Dishing the news about the Sacramento area food scene

Why do restaurants go out of business?

02/03/2014 10:49 AM

02/03/2014 10:51 AM

We have had an unfortunate flurry of recent restaurant closings in the Sacramento area, from upscale Enotria and Restaurant Thir13en to dessert destination TreyBCakes.

Why eateries at all levels of the food chain go under is an ongoing conversation. Is it the concept? The chef? the location? The landlord? The accounting?

Restaurants close for all kinds of reasons, of course. Some people run out of energy. Many realize it’s way too hard. Gary Moffat, owner of the very successful (and enduring) Carpe Vino in Auburn, decided to weigh in on the issue via his blog and says he knows what the most basic reason is – financials. Or as he calls it, “restaurant mathematics.”

Yes, that may seem obvious, but so many things go into getting the bottom line right, and Moffat believes too many restaurant people go into it thinking it will be fun or inspiring and forget to think of it as a business first. You’ve got to secure the right terms with your landlord. You have to build out the restaurant without going broke. You have to get the food costs right, the staffing dialed in. And then there are the things you have to estimate properly, like sales tax and insurance or you might wind up with big lump-sum payments at the end of the year.

From my side of the restaurant, as a rather frequent customer (and critic), I don’t concern myself with the bottom line. Most of us look at the prices on the menu, then decide if we’re getting good value based on all kinds of things including how we’re treated and ultimately, how we feel about the overall experience. The bottom line is something that has to be worked out in the back office, though I’m sure many of us have wondered, “How does this place stay in business?”

A look at things from Moffat’s perspective is instructive.

Opining about Enotria and Thir13en, Moffat writes: “What both operations came up short on was something essential to staying in business: profitability. I’ve thought a lot about the subject of surviving in this business – one that is ultra competitive, surrenders the skinniest of margins and has scant tolerance for mistakes. At Carpe Vino, we’ve always operated our restaurant as a business first, not as an outlet for a personal ‘vision’ of haute cuisine, nor a quest for a Michelin star.”

I recently caught up with the restaurateur, wine retailer and avid traveler and asked him about his take on restaurant survivability.

“I think people have the impression that restaurants make a lot of money. I’ve been thinking about it a lot,” he said. “My impression is restaurants go out of business because they don’t pay attention enough to the numbers.”

Carpe Vino, for instance, just shut down for a week because there was a flood in the building and floors were damaged. That’s a bunch of lost revenue.

Carpe Vino’s wine shop cannot compete head-to-head with Bev Mo and Total Wine. It simply can’t have that kind of inventory and buy in high enough volume to secure great wholesale deals. But Moffat and company can build loyalty, for instance, by having 1,100 members of the wine club. That, he tells me, brings in 500 orders a month.

“We give people a reason to come,” he said.

Anyone interested in getting into the restaurant game might want to buy Moffat a cup of coffee and hear his caveats. It’s no casual endeavor.

“Getting into the restaurant business is a very risky, very dangerous proposition,” he said by phone. “If you do choose to do it, you really have to approach it as a business first, you have to be doing something special and you have to manage your costs ruthlessly. If you don’t, you’re going to go out of business.”

Moffat recommends reading the 2012 book “Restaurant Man” by Joe Bastianich, the well-known New York restaurateur who has partnered with Mario Batali in many successful ventures.

Moffat quote Bastianich on his blog opining about what’s essential. It’s not just about a hot chef or incredible food.

“As long as you are committed to a restaurant and to keeping it fresh and vibrant, as long as you know what you are doing and are watching the margins, you should be able to continue. Exceed expectations and people will always come back ... . You need to announce that you’re in it for the long run, and you do that by leaning on value, quality and the overall experience. People will get the message you are not a flash in the pan.”

To read Moffat’s entire take on this complex topic, visit his blog.


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