue is not profit" on the internet. Everybody knows that. More interesting questions are if the owner wants to make $100K a year, what kind of revenue would it take to make that possible? And for what kind of restaurant? Presumably, revenue over $100K would be helpful.

            2. Daniel Patterson said something like "if you can make 5% you're a hero."

              87 Replies
              1. re: Robert Lauriston

                So you're only making $50,000 a year off a restaurant that has $1,000,000 in revenue? How does it make sense for anyone to invest in, or open restaurants? Is it literally only done by people who are already wealthy and just want to have a passion project?

                1. re: BacoMan

                  If you have an investment that pays you 5% then IMO that's a GREAT one.

                  1. re: c oliver

                    Given the uncertainty on the return, 5 percent is essentially a lotto jackpot. Good luck with that one!

                    1. re: nocharge

                      A lot depends on whether the restaurant is a finish-out lease in a strip center, or a single purpose free stand building. The range of capital outlay can be huge, $millions.

                    2. re: c oliver

                      Hi C., 5% inflation adjusted or just 5%? My clients would be rather unhappy if I just produced a 5% return on their assets.

                      1. re: Fowler

                        2013 was an artificial FED-induced anomaly for financial returns, 5% this year and beyond is not a bad target.

                        1. re: Veggo

                          If you are satisfied with a 5% YOY return on investment, I want you for a client, Veggo.

                        2. re: Fowler

                          profit margin and return on assets are two completely different things.

                          1. re: Dustin_E

                            Dustin, why are you addressing your response to me? I never said PM and ROA were the same.

                            1. re: Fowler

                              this whole sub-thread is conflating PM and ROI. didn't mean to single out just you.

                              comparing a restaurant's profit margin of 5% to an investment return of 5% doesn't make any sense.

                      2. re: BacoMan

                        Close. It's like vineyards and Arabian horses.

                        1. re: BacoMan

                          some people open restaurants because its their passion, not to get rich. they pay themselves a salary, they are their own boss, and they do something that edifies their interest/hobby/creativity. As to why people invest, most are because they want to belong to the restaurant scene, as either a 'player' (someone who wants to be a 'part of it', be responsible for the food and dining experience, to mingle, have a place to feel important etc. btw these people rarely last/are satisfied) or someone who has 'something to say' (a type of restaurant, be it a view on an ethnic cuisine or a stance on product sourcing). not everything in life is how many carrots one can take home at the end of the day. while some people here laugh at that, some people find it hard to fathom living their life only considering 'return on investment'. NB-not to be confused with not caring about the profitability, just differentiating that some people like to try create something special.

                          1. re: apaone

                            apaone, If one cares about "creating something special" year after year after year, that requires being profitable and attention to things like sales per square foot, margins, cost of capital, etc. Unless a restaurateur has a magic money tree growing outside of their restaurant they cannot simply focus or rely upon just "something special" to ensure they will survive as a business and be able to pay their rent and employees.

                            1. re: apaone

                              A lot of people who open a restaurant have no clue what they are getting into, no matter whether it's their passion.

                              As to 'player' investors, that would include me. And I've learned from my mistakes. First of all, only invest "play money", not your life's savings. Never screwed up on that one.

                              Secondly, only invest in restaurants where you would be able to be around and enjoy being there on a very regular basis. Screwed up on that one once. There is an enormous glamor to being a partner in a hot restaurant. Give the bartender a wink and he will point out to the woman sitting next to you at the bar that you are one of the owners and you may end up having sex with a hot woman on a business trip staying at the Four Seasons. That's just the mechanics of how things work and you need to understand those as a 'player' investor, but forget about investing in order to make money or having a certain amount of return on investment.

                              As for people who actually make money in terms restaurant investments, most of them are either lucky or seasoned professionals. And even the seasoned professionals know that they will shoot blanks and adhere to the old adage that the best way to make money in the restaurant industry is never to invest you own money.

                              1. re: nocharge

                                So if no one ever invested there own money...and you can't make any money investing in restaurants...

                                Who is it that funds restaurants?

                              2. re: apaone

                                Yeah, well, not everyone was born with a trust fund, so taking home carrots is pretty important to those of us who weren't born millionaires.

                                I agree that one ought to try to do something special in the restaurant business (or whatever business they are in really), but hardly anyone in the world has the luxury of not caring how much money they make from something.

                                It's hard for me to believe that an entire industry is run by trust-fund kids, and there is almost no profit in it. How does that happen in a capitalist country? It flies in the face of every economic theory of which I know...

                                1. re: BacoMan

                                  >> It's hard for me to believe that an entire industry is run by
                                  >> trust-fund kids, and there is almost no profit in it.

                                  people with extra money and trust fund kids are not the same thing.

                                  >> How does that happen in a capitalist country? It flies in
                                  >> the face of every economic theory of which I know...

                                  Because people like the industry, so just being in it provides a type of hidden compensation.

                                  1. re: Dustin_E

                                    Thanks for pointing out the "extra money" people aren't by a long shot even mostly "trust fund kids."

                                    1. re: c oliver

                                      Right, but usually people with extra money still care about making money on their investments.

                                      1. re: BacoMan

                                        We're retired and most of our money is in "investments.' But balanced and not very risky. Some years ago we had a little 'slush fund' that we felt we could play with. Lost it all. But it was insignificant in the grand scheme of things. And, yeah, if offered a tiny piece of a restaurant that would have been fine.

                                        1. re: BacoMan

                                          people with extra money sometimes accept lower risk-adjusted expected returns if it is something they are interested in / passionate about.

                                2. re: BacoMan

                                  Some people really love the business, and if you're in the business and want to stay in it, owning your own place is a good idea. Or, at least, the business plan promises a reasonable return on investment, so it seems like a good idea at first.

                                  One trend among passionate young chefs around here is to do do things that don't take huge amounts of capital. Chris Kronner was a Chronicle "Rising Star" chef in 2007 when he was at the Slow Club, then did a stint at Bar Tartine. For the last three years he's been doing pop-ups while looking for the right space.

                                  Another trend is to move somewhere with a lower barrier to entry.

                                  1. re: Robert Lauriston

                                    I've been pitched quite a few restaurant business plans and they are usually the most BS documents I've ever encountered in my life, complete with spreadsheets with wildly optimistic monthly projected revenue numbers for the yet-to-exist restaurant.

                                    1. re: nocharge

                                      I thought "spreadsheets with wildly optimistic monthly projected revenue numbers" was the practical modern _definition_ of a "business plan!" :-)

                                      But various people I know personally who've started or backed Bay Area restaurants did it in support of some unusual and very well-grounded vision, which did in fact succeed. Including a few restaurants everyone on this board has heard of.

                                      There seem to me two types of _successful_ restaurateurs: the all-business type (usually with long experience of the industry) -- who may open chains, franchises, independents, or, often, restaurant groups; anyway, successful ones. The others are the visionaries I mentioned, with industry savvy.

                                      Neither group does it for glamor, because it's hip, to score comps, or (worst rationale of all, yet common, I'm told) because "I like food [or cooking at home] and always wanted to open a restaurant." Which is the middle-class counterpart to the customary California nouveau-riche dream of starting a winery and posing in the vineyards for "lifestyle" magazine photos, or roaming the grounds on horseback, like people do in movies.

                                      1. re: eatzalot

                                        I'll tack this on here for lack of a better place.

                                        In the case of SF proper, would you say that the VAST majority of restaurant spaces have been restaurants for a long time? So if someone closes and someone else opens, then hopefully they'd save plenty of money on construction? For those who know nothing about SF and the real estate, it's going to be the rare situation where totally new construction is going to occur. Much less a stand alone building. Maybe SOMA but not much else. Yes?

