How to make a small fortune

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Nick Roumel

A “friend” called recently with a small favor. She asked if I’d be interested in being a partner in a restaurant. (Insert emoji of bags of money flying away into Neverland.)  By the end of the call, she was my frenemy.
Time was, I had thoughts of restaurant ownership. The fantasy is having a dining room filled with friends, being effortlessly catered to with sumptuous meals, created by yours truly and a team of dedicated chefs and servers. And then I could sell the franchise and buy my own island to retire, at the youthful age that I am.

But the reality is vastly different. It is what prompted my friend Tom to joke, “How do you make a small fortune in the restaurant business?” Answer: “Start with a large fortune.” (Insert “oh snap!” meme.)

I ran into a local restaurant co-owner, picking up supplies at the local market. Let’s call him Jake. He has three places in town; they always seem busy. I asked him, “Any regrets? Or do you wish you still had just the food truck?” Jake paused a long time. Finally, thoughtfully, he said something like, “I’m proud of what we’ve accomplished, and our record of hiring employees who are in recovery. But it seems like every time we turn around, there’s a $40,000 check to Uncle Sam, or a refrigerator breaks; and we have so much staff turnover.”

The statistics are as cold as the frosted-over turkey burgers forgotten in the back of the freezer. There are too many restaurants - 625,000 nationwide in 2016 - and supply exceeds demand. One study revealed that over one-quarter of independent restaurants failed in their first year, and that rises to 60% within five years. Expect to carry massive debt for startup costs; and if you’re lucky, razor-thin profit margins will enable owners to reward themselves with minimum wage for their 70-80 hour workweeks.

New York chef David Chang complained, “Food’s too cheap, tipping makes no sense, cooks are broke, and it’s damn near impossible to earn a living in this effed-up business.” Chef, author and TV personality Anthony Bourdain chimed in on another sinister variable: “You know, you open a restaurant, you struggle for a year to put together the money, you work your heart out, and then 10 minutes after opening, some miserable b------ is tweeting or Yelping, "Worst. Dinner. Ever."”

The New York Times recently reported that the industry faces an acute labor shortage, as restaurant growth continues unabated. Owners compete for the same labor pool, but without sufficient capital to provide incentives. Washington DC restaurant owner Victor Albisu joked, “We chefs call each other and say: ‘Have you fired anyone we can repurpose? I know he can’t plate, but maybe he can just grill.’” The Times noted another rising problem – the unavailability of undocumented workers to fill positions.

Health code, labor laws, and the inevitable lawsuits will also cause headaches. The restaurant industry has traditionally been a hotbed of behavior that the #MeToo movement will not tolerate. (I know, having sued more than one for sexual harassment.)

Bourdain again, telling Thrillist: “It’s more and more difficult to even run a fine-dining restaurant. The profit margins are not getting bigger; they will probably get smaller. That space, that part of the market, will probably continue to shrink. As it is now, most restaurant people cannot afford to eat in their own restaurants.”

So to the “friend” who called me - with that tempting offer to take my retirement fund and shred it into tiny pieces, while foregoing all relaxation – thanks for thinking of me, but no thanks. Let’s do lunch instead. That’s as close as I’ll come to funding a restaurant.

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Nick Roumel is a principal with Nacht & Roumel, PC, a firm in Ann Arbor specializing in employment and civil right litigation. He also has many years of varied restaurant and catering experience, has taught Greek cooking classes, and wrote a food/restaurant column for “Current” magazine in Ann Arbor. Follow him at @nickroumel.

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