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The Economics of Restaurant Survival in a World Where “Everyone’s a Critic.”
By: Patrick Maguire
Book Chapter: Confronting without Confrontation
Posted: 03/29/2017
John Howie, chef/owner of Beardslee Public House restaurant in Bothell, WA, wisely exercised restraint and took the high road with an excellent, professional response after an amateur ‘reviewer’ scolded him about his prices being too high, and claimed that his ‘high’ prices demonstrated disregard for his community. As current and former (myself included) restaurant owners know, operating most restaurants is a very hard, high-risk, low-margin way to make a living. Most customers have no idea how hard, and aren’t aware of the perpetual stress and grind involved. The insightful content within John Howie’s response sheds some light on the economics of surviving. More restaurants than you know are a couple of bad months or a mildly catastrophic event away from closing.
After reading John Howie’s response, I posted it in my Server Not Servant Facebook group and reached out to John requesting permission to reprint his blog post here. I also asked him a few follow-up questions that I’ll address at the end of this post.
Reprinted with permission from John’s blog:
Below is a review we recently received for Beardslee Public House, our Northwest-inspired, family friendly eatery and brewery. I removed the guest’s name as I am not out to shame anyone.
“First of all, I use to love this place. I’m sitting here at Beardslee now disgusted with their current price hike. I have one question for the owner, do you want to alienate your faithful customers that come here 2-3 times a week? Charging 14 dollars for a basic burger and fries is crazy. Especially when you are located right by 2 colleges and TONS of student’s come here to eat. Congratulations, after today I will never come back. Your disregard for your community and clients in an effort to make a buck because you are now popular won’t fly…… I’m 100 percent sure that others will take my stance…. based on your food and beer items that are overpriced. Yes, you just alienated your college based customers.”
I personally wrote back to our guest and my response is below:
I’m sorry you feel this way. I’m also concerned that you attacked me by stating that I had no regard for my community or clients in an effort to make a buck. I have yet to make a buck on the Beardslee Public House, I hope to someday be able to repay myself for all of the expenses to open a restaurant like the Beardslee Public House. But I do have a question for you … what is a fair profit for an owner of an establishment like Beardslee Public House? 15%, 10%, 5%?
In the time that we have been open, we have been able to pay back about $350,000 so far. We just looked at our business pro forma for 2017, and we were projected to make $80,000 on $4,500,000 in sales, that’s less than a 2% margin. Cash flow would have been a negative $150,000-$160,000 just to cover the debt payments of $260,000 a year.
We have approximately 25 people a day working around 6 hours each making minimum wage and tips. That’s 150 a day or 1050 hours a week. In 2017 we were required by law to increase minimum wage to $11.00 an hour up $1.51 over the 2016 set rate, that is approximately $1585.00 in additional wages every week, times 52 weeks, that is $82,000+ a year, add on 25% for payroll taxes, medical insurance, FETA, FICA, state industrial insurance and federal and state unemployment insurance and now it is $103,000+. Now add the other employees who want raises because all of the minimum wage employees got raises. Now add on all of the increased costs for food, beverage ingredients, and other increased costs because all businesses are dealing with the same problem, and you can start to see how this adds up.
People don’t realize how difficult it is to make a dollar in the restaurant industry; they just look at the food cost and think they could do it for less.
Take this into consideration … we pay approximately $1,260,000 in product costs. $600,000 a year in rent, $450,000 a year for management wages, managers, brewers, chefs, and none of that goes to ownership. A grand total of approximately $2,025,000 in all wages including the taxes and benefits. $130,000 a year in promotional costs, $50,000 a year for Repair & Maintenance, $150,00 a year in water, sewer, gas and electric costs, $36,000 a year in business insurance, point of sale costs, 3% or around $135,000 a year to the credit card company, janitorial costs of $50,000 a year, cleaning supplies $26,000 a year, dishes and utensils $25,000, we discount or give away food to employees worth over $60,000 a year, this as you can see can add up … and I have not even listed the other 25-30 cost accounts, paper supplies, dues and subscriptions, dish washing machines and supplies, city business taxes, state business licenses, health department licenses, federal alcohol production taxes, light bulbs, point of sale system, management information system costs, software, hardware, menu covers, menu paper, copier, copier paper, office supplies, business cards, delivery van, delivery van gas, and there is so much more that I can’t even think of it all right now.