                                        1. re: c oliver

                                          Can't speak for the "VAST majority" but it sounds reasonable. Though today with little commercial spaces leasing for 3 times what they did a few years ago, even renting established facilities can be daunting,

                                          OTOH -- not relevant to the vast majority, but some of the most notable or original restaurants, not just in the Bay Area but many corners of the US, have been opened in such modified spaces as converted old houses.

                                          1. re: eatzalot

                                            Charming, sure. But HVAC, plumbing, and electrical upgrades mean a crap-ton of money. And then there's permitting and zoning requirements. Possible but not easy. How Chez P did it I'll never know.

                                            1. re: monfrancisco

                                              I'm sure there are some in SF, but I can't remember any off hand. Perhaps the city's fire code is just so stringent that no one can pull it off.

                                              1. re: c oliver

                                                Spruce, maybe? Just thinking out loud.

                                                1. re: monfrancisco

                                                  A place we still haven't been to. Doing an exchange hopefully this summer in Presidio Heights. Gotta go there.

                                                  1. re: c oliver

                                                    Presidio Heights is a beautiful part of town. I'm at the far-away-other-ass-end of the city (Potrero Hill), but would love to meet you if you're interested. monicaluddite-at-att-dot-net.

                                                    1. re: monfrancisco

                                                      Sounds great. Probably mid-July...after the new grandbaby arrives!

                                              2. re: monfrancisco

                                                I have managed enough shopping centers that I quit guessing who would succeed or fail. I built one in OK City, anchored by Safeway and Revco Drugs. I leased a space to a cute gal for a tanning salon and swimwear. I flew with my boss in one of his aircraft so he could visit one of his investments, and he cursed me during the flight home for leasing to a pretty gal with straight teeth and cleavage. Fast forward 5 years, Safeway and Revco went bankrupt, and she wanted a lease extension.

                                                1. re: monfrancisco

                                                  Chez Panisse lost money for ten years, until they opened the Cafe upstairs. Zoning was much more relaxed in those days, they had to bring a lot of stuff up to code after the fire last year.

                                                  1. re: monfrancisco

                                                    The restaurants I am thinking of, in charming old houses -- Panisse; Boston's Nine Knox Street; Chez TJ in Mountain View, others -- were all both

                                                    (a) Started in a different era, fewer regulations etc.

                                                    (b) not in the city of S F.

                                                2. re: c oliver

                                                  The concept of someone buying a restaurant has two essential possibilities:

                                                  1. Assets in place. That usually means that the previous place went belly-up or the owner retired, but some optimistic creature wants to buy whatever is there in order to open her own restaurant.

                                                  2. Ongoing concern. You just buy an existing business and the valuation would be based on adjusted cash flow.

                                                  See this link:
                                                  http://www.restaurantrealty.com/purch...

                                                  As for SF restaurants, there are locations that have been empty for years. Much of it can be traced to landlord behavior, but also to the performance of previous restaurants in the same space.

                                                  Take 100 Brannan. Dark for years. I think the only restaurant that made money there was the Slanted Door, but it moved on to the Ferry Building.

                                                  Or take 121 Spear. Home to a number of restaurants over the years. But dark since the Cosmopolitan closed a couple of years ago.

                                                  1. re: nocharge

                                                    A landlord would not turn down a thoughtful, well financed business plan for a restaurant. Also, some locations simply don't work well for restaurants. Tenants often request a finish-out allowance from the landlord, so landlords often have a little skin in the game. Once bitten, twice shy.

                                                    1. re: Veggo

                                                      Any restaurateur with a "thoughtful, well financed business plan for a restaurant" would think twice about why the previous restaurant in the same space is no longer there. And then you have landlords who are thinking of their holdings as real-estate speculation and don't really care too much about cash flow. Why give anyone a ten-year lease unless it's at a jacked-up rate that the restaurateur may balk at? The most sorry example I've seen is Chalkers in Rincon Center. Used to be the nicest upscale billiard hall in the city. Supposedly had very nice kitchen facilities that were gutted by some naive individual who wanted to turn it into "Martini Park". Didn't happen. So basically, you have a large space in a prime location that includes Yank Sing that has been dark since the end of 2001.

                                                    2. re: nocharge

                                                      When we lived in Noe Valley, there was a place that was just one block to far west. Anyone not doing their due diligence would have thought "hey, GREAT location; *I* can make it work." Nope.

                                                      Are there many places in SF that are part of chains/management companies? Sure, Michael Mina. Is there still a Ruths Chris? That type of thing doesn't seem to dominate.

                                                    3. re: c oliver

                                                      With the number of restaurants that close, you'd think no one would build out a space from scratch, but people do it all the time. Sometimes it's in office or apartment complexes where the developer wants a restaurant, e.g. Saison and Alta CA.

                                                      1. re: Robert Lauriston

                                                        "With the number of restaurants that close, you'd think no one would build out a space from scratch"

                                                        I wanted to highlight this, because it's particularly curious in SF where zoning issues can spiral.

                                                        Sometimes they think they're saving money, which is naive. Another major reason is lack of creativity. They would rather triple their budgets to start with a blank canvas than have to conform to existing spaces that have an identity.

                                                        They'll also fool themselves into thinking by gutting the place, they avoid future problems and know what's there, but of course that's shortsighted because workmanship today doesn't always assure you a clean build out. Build out, interior design, etc. are also line items where you can skim a few bucks, so that has some appeal.

                                                        It is strange that this has become a preference though. It's really a bad habit.

                                                        (by the way, Alta, CA. went into an existing Chinese greasy spoon, but they did gut it)

                                                    4. re: eatzalot

                                                      "I thought "spreadsheets with wildly optimistic monthly projected revenue numbers" was the practical modern _definition_ of a "business plan!" :-)"

                                                      Well, when it's a tech startup with no revenue model, naturally it is ;)

                                                      1. re: eatzalot

                                                        For the past year or so, I have been receiving a cold call or email a month from brokers looking for investments for new restaurants. I think it my profession (legal), but I am always curious if anyone is actually responsive to such calls.

                                                        1. re: The Dive

                                                          You could just say no. (And in most cases, you probably should.) Being pitched business plans for new restaurants is not necessarily a bad thing. Could be interesting provided that you have enough time to read them.

                                                          1. re: nocharge

                                                            Those are what I call "over the transom" deals. Probably 3 in a hundred are worth consideration, and never a restaurant. I stick with what I know, which does not include restaurant operations.

                                                    5. re: Robert Lauriston

                                                      Right...it makes sense for the chefs, they're making salaries.

                                                      But who is putting up the capital? All of the gullible people in the world?

                                                      So, basically, the gullible people of the world enable the rest of us to eat since they consistently lose money opening/running restaurants?

                                                      1. re: BacoMan

                                                        Some restaurants make money, and lots of people are not terribly wise about investing.

                                                        The people who should invest are those who could afford to lose however much they put in and who can get tax benefits by using the losses to offset profits from other investments.

                                                        An added incentive for those who participate materially in a restaurant is that it's less boring than many other businesses. Even for silent partners it could make for more interesting conversation. And you're pretty much guaranteed good service.

                                                        http://www.nytimes.com/2012/05/12/you...

                                                        1. re: BacoMan

                                                          "But who is putting up the capital? All of the gullible people in the world?"

                                                          To some extent, that would be true. But you have the whole spectrum of "vanity investors" who can easily afford taking a loss to people who will mortgage their house in order to fulfill their dreams of opening a restaurant. Lots of naive money spent on capital for restaurants. The major chains probably have things much better figured out than the budding chef fulfilling her dream of opening a restaurant with some weird concept in a strange location.

