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I thought it would be cool to feature a recent piece from The New Yorker about being a restaurant investor in New York City, while visiting New York myself! Also, to find out what goes on behind the scenes which we take for granted when dinning at our favorite restaurants. A large majority of restaurants in NYC are financially backed by investors, and in some cases several dozen of them. With that many people taking a piece of the apple - get it, The Big Apple - even 2 million dollars a year isn't enough net revenue. Many of these investors don't even get their full investment back when unsuccessful restaurants go bankrupt. Most investors do it for the glamour and cool factor of being able to say they own a restaurant in Manhattan, but even free appetizers don't cover up the bitter taste of realizing that the restaurant business in NYC "stinks". Margins are low and unless you start your own trend it is very difficult to predict them or to get in early enough to profitably ride the wave. To give you an idea of how slim margins are, here is an approximate breakdown of a table with 100$ tab at the restaurant in question.
-37$ goes to staff in addition to an average 20% tip,
-29$ was the cost of purchasing the food and beverages,
-15$ goes towards the rent,
-6$ to supplies & maintenance; new linen table clothes and the electrician to keep you cool in August
-5$ bank fees and insurance,
another 5$ to utilities and permits, leaving just under 3$ for operating income ... and did I mention that online booking services charge restaurants 2$ per reservation...
Source: Flickr/Christine Vaufrey
Basically, after all that math, living off 3% of operating cost doesn't spell success in NYC. Even restaurants who hit 5-10% operating income encounter 20,000$ a month rents and rising minimum wages. The writer/owner comes to the conclusion "that the restaurants New York needs are doomed, financially, to fail because amateur capital backed by magical thinking and a desire for fun distorts the economics for everyone." Despite these economic hurdles and conclusive math, would you still invest in the hospitality industry? Get a first hand encounter of the temptations, risks and advice from a Manhattan restaurant owner at the link below. I hope you enjoyed reading this post and thanks again for visiting my blog.
For an example of a restaurant who doesn't have to worry about operating income