I do take exception to your comment about disregarding my community. I’m sure you are unaware of the information I’m about to provide you…If you are a student nearby then you probably remember the massive fire which destroyed much of downtown Bothell last year. We were among the first to bring much needed supplies to the first responders, the following Monday we gave all of our after-cost proceeds to the Cozy Corner Café owner, who lost her business that day. Beyond that, we have supported Bothell schools, sports teams and many other community projects. Last year we provided over 800 gift certificates to different charitable organizations throughout our area.
This is not the greedy owner trying to fleece the college student … it is a legitimate business that employs 92 people in the Bothell community, pays its employees well, and pays all of its taxes, values its guests, the guests that value good service and good food. We use USDA Prime for our regular burgers; no one else uses USDA Prime for burgers. We bake our own buns, we make almost everything we do in-house from scratch, that takes time and effort, and we do pay our crewmembers a fair and living wage.
If my goal was to fleece anyone, my restaurants would never survive…it’s my hope that I’m able to provide people a great place to work, a great place to enjoy their friends and family, and a great place that supports its community.
But, There is a cost to doing all of these things and that cost is an additional $1.00 on our burgers and $.50 on a pint of beer. If that is too much to pay, then I’m sorry, and we will miss you. But I think most people will realize that this is a cost of doing business the right way at a high level and will be willing to support a living wage in Washington State by supporting those who chose to do business in this state.
Sincerely,
Chef John Howie
I asked John if the amateur reviewer replied.
John: The person has not responded to my response of their post, depending on how often they check their Google Reviews, they may not see it for a while. The good news is we have not had any other complaints from fellow students at this time.
[Update: The review has been removed, but John’s response to the reviewer remains as of 9pm on 3/29/17. I’m following John’s lead and not shaming the ‘reviewer.’]
I also asked John if there was anything else that he wanted me to share in this blog post that he would like the public to know.
John: I love what I do. I love the people who chose to work with me. I value them not only as co-workers, but as people. I love what my business has allowed me to do for my community. I hope to be able to continue doing what I love and providing for those who are less fortunate.
Tweet from John Howie (@ChefJohnHowie) at 8:43 pm on 3/29/17: Thank you to all of you who have responded to my blog, your comments and support have been incredible. I think I may have touched a nerve!
You sure have, John. Good luck to you and everyone else in the industry grinding it out every day. And let the voices of the positive, thoughtful, respectful amateur ‘reviewers’ drown out the anonymous keyboard cowards. Cheers.
2 Responses to “The Economics of Restaurant Survival in a World Where “Everyone’s a Critic.””
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Permalink | Posted in Confronting without Confrontation | 2 Comments »
Thanks for sharing this story and commentary, Patrick!
Chef John Howie knows his business. Thanks, Patrick, for introducing him to us.
The only way, really, in the current marketplace for restaurants, to make a decent living — one commensurate with the headaches — is to own one’s own premises. Corporate giants are to restaurants what “big-box” stores are to mom-and-pop retail units. Mom and pop can’t compete unless they don’t have that “rent” line item under expenses. The taxes and insurance are well worth maintenance of a $1 million plus business without the spectres of rent increases and potential lease non-renewal.
Kudos to Chef/Owner Howie for paying a decent wage and nurturing a great place to work. Everyone wins when the workplace is truly rewarding on many levels.
It is my hope that as his business model grows and changes, it becomes “right-sized,” and he can take a decent profit out of the place. It *is* possible — people do it all the time and damn the economy. Economies of size, and changing vendor arrangements (and many other things) can sometimes streamline a business overnight; it’s the night after you’ve performed a brutally honest analysis of costs.