                                                          1. re: nocharge

                                                            Surely there must be a happy medium?

                                                            A chef with a dream, and talent, opening a "weird concept" in a great location?

                                                            I am very interested by the restaurant business. I guess I was hoping there was a way to maybe make money in it. I'm not a super star chef, or a millionaire vanity investor though. So I guess I can't participate.

                                                            Even worse, I can't be a food critic because the entire profession is made up of people who pay for the privilege of having that as a career...not people actually making a living off of it.

                                                            Maybe I should be writing some scathing articles for the NY Times about the blatant display of wealth inequality inherent in the USA's food and restaurant business.

                                                            1. re: BacoMan

                                                              "very interested by the restaurant business. I guess I was hoping there was a way to maybe make money in it."

                                                              Sure you can make money at it. The restaurants that most consistently make money are unglamorous unhip chain places, well-organized. I know people who've made considerable money in those -- much more than most Michelin-starred restaurateurs could hope for.

                                                              Mundane chain restaurants are the "railroads" of the industry. In the sense of the board game "Monopoly." The railroads are the least glamorous of all the various properties in that game, and they pay modest rent -- but statistically, they're the ones people most often land on, in playing the game.

                                                              1. re: eatzalot

                                                                Yeah, but that sucks. If I just wanted to make money, and make the world a slightly shittier place, I would go into finance and make a lot more money.

                                                                I was hoping there was a way to make money actually helping to make the world a little better by creating place like the ones I love, that have made my life better by their existence.

                                                                It sucks to hear that good restaurants are basically the equivalent of art =/

                                                                1. re: BacoMan

                                                                  Hey, easy, bud! My husband worked in "finance" for most of his career and didn't "make the world a slightly shittier place." I think your generalizations are over the top.

                                                                  1. re: c oliver

                                                                    I meant more, the make lots of money part.

                                                                  2. re: BacoMan

                                                                    >>> If I just wanted to make money, and make the world a slightly shittier place, I would go into finance and make a lot more money.<<<

                                                                    It is typically finance that funds restaurants.

                                                                    1. re: Fowler

                                                                      Well, not according to this thread. It's all vanity investors.

                                                                      Not exactly finance people.

                                                                      1. re: BacoMan

                                                                        Infrequent for traditional lenders because of the extremely high mortality rate of restaurants and auditing is extremely cumbersome if even possible.

                                                                        1. re: Veggo

                                                                          Interesting really; seems as if the restaurant industry is in need of the finance industry creating some new kind of product for them.

                                                                          An entire industry shouldn't have to be financed by wealthy people who want to "look cool".

                                                                          It's a veritable miracle we have any decent restaurants in this world.

                                                                    2. re: BacoMan

                                                                      "hoping there was a way to make money actually helping to make the world a little better by creating place like the ones I love, that have made my life better by their existence."

                                                                      But there is; I alluded earlier to successful examples.

                                                                      You're talking about starting a BUSINESS, which demands Knowing What You're Doing. Successful examples I've seen of what you described reflected visions and plans well aligned with restaurant-world practicalities. (Rather than just sounding good, or looking good on spreadsheets.)

                                                                      Even innovative restaurateurs have very different perspectives from restaurant _customers,_ including foodies who post online. I got a remarkable view of this from one veteran restaurateur heading a national organization. Her point was the disillusionment or naïvete of would-be restaurateurs who derive their whole understanding of restaurants from being a customer. They know, she said, about a few % of the whole picture, and rarely the parts that will make or break the enterprise.

                                                                      1. re: eatzalot

                                                                        "Even innovative restaurateurs have very different perspectives from restaurant _customers,_ including foodies who post online. I got a remarkable view of this from one veteran restaurateur heading a national organization. Her point was the disillusionment or naïvete of would-be restaurateurs who derive their whole understanding of restaurants from being a customer. They know, she said, about a few % of the whole picture, and rarely the parts that will make or break the enterprise."

                                                                        Yeah, I would guess that's true. I am really interested in learning those aspects. But I'm not sure how one goes about it. Already, I think I at least think about all of the pragmatics of restaurants in a way most foodies don't. I often talk to owners when I get a chance about the pragmatics of their business (well, also a lot about the aesthetic parts as well obviously).

                                                                        Can you intern for restaurant groups?...

                                                                    3. re: eatzalot

                                                                      Very true. Usually it begins with one successful unit, and grows into a portfolio of other regional units. Finding reliable, trustworthy managers is where the rubber meets the road.

                                                                    4. re: BacoMan

                                                                      "I am very interested by the restaurant business. I guess I was hoping there was a way to maybe make money in it."
                                                                      there is. find a job and work for people who have had success. swallow lots of pride. then find another different job that exposes another part of the industry (a different level/kind of service, a different chefs vision on food/menu writing/food sourcing), lather rinse repeat. for ten years or so. put in long hours learning the nuances of the craft. study in your off hours. talk to purveyors of all types to learn how food is sourced. work your way up to become a chef or manager in a restaurant you respect. learn how to please people, food wise as well as service. sharpen your skills as a manager (kitchen or front) under several people. then go out on your own (either by being already wealthy, finding investors-vanity or otherwise, from tech or kickstarter). just like any other profession.
                                                                      what you intimate is that you want to make money off of others without any real knowledge or experience which is naive and insulting to those who have worked every evening, holiday, birthday, etc. who have missed their families, who stand on their feet 13 hours a day, six days a week, basically training themselves to be better and better at a profession that is not going to make you rich, but will give you a paycheck, the possibility of being your own boss and edifying something inside you that makes you feel like you are doing something tangible. this is why immigrants open restaurants. sweat equity is the most important part of the business.
                                                                      I'm sure, bacoman, that whatever profession you are in, you studied for. you apprenticed for. you paid your dues and moved up the ladder according to the merits of your work (hopefully). now while i wish there was a way i could make money off of that, i understand its not my place. people do make money in restaurants, just not in the amounts distributed to periphery players that you seem to hope for. that doesn't mean the opposite extreme is true. investors more often receive their money back if they make a sound investment (proven team of professionals opening a sound concept in the right area in good financial times, much like other investments). it would be unwise for an investor to invest only what they can afford to lose (isn't that the first rule of investing? isnt the same true for the stock market or patrons of the arts or cattle futures?) and unwise for someone trying to open a business to find people to try and bilk them for their life savings for their restaurant. so it should be assumed that all parties know the risk and participate on their own free will. my 'how many carrots one takes home' comment from above is used to illustrate that if are in the business to strike it rich, start buying franchises. but if you are in the restaurant business for other more personal reasons, make sure you have a solid financial plan, stick to it, have a solid idea, hire a great crew, never stop studying food trends/customer feedback/industry desires, connect with your guests, work hard and hope for the best. and know when to fold if it comes to that, because you are beholden to a group of people who believed in you and your concept.

                                                                      1. re: apaone

                                                                        >>> it would be unwise for an investor to invest only what they can afford to lose<<<

                                                                        So according to your reasoning they should invest what they cannot afford to lose?!?!

                                                                        1. re: Fowler

                                                                          sorry, correction, it is only wise to invest what you can afford to lose. my error.

                                                                        2. re: apaone

                                                                          That's all sound advice.

                                                                          In my experience, the reality is that actually making serious money on a restaurant investment is either for the shrewd industry insiders or for an amateur, like myself, who might happen to get lucky. And even the shrewd industry insiders will shoot lots of blanks.

                                                                          That's why I came to the realization (the hard way) that if you are a "vanity investor", a large part of the value of your investment may not necessarily be the cash flow but the coolness that goes with being a restaurant owner provided, of course, that the restaurant is a really hot one.

                                                                          1. re: nocharge

                                                                            Why is it so hard to predict which restaurants will do well?...

                                                                            It seems to me like I am able to tell which places are going to be successful somewhat easily, and which are going to fail to some extent.

                                                                            I usually make a note whenever I go to a new place that has just opened up regarding its staying power. I'm almost always correct. Or at least none of the places I've marked as going to make it have closed yet.

                                                                            If it wasn't somewhat obvious it seems like chef/owners wouldn't be able to open several restaurants in close proximity with such success. For example, Josef Centeno (Bäco Mercat, Bar AMA, Orsa & Winston); Zoie Loeb, and Josh Nathan (Huckleberry, Rustic Canyon, Milo & Olive, and Sweet Rose Creamery).

                                                                            (Btw, sorry for my LA examples, I'm actually in LA...but only the SF board ever has these kinds of discussions unfortunately =/)

                                                                            1. re: BacoMan

                                                                              I often go to restaurants on opening day. Obviously, they will still be work in progress, but it's usually easy to figure out whether the place is going to succeed or be a failure.

                                                                              1. re: nocharge

                                                                                But the talent is figuring out which will succeed or fail when there's nothing but a plan for the future.

                                                                                1. re: c oliver

                                                                                  It's often a matter of execution. I remember going to Zinnia on opening night. Sean O'Brien had been the chef at Myth a block away. Myth was one of my favorite places, extremely well run, extremely good food, and I would probably dine there about once a week. So I had really high expectations for Zinnia, even though it was in a space that had seen a history of restaurants come and go, the likes of 555 Jackson and Scott Howard. It was obvious from a split second on opening night that Zinnia was going nowhere due to poor execution, but that would be something that would be hard to figure out from the business plan, especially since it had a chef with a stellar resume.

                                                                          2. re: apaone

                                                                            "I'm sure, bacoman, that whatever profession you are in, you studied for. you apprenticed for. you paid your dues and moved up the ladder according to the merits of your work (hopefully)."

                                                                            No, I pretty much was forced into making my own way in a weird industry out of necessity. I was able to utilize my ability to learn very quickly to produce intellectual labor that is desirable in a market.

                                                                            I find the whole concept of "moving up a ladder" very weird, and overly tedious.

                                                                            I'm not against gaining experience, but I dislike ladders. Let those with the ability to be successful apply their skills ASAP. No need to keep them on some rung of a ladder for a decade.

                                                                            But that's beside the point.

                                                                            People in this thread have been saying that the only people making money are the McDonald's of the restaurant world. Not the Atelier Crenn's, or Bäco Mercat's.

                                                                            I would be willing to invest time learning about all of the aspects of how to run a restaurant like that. But not if there's no money in it.

                                                                            Maybe eventually that will change and I'll have enough to be a vanity investor.

                                                                            Who knows. For now, I will try to use what connections, and knowledge I do have to help a talented chef do some pop-up dinners, since there's no ladder to climb, and it doesn't absorb your entire life, but rather can be done simply for the passion of it.

                                                                            1. re: BacoMan

                                                                              Take the Restaurant Analysis class at City College of San Francisco. It may be too late for this year and who knows if CCSF will be around next year. I did a number of years ago. It was great fun. Their hospitality program is great and conveniently located near a BART station. I think the tuition fee for the course was something like $125 which is about what I normally spend for dinner every night. Great deal!

                                                                              1. re: nocharge

                                                                                I appreciate this recommendation. I would almost certainly do it if I lived up there.

                                                                                Unfortunately, I am stuck in LA. I just hangout on the SF boards because you guys are willing to have theoretical discussions about food, and the restaurant business that get taken down on the LA boards =/

                                                                                I guess I should move up there.

                                                                                Hopefully I can find an equivalent course at one of the community colleges around LA (we have a lot of them here, and some that are quite good).

                                                                                1. re: BacoMan

                                                                                  BacoMan,

                                                                                  You can intern with me anytime!
                                                                                  There is a difference in being successful and being open. Being open day after day is not always a measure of success in a restaurant.

                                                                                  One place I opened in Boston, returned investment in 3 months. They predicted one fiscal year and they were knocking it out of the park that they started making money on week 3 of being open, that rarely happens.

                                                                                  People who "love to cook" or "love to eat out" often have no clue what it takes to serve the paying public. Knowing what to do, how to do it, and different ways of tackling a whole slew of different problems....

                                                                                  There is a huge difference in owning a restaurant and running a restaurant. Smart owners hire experienced managers and do not try to do it them selves.

                                                                                  I can go on and on and on. I will say that SF is insane when it comes to opening and running a small business, and specifically a restaurant. As mentioned above, some landlords have a % of sales go towards them. Highest min way with zero tip credit, SFHCSO, and SF Sick time are 3 of the biggest profit killers.
                                                                                  Cost of items that flux. Labour that goes into prepping these items. People will judge a dish based on cost but have no idea how many man hours and prep went into the dish getting to your table.
                                                                                  Guests that linger way past closing time with less then 3 sips of wine in their glass....they do not realize that the server sticking around to be sure their water is filled....just went on over time and it's costing the restaurant $16.12 an hour to keep them around, but the table stopped spending money 2 hours ago...

                                                                                  on and on....

                                                                                  I do not think there is a way to direct message on here, but I am happy to answer any questions in relation to running a restaurant.

                                                                                  1. re: smatbrat

                                                                                    smatbrat,

                                                                                    I'm the guy who started this whole thread. You sound like someone who has direct experience with this stuff.

                                                                                    I would love to know more about running restaurants. Do you have an email address I can send questions to? In case you don't want to share it in public, feel free to email it to me at ghalib@sent.com.

                                                                                    1. re: smatbrat

                                                                                      I'm sorry I didn't reply to this earlier.

                                                                                      If it's possible could you send an email to my public email (assuming you prefer not to reveal your email):

                                                                                      TheMoonInJune@Gmail.com

                                                                                      I'd like to be able to ask you much more about what good managers do (versus bad managers), how one learns to be a good manager, why staying open isn't a sign of success, and what kind of restaurant could return its investment in three months.

                                                                                      Look forward to hearing from you if you have some free time. Really appreciate it!

                                                                                      1. re: BacoMan

                                                                                        First piece of advice, read Tony Bourdain's book Kitchen Confidential.
                                                                                        It's available for free on line, but even if you were to buy the hardcopy from amazon, you probably wouldn't need too jeopardize the college fund four your kids.
                                                                                        http://people.brandeis.edu/~mikek/boo...

                                                                                        Secondly, the main component that makes anyone good in the the restaurant space is good work ethics, manager or not. Of course, your regular set of skills that are useful for a manager in any occupation will come in handy as well.

                                                                                        As for what makes for a bad manager, I love this story:
                                                                                        http://insidescoopsf.sfgate.com/blog/...
                                                                                        I have my own theory about what the restaurant in question might be.

                                                                                        1. re: nocharge

                                                                                          Good advice to recommend Kitchen Confidential.

                                                                                          1. re: BoneAppetite

                                                                                            I don't know if that's a good book to recommend as an owner's manual to being a restaurant manager. In the book, he openly advocates yelling at his staff, examples of which he occasionally recounts. This is usually a sign of bad people-management skills: in niche operations, management positions are often filled by people who are good at whatever skill allowed them to move up the workplace hierarchy (e.g., being a good chef, or good football strategist), but who never learn the people-handling skills that comprise a major component of a manager's job. The end result is that you get a bunch of yelling maniacs.

                                                                                            It's an entertaining read, mind you. I enjoyed it much, but I'm not in the restaurant business.

                                                                                            1. re: dunstable

                                                                                              We found the book instructive about the realities and difficulties of operating a successful restaurant in a difficult and competitive market. Restaurants are generally not businesses that enjoy their pick from the labor market.

                                                                                              1. re: dunstable

                                                                                                There is a wide difference between what goes on in a restaurant kitchen and how managers in large corporations are taught to behave by the mandatory classes the HR department forces them to take. (And I've taken quite a few of those.) Bourdain just paints a picture, based on his experience, of what might be going on, not what a manager in a large corporation might learn in business school.

                                                                                                1. re: nocharge

                                                                                                  Yes, I agree, except the original request was

                                                                                                  "I'd like to be able to ask you much more about what good managers do (versus bad managers), how one learns to be a good manager..."

                                                                                                  At least with respect to people management, I disagree that there is such a huge difference between a restaurant and a cubicle farm, with respect to how employees need to be handled. A superior yelling at a subordinate is still demeaning, wherever it happens (I don't know any restaurant managers, but I do know several CIA-trained former line cooks at good restaurants who decided, "The hell with this," and quit.). Fine, if the person yelling is Federico Fellini or Scotty Bowman, probably you put up with it for the sake of that person's other gifts, but that is not the same thing as managing well.

                                                                                                  1. re: dunstable

                                                                                                    As a manager, I always felt that one of the most important points was to treat the people that work for you with respect. But I also learned that companies have different corporate cultures even within the same industry, let alone different industries. I view Bourdain's narrative as a well-executed story of what might actually be going on rather than a text-book for managerial behavior.

                                                                                                    1. re: dunstable

                                                                                                      One of John Scott Bowman's players said something to effect of: "you hate the man 364 days of the year when he puts you through practice and gameday; on the 365th when you're raising the Stanley Cup, you believe the man can only walk on water."

                                                                                                      There is leading, teaching, managing . . . so far, Bowman is as good as has ever been at all those tasks in his bidnez, considering the record number of championships against the number of stops in his career. You pay back your employers or investors with results, or else lose your own capital and take up blogging . . . nah . . .

                                                                                    2. re: BacoMan

                                                                                      I would guess that, except for the hands-off investor, no one makes it in that business without a lot of ladder climbing (and dish washing!).

                                                                                      1. re: c oliver

                                                                                        Why not hands-on investors?

                                                                                        1. re: BacoMan

                                                                                          Cause if they're involved in the day to day running of the place, then they'll have plenty of grunt work to do.

                                                                                  2. re: BacoMan

                                                                                    If you want to make money open a restaurant in Fisherman's Wharf. Very profitable.

                                                                                    1. re: BacoMan

                                                                                      >> Maybe I should be writing some scathing articles for the
                                                                                      >> NY Times about the blatant display of wealth inequality
                                                                                      >> inherent in the USA's food and restaurant business.

                                                                                      you should. It will be probably be dismissed as either common sense, or unnecessarily restrictive to talk about the "USA food and restaurant business" instead of "all human culture across all time". But you'll learn something in the attempt.

                                                                          3. Restaurants work on percentages. labor cost, beverage cost, operating cost and food cost should all be a percentage of sales, and these percentages are pretty codified standards for a multitude of reasons. Let's pretend you are talking about restaurants that strive to be 2-1/2 to 3 stars. This may sound limiting but it illustrates a few points of consistency. Lower end restaurants are (correctly) assumed to buy the cheapest possible ingredient in order to make their percentages easier to attain and have a much more casual, non existent service/decor. Higher end (four star places) are anomalies unto themselves (saison claims to have the highest food cost percentage in the city-not exactly a bragging right). Much of the product is the same for this mid-high category of restaurants (no costco pork butts, yet no tsujiki fish market overnights for most three star restaurants in the city), as is the labor model, beverage cost/expectations. Rent is a variable, but one that usually has an influence on business (boulevard's rent is higher than outer land's, but i bet boulevard's location leads to more foot traffic, more fidi and tourist dining, etc., thus more revenue). while some restaurants are able to pull off an above 10% profit, it is quite rare, and it is usually from established places that have, over time, built a clientele and they can start shaving either product cost (one famous embarcadero restaurant only accepts new purveyors if they give 60 day terms, when the norm is 14, this allows them to keep their money in the bank longer, thus collecting a small, but not insignificant bit of interest, thus saving/making a touch more money) or raising prices. revenue and profits ARE different but correlative. a restaurant making ten percent profit, would much prefer to take that 10% from 15 million of revenue (although there is a lot more to running a 15 million dollar restaurant than a 1.5 million, including the fact that the higher end, the more a restaurant is a 'canary in a coal mine' when it comes to market/financial volatility). a small percentage of restaurants make a good profit (mina, boulevard, slanted door) yet other places we think of as wildly popular do not (delfina-zero profit, they make their money on the pizza joints). 'upstarts' trying to make their way are less likely to be profitable as they court the public (pricing things down to the penny, usually in the guests favor, trying harder to bring new/interesting things to the menu, remodeling/expanding etc.) places like rich table or state bird probably pay themselves an adequate salary, but nobody is buying themselves a porsche. and should there be an earthquake, and these guys don't do business for a month, it would be devastating. its no wonder that these types of places probably root for mediocre giants and 49er teams in order to have their dining rooms full in october and december rather than have people at home watching tv. There is no easy answer, but its safer to assume that (like many other professions) people who own/work in restaurants usually are not rich.

                                                                            1. I've spoken with some people I've met who work in the biz and they mention, in different ways, the abundance of wealthy backers of fashionable new places for whom a restaurant is something of a vanity investment. Take your tech windfall and... buy a winery, open a restaurant, open a nightclub... and the longevity and profitability of these businesses is pretty dismal, both because of the lack of domain knowledge and the brutal cost structures for new restaurants. Insane rents, endless permitting red tape, fickle tastes... I have no idea how prevalent this phenomenon is, but I believe it.

                                                                              1. Restaurants aren't exactly big money makers unless you are making money in some tie-ins or already have reputation. I can understand why chefs do the publicity and the F&W circuits. SF restaurants do as good as in any large cities. High rents and higher costs of business are off-set by higher prices and a population that eats out more often and at a higher price point than even other metro areas.

                                                                                Also it depends on who's money you are spending and if you have financial backers and how hands off they will be. Twitter folks invested in Alta CA, Lazy Bear's new place has an assortment of backers, Radius got an assortment of tech folks including former Yahoo people as funders.

                                                                                1 Reply
                                                                                1. re: tjinsf

                                                                                  There was an interesting article in an old Vanify Fair magazine regarding tech companies and their new HQs. But mentioned that Twitter's HQ on Market basically and almost overnight rejuvenated that nabe. As an aside we're hoping to have a late lunch at Alta CA on Monday before flying out of SFO that night.

                                                                                2. I've heard the money is made off the booze and not the food where the margin is super thin. The markup on booze is ridiculous. If you sell a lot of beer, wine, cocktails, the better chance of making more money.

                                                                                  4 Replies
                                                                                  1. re: Agrippa

                                                                                    That's where the margins are, and an owner who is not cash positive has to think about how the beverage program is being operated. That said, people usually try out a restaurant for the cooking; if they return, it's usually for the hospitality. Hospitality sells more beverages than food, so marking up beverages too much is inhospitable.

                                                                                    1. re: BoneAppetite

                                                                                      I used to have the belief that sales of alcohol was the big thing for margins. After having looked at the P&L sheet of one of the more successful restaurants in SF, I revised that view as a little overrated although I'm sure there are numerous places where it holds true.

                                                                                      1. re: nocharge

                                                                                        All failed restauranteurs never get it: it's almost impossible to sell another "dish", but you can always sell another drink. Two cases in point:

                                                                                        1. A long time ago a friend held a big retirement party at a big name place that would allow a lot of people to order off the menu instead of in advance. He ordered only wines that were listed as available in magnums in consideration of the house's staff and to make sure everyone had a taste and more. Before dessert was considered, the captain brought the one dish that hadn't been ordered and said "you've been such good customers, we brought you this (that we all gamely sample) last dish that you haven't tried, compliments of the house . . . so, where was the profit that evening?

                                                                                        2. Another host of a restaurant meal BYOBed a magnum of 1982 [fill in the blank] and was prepared to absorb the corkage. The manager on duty oversaw the service, and of course the host invited the manager to share a glass with the party of six . . . and the manager started a discussion about dessert wines . . .

                                                                                        1. re: BoneAppetite

                                                                                          In my experience as a restaurant investor, comps are rarely what causes a restaurant to go under whether it's food or beverages. If a bartender gives out too many free drinks, he will probably be gone if the restaurant is well run. And if the restaurant is not well run, you will likely have other problems as well. In my experience, the mechanics for getting comps are usually different between food and beverages. For beverages, the bartender just pours you one. For food, it's usually the GM giving you a free dessert or the executive chef recognizing you and bringing you something nice. Because of the nature of POS systems, it's easier for a bartender to slip you some free booze than free food.

                                                                                  2. I think there are several factors that make it harder to run a restaurant profitably in SF than it is in other places (not that it's easy anywhere).

                                                                                    Many customers won't pay over $29 for an entree, so at a certain point you can't increase costs.

                                                                                    Many customers know quality and won't return to a place that doesn't use first-rate ingredients. So it's hard to trim food costs.

                                                                                    When Drew Nieporent closed Rubicon he told Michael Bauer one reason was that San Franciscans wouldn't accept the steep wine markups he gets away with in New York.

                                                                                    http://insidescoopsf.sfgate.com/blog/...

                                                                                    Per-employee costs in SF are higher than in other places due to city and state regulations. In 2009, Michael Bauer blogged some statistics showing that the total annual costs per waiter were over $24,000 in SF vs. around $10,000 in NY and Chicago:

                                                                                    http://insidescoopsf.sfgate.com/blog/...

                                                                                    I read an interview recently with the owner of a restaurant that had just closed who said something like "I got tired of running a nonprofit jobs program."

                                                                                    13 Replies
                                                                                    1. re: Robert Lauriston

                                                                                      Very interesting comparison between NY and SF diners; thanks for sharing that!

                                                                                      1. re: mutton biryani

                                                                                        having come from SF but living in NY this rings really true - pricing in NYC is out of control - even "mid-range" and neighborhood places are escalating prices at staggering rates compared to SF. The only upshot of this is that any time i leave NY everything seems steeply discounted - when we ate at Rich Table and ordered and drank lavishly the bill came and I thought to myself that i could have paid twice as much for the same meal in NYC.

                                                                                      2. re: Robert Lauriston

                                                                                        I think the reason many restaurants charge a 4 percent "SF mandates" surcharge (or whatever they call it) is that's it's a way to increase prices to recover the cost of city regulations without doing stuff like increasing menu prices beyond psychological points like $29.

                                                                                        But it's hard to make a lot of money unless you have a lot of revenue and there are only so many restaurants that have a lot of revenue. I know a couple that used to run a fine-dining place. It's no longer around and I was not an investor, but since I know some people involved, I have some knowledge about it. It had a lifespan of a little over a decade during which it had a three-star rating by Michael Bauer. It had revenues in the 3-4 million dollar range. How much profit can you possibly make on a $3M fine-dining restaurant? Just the labor cost for the three-star chef would probably be on the order of $100K or more. Why did it close? Probably a combination of factors. The ownership of the location of the restaurant had changed multiple times and the latest owners wanted to jack up the rent significantly and was under the impression that the restaurant owed hundreds of thousands of dollars in back rent. Plus the restaurant probably needed a significant interior upgrade after more than a decade of wear and tear. A few years later, the space is still empty.

                                                                                        1. re: nocharge

                                                                                          Using a surcharge also avoids compounding the cost when the landlord gets a precentage of revenues.

                                                                                          1. re: Robert Lauriston

                                                                                            Generally percentage rent owed to a landlord applies when sales are in excess of a multiple of the base rent. Usually that means the business is successful. Restaurants are notoriously difficult for landlords to audit, with the exception of national chains that comply.

                                                                                            1. re: Veggo

                                                                                              The typical lease clause is a percentage of gross sales over a specified breakpoint. The breakpoint should be high enough that the restaurant would be making a profit, but that would be based on the numbers in effect at the time the lease was signed. So when the SF Supervisors imposed a higher local minimum wage and mandatory health care expenditures, the restaurant might hit the breakpoint before showing a profit.

                                                                                              In California, a landlord can audit the gross sales by requiring copies of the sales tax filings.

                                                                                              1. re: Robert Lauriston

                                                                                                Good point that percentage rent is determined exclusively by gross sales and never on profitability. It is an additional risk to the tenant.

                                                                                                1. re: Veggo

                                                                                                  It works both ways. Percentage rents are good for a struggling restaurant but also limit the upside for a successful one.

                                                                                                2. re: Robert Lauriston

                                                                                                  I think the point is that restaurant owners have some flexibility in syphoning off money from the restaurant that will never show up on any tax filings. Private use of a company car. Expensive bottles of wine that mysteriously make their way from the restaurant's wine cellar to the owners home. Free drinks for the owners drinking buddies, etc.

                                                                                                  1. re: nocharge

                                                                                                    Using a company car or taking bottles of wine out of inventory for personal use don't reduce gross sales so they won't affect what's owed to the landlord.

                                                                                                    Comps reduce gross sales but the owner's out of pocket for the costs.

                                                                                                    1. re: Robert Lauriston

                                                                                                      The cost of a comp to the restaurant is usually a small fraction of what the gross sale price would have been. So the owner's propensity to comp himself and others to food and drinks can have an impact on rent.

                                                                                                      As for company car usage, wine out inventory, etc., these are mere examples of how restaurant owners have some flexibility in terms manipulating things.

                                                                                                      1. re: nocharge

                                                                                                        Comps cost the owner maybe $10-20 for every $1 saved on rent. That's not a path to profits.

                                                                                                        1. re: Robert Lauriston

                                                                                                          Giving out comps has never been a path to profit in a naive accounting sense. It could be done as a sort of loyalty program for good customers. It could be a way for the owner to have a drink at a nice restaurant that will cost him a few bucks at his own place rather than paying $12 somewhere else (unless he is recognized and comped). It could be a way for the owner to impress his friends with his largesse, etc. Nothing necessarily to do with "a path to profit" in the naive sense.

                                                                                        2. We had friends who opened a successful restaurant several years ago in SF. It was a smallish, well regarded, mid-range priced, neighborhood place with cuisine in the Chez Panisse vein. Before the last recession they were barely making a profit even though they worked like maniacs and their restaurant had a very good reputation. They had to deal with a greedy landlord, and a plethora of SF city ordinances and fees foisted on them by the board of supes. The recession hit them hard and put them in the red. Sadly they lost their business.

                                                                                          I marvel that any restaurants can survive in SF given the horror stories about greedy landlords I have heard (funny how the computer nerds get all the blame for high rents isn't it?) and the unfriendly business environment.

                                                                                          1. The only people who always make money are the waiters.
                                                                                            Couple come in and spend $225 on nice dinners and a bottle of decent wine. After paying all expenses the house makes $10 and the pompous moody waiter grumbles about a $45 tip being below the SF standard.

                                                                                            37 Replies
                                                                                            1. re: justicenow

                                                                                              Some people make money. Adriano Paganini, for example (Pesce, Beretta, Starbelly, Delarosa, Super Duper, Lolinda, etc.).

                                                                                              Though expanding too fast can get people in trouble.

                                                                                              1. re: justicenow

                                                                                                Those restaurant owners need to charge more.
                                                                                                And possibly control expenses more tightly.

                                                                                                Do not begrudge the waitstaff. They are your "public face" and put up with a lot of @#$%.

                                                                                                1. re: pedalfaster

                                                                                                  Most restaurants in SF, if they raised their prices, their customers would go elsewhere.

                                                                                                  1. re: Robert Lauriston

                                                                                                    Any examples of that? I would think SF's customer base would be pretty price insensitive.

                                                                                                    1. re: BacoMan

                                                                                                      Everything is relative. Downtown SF can support a higher price point than a lot of other places, but everything has a limit.

                                                                                                      1. re: BacoMan

                                                                                                        Compare the number of good SF restaurants where the entrees are mostly $29 or less with the number where they're $30 and up. In my observation the ratio is maybe 30 to one.

                                                                                                        Restaurants that want to go higher generally switch to prix-fixe only to mask the a la carte sticker shock. I'm not sure why people are happier to pay $95 for four courses than to pay $18 + $39 + $12 for appetizer, entree, and dessert, but it clearly seems to be the case.

                                                                                                      2. re: Robert Lauriston

                                                                                                        I am not so sure about that Robert. Slanted Door is just one example to the contrary.

                                                                                                        1. re: Fowler

                                                                                                          Slanted Door is internationally famous and in a fantastic location. Locals complain about the prices but tourists make it the highest-grossing restaurant in SF.

                                                                                                          1. re: Robert Lauriston

                                                                                                            Perhaps you do not recall the origins of Slanted Door, Robert. I do and through the years they have moved more than once as well as continuously raising their prices and yet San Francisco residents still continue to eat and drink there.

                                                                                                            1. re: Fowler

                                                                                                              If you look at discussions on this board, people generally try to talk visitors out of going to Slanted Door, and many people complain that it's too expensive. Most of the people I see there are pretty obviously from out of town. If they had to depend on locals, they'd have to lower their prices substantially.

                                                                                                              It was one of my favorite restaurants when it was on Valencia St. The prices were reasonable and the spring rolls were better. I went to the Brannan location a bunch of times since I worked nearby but I'm not sure I ever had to pay. I'm happy to go to the Ferry Plaza location when a visiting friend wants to try it but I never go there otherwise except to drink at the bar.

                                                                                                              1. re: Robert Lauriston

                                                                                                                I hadn't looked at their menu in years and haven't eaten there since they were on Valencia. I was SHOCKED! But I agree with you, Robert. They've gone after and perhaps gotten a different demographic. 'Course that's a topic unto itself. The wildly popular tourist spots and the wildly popular locals spot. With, of course, overlapping.

                                                                                                                It would be interesting to know the oldest still operating restaurants (and, no, not like Tommy's Joynt) and figure out what's kept them going.

                                                                                                                1. re: c oliver

                                                                                                                  A different demographic perhaps, but the majority of their customers are still from the Bay Area. Have a chat with any member of the front house staff and they will confirm that.

                                                                                                                  1. re: Fowler

                                                                                                                    Good point, f. And we do have to remember that someone from San Jose or Benicia is a "local tourist" at times.

                                                                                                                    1. re: c oliver

                                                                                                                      :-) And bear in mind that many of the people eating in the Ferry Plaza are actually tourists getting something to eat while on their way via ferry boat to far off places like the East Bay. There is certainly no way they would otherwise tolerate price hikes as Robert stated.

                                                                                                                  2. re: c oliver

                                                                                                                    In general the highest-revenue restaurants in SF are ones that cater to tourists primarily. Cliff House and Scoma's are two examples of that.

                                                                                                                    1. re: calumin

                                                                                                                      I believe that but do you KNOW that for a fact? It absolutely makes sense. Tourism is a HUGE industry in SF. Perhaps the biggest one?

                                                                                                                      1. re: c oliver

                                                                                                                        There was a magazine called Restaurants and Institutions which used to put an annual list of top-grossing independent restaurants in the US. The SF restaurants that would make the list were Slanted Door, Boulevard, Scoma's, and Cliff House. They stopped publishing in 2010.

                                                                                                                        Forbes did another take on it in 2012 with a Top-10 national list, but the only restaurant remotely near the Bay Area to make that list was a place called Rickey's in Novato.

                                                                                                                        There are probably only 5-6 restaurants in SF that gross over $10M annually.

                                                                                                                        1. re: calumin

                                                                                                                          Great info. Thanks.

                                                                                                                          I think it may have been Herb Caen who reminded us to be nice to the 'tourists' as they're our life blood. And, hey, when I visit the city now I'm also a tourist :)

                                                                                                                        2. re: c oliver

                                                                                                                          I think the word "tourist" might be a little misleading. It makes me think of underdressed people hanging out at Fisherman's Wharf freezing their asses off in the fog. Then you have people here on a business trip for a convention at Moscone. They are here on an expense account, which is different from the people at Fisherman's Wharf. Moreover, often they are wined and dined in lavish places by account managers trying to have a good relationship with clients. Are they "tourists"? And then you have the people coming in on BART from Walnut Creek for a first-date dinner. Or on a party-bus from Fremont to hang out on Broadway on a Friday or Saturday. (A real problem, BTW.) Are they "tourists"? I think something like "out-of-towners" might be a better way to describe what helps keeping the price point up for downtown SF restaurants.

                                                                                                                          1. re: nocharge

                                                                                                                            >>> I think something like "out-of-towners" might be a better way to describe what helps keeping the price point up for downtown SF restaurants.<<<

                                                                                                                            So it is not, for example, the residents of Pacific Heights or the Marina that are "keeping the price point up"? It is the "out-of-towners"?

                                                                                                                            1. re: Fowler

                                                                                                                              Yes. Having invested in a restaurant in Newport Beach, which is a very affluent community, but with few out-of-towners, and a similar restaurant in downtown SF and comparing check averages, I'd say out-of-towners make a lot of difference.

                                                                                                                              1. re: nocharge

                                                                                                                                So we have a point of reference, which restaurant in SF did you invest in?

                                                                                                                                1. re: Fowler

                                                                                                                                  Won't go into the name of the restaurant, but it's one that's pretty successful in SF. The one in Newport Beach had the same name and concept and was even nicer than the SF version in terms of ambience. Possibly the most beautiful restaurant I've ever seen.

                                                                                                                            2. re: nocharge

                                                                                                                              Excellent points. "Out of towner," it is for now on :) Although the spending curve remains negotiable.

                                                                                                                              1. re: c oliver

                                                                                                                                You are being so agreeable today, C. Are you feeling ok? :-D

                                                                                                                                1. re: Fowler

                                                                                                                                  LOL, F :) Leaving for Prague tomorrow so definitely in a GREAT mood :) Wine help also!

                                                                                                                          2. re: calumin

                                                                                                                            "In general the highest-revenue restaurants in SF are ones that cater to tourists primarily. Cliff House and Scoma's are two examples of that."

                                                                                                                            And Slanted Door and Boulevard. Those are the four places that were on the national top 100 lists a few years ago.

                                                                                                                            http://insidescoopsf.sfgate.com/blog/...

                                                                                                                            1. re: Robert Lauriston

                                                                                                                              I have a hard time of thinking of Boulevard as particularly "touristy" although there is no doubt that they get a fair amount of tourists. Charging $32-50 for an entree will diminish your appeal to a lot of tourists and if you walk by there (or dine there) you will see a lot of people with grey hair valet parking a black Mercedes. And the ambience is not necessarily geared towards actual tourists. If I were dressed as your typical tourist, I'd feel out of place at Boulevard.

                                                                                                                              But I'm sure a lot of out-of-towners dine there on expense accounts, either their own or that of an account manager.

                                                                                                                              1. re: nocharge

                                                                                                                                I think most of Boulevard's customers are from out of town. To me, tourists include convention attendees, rich people who own condos and spend a few weeks a year here, and people from the suburbs.

                                                                                                                                I'm sure they get some Pacific Heights types too.

                                                                                                                                1. re: Robert Lauriston

                                                                                                                                  re: boulevard; do you mean for lunch or dinner?

                                                                                                                                  lunch definitely seems to be business lunches. perhaps the same for dinner.

                                                                                                                                  If by "pacific heights types" you mean "rich white people", I would think too many of them have private chefs than to make up a significant part of the demographic of a restaurant.

                                                                                                                                  1. re: Dustin_E

                                                                                                                                    That same demographic applies in parts of Mexico City. Half of the residents in Polanco have cooks and never eat out in public.

                                                                                                                                  2. re: Robert Lauriston

                                                                                                                                    Just to make sure I understand your criteria Robert, you consider someone that works in San Francisco but lives in Southern Marin, Mill Valley for example, a "tourist" if they dine at Boulevard (or anywhere else in San Francisco proper for that matter)?

                                                                                                                                    1. re: Fowler

                                                                                                                                      Actually his criteria, I think, makes him a tourist.

                                                                                                                                    2. re: Robert Lauriston

                                                                                                                                      I think from a restaurant analysis standpoint, calling everyone from out of town a "tourist" is naive. Is a person on a business trip with an expense account a "tourist" same as the types dressed in shorts and sneakers freezing their asses off in the fog at Fisherman's Wharf?

                                                                                                                                      1. re: nocharge

                                                                                                                                        Though not always black and white, I definitely think there's a difference between a restaurant that's considered "touristy" vs "destination dining".

                                                                                                                                        1. re: Bunson

                                                                                                                                          Completly agree. Boulevard, for example, is definitely a destination restaurant, but not overly touristy.

                                                                                                                                      2. re: Robert Lauriston

                                                                                                                                        " and people from the suburbs."

                                                                                                                                        Wouldn't that describe every pricey restaurants core audience?

                                                                                                                                        It at least describes a large segment of Chowhounders on the SF board.

                                                                                                                2. I don't know a lot about restaurants specifically, but It kind of amazes me that this discussion largely doesn't recognize the difference between net profit margin and return on investment. Someone pointed put revenue does not equal profit, but neither does it equal invested capital. Furthermore, the nature of the invested capital matters. If there is significant debt, that creates additional pressure on the operating margin. An owner-operator, paying herself a salary that is counted against operating costs, as it should be, might be satisfied with a sub-5% profit margin, depending of course on the amount and nature of the invested capital. Here is where discussions of the nature of the investors belong. Equity investments that only draw dividends from profits clearly have different effects than a bank loan or guaranteed investor dividends based on revenue.

                                                                                                                  There are plenty of going, profitable concerns that get by with operating margins in the 1.5-3.5% range. These tend to be large corporations with very large revenues, but you would be correct to suppose that the 1.5-3.5% would be unsatisfactory if it were ROI or ROIC.

                                                                                                                  9 Replies
                                                                                                                  1. re: twocents

                                                                                                                    Have you ever tried to get a small-business loan from a bank in order to open a restaurant that didn't involve something similar to mortgaging your house? Banks are not stupid. That's why the restaurant business thrives on "vanity investors". Plenty of stupidity there. But these are investors who care more about the coolness of being a partner in a hot restaurant, image wise, than 0.1 percent here or there when it comes to operating margins.

                                                                                                                    1. re: nocharge

                                                                                                                      I certainly agree with this post.

                                                                                                                    2. re: twocents

                                                                                                                      Yeah, in discussions of restaurants that close within a year or so, people don't seem to take ROI into account. A business that looks like an attractive bet at $X capital invested becomes a bad bet at $2X or $3X since you're cutting your potential ROI by half or two-thirds.

                                                                                                                      1. re: Robert Lauriston

                                                                                                                        Worse still are cash calls to investors in losing ventures.

                                                                                                                      2. re: twocents

                                                                                                                        Right, but the dirty secret is that many well known ventures are opened with purposely inflated budgets, so they can profit, and live off the debt of the new place they're opening.

                                                                                                                        Investors get minimal payouts long enough to rope them in for new projects or keep them happy. Unlike 10 years ago when you saw a lot of people gutting their 401's to invest, today you see a lot of high risk investors who are used to infusing cash into projects for tiny, tiny interests. It makes little sense, so they're essentially buying themselves cool points.

                                                                                                                        1. re: sugartoof

                                                                                                                          Or the crowdfunding sites where money is "invested" for no interest in the business, and little or no real obligation from the funded.

                                                                                                                          Someone should start a funding site that actually can handle true equity interests. Does that exist? Too much lawyering, maybe.

                                                                                                                          1. re: twocents

                                                                                                                            totally different industry, but the recent fiasco involving all the people who helped kickstart Oculus only to see them not get any of the $2B from the facebook acquisition has increased demand for such a site

                                                                                                                            1. re: vulber

                                                                                                                              I don't understand why those "investors" thought they were entitled to any of that money; was that not the whole point of these sites for the fundraisers? To get some money without having to surrender any control? If I pledge some money to a restaurant on Kickstarter, I'm not expecting them to pay me an annual dividend. If I pitch in $50 to a Veronica Mars movie, I'm not expecting residuals; only the signed DVD or whatever that they promised me. I get that it sucks that what they thought of as a sort of Samaritan gesture is now worthless in the face of a giant corporate acquistion, but no one is deceiving anyone here.

                                                                                                                              1. re: dunstable

                                                                                                                                oh, i agree wholeheartedly; i'm not defending them :)

                                                                                                                      3. sorry to change the discussion a bit, but would be curious to know about the profitability of bars (i.e. places that only serve alcohol, no food). would assume that they would generally be more profitable, since there are far less labor costs, ingredient costs, etc., but this is something i know very little about. and how do dive bars compare to fancier cocktail places? would assume that the latter would be more profitable since you can do higher markups on drinks, but they also probably need to pay the staff more, and stock more expensive liquors. again, i could be way off base on all of this, but am just curious to know since we're already discussing profitability.

                                                                                                                        1 Reply
                                                                                                                        1. re: vulber

                                                                                                                          Few people are opening dive bars, because the $12-14 cocktail is so much more profitable, and all you need is some blackboard paint, and a lot of simple syrup.

                                                                                                                          The license itself is a is up front cost. The potential legal issues surrounding an alcohol dependent business can also cut into profits. Otherwise, the biggest issue is bar culture itself. It's a largely cash business, and it's easy to get the shirt stolen off your back.

                                                                                                                          You'll also notice that few bar owners are comfortable with one well oiled machine and they start expanding, which causes problems.

                                                                                                                          Also, there aren't a lot of bars opening without some food program.