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Restaurants Find Pickings Slim After A Tough Year

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by Sheila Himmel 

In downtown San Jose, 3 1/2-year-old Mongo’s Mongolian Barbecue had a line for its $8.95 lunch.

That night, up at the new Parcel 104 in Santa Clara’s Marriott Hotel, showpiece of famed chef Bradley Ogden, a staff of 40 waited around for something to do.

In this economy, what you see isn’t necessarily what is happening. Crowded Mongo’s will close Friday. Empty Parcel 104 will expand its hours, opening for lunch and breakfast come January.

”Brad’s breakfasts are famous,” said Parcel 104 partner Michael Dellar. ”We’re going to be there for a long time.”

At the end of a long, difficult year, most Bay Area restaurants are still struggling to keep business up. Who survives in a recession depends on who has the deep pockets to wait it out. For some, business is off 35 percent — or more — from last year.

In downtown San Jose, Paolo’s has laid off a handful of workers. A.P. Stump’s will reduce its hours in January, closing on Sundays. And in Los Gatos, California Cafe has cut the price of its popular brunch to entice diners.

Still, it’s not as bad as some expected, says Greg Ochinero, president of the Silicon Valley Restaurant Association. And comparisons to last year don’t give a full picture because last year was among the best ever.

Already, some expect the worst is over.

Expensive still sells

Steve Zimmerman, of Restaurant Realty in Marin County, says that in the three weeks after Sept. 11, he had more calls than he could handle from people wanting to sell. But that has leveled off, partly because of the low price they’d get, but also because business has picked up with people staying closeto home.

Others aren’t quite as optimistic as Zimmerman.

”Like lots of restaurants in Silicon Valley, we’re struggling every day to stay open,” said Rachel Spivack, of the tony 1-year-old Spivac’s in Silver Creek.

In a recession, conventional wisdom says diners will ”trade down” to less expensive restaurants. But Jim Stump of A.P. Stump’s said they tried introducing cheaper menu items in a nod to the economic downturn and ”the $35 steak is still our best seller.” And Mongo’s, exactly the kind of place that might have benefited, still lost business.

The restaurant depended on conventions, which have dried up, and big employers like Adobe Systems, which announced layoffs in November. A growing dot-com, now gone, filled half the restaurant every Friday.

”Business started falling off in fall 2000, but we didn’t really notice till January,” said Mongo’s founder Malcolm Benjamin. ”By then we were down 50 percent. And 9-11 was the nail in the coffin.”

Even before Sept. 11, the year was littered with restaurant closures: Cafe Trio and Lindsey’s in Los Gatos, Le Mouton Noir in Saratoga, and White Dove in San Jose. In early December, San Francisco’s 12-year-old Cypress Club abruptly shut down. About the same time, Santa Cruz lost the tony Mediterranean restaurant Azur, which took the place of famed India Joze.

But for every place that has gone under, another is hanging in.

Well-known names

At downtown San Jose’s first upscale restaurant, Emile’s, rent is not the big worry. Emile Mooser owns the building. ”If I wasn’t my landlord I’d have a problem,” he said. ”We depend very heavily on conventions. Our holiday bookings are way off. We’ve got much smaller parties, and lots of cancellations.”

Business dropped 50 percent after Sept. 11, he said. And 2001 is shaping up as his worst year in 29 years.

Still, his cooking classes are sold out until May and a number of companies have already booked parties at Emile’s in January.

Many more restaurants than usual are closing for the holidays, or taking a break in January. The only clear winners at the moment are new restaurants with well-known names.

P.F. Chang’s China Bistro has been jammed since opening in Sunnyvale in September. And pent-up demand for tropical drinks and Polynesian appetizers has sent crowds to the new Trader Vic’s in Palo Alto since it opened three weeks ago. The first new Trader Vic’s in 21 years has been getting 200 diners a night. Last weekend, it had 1,500.

”If we called it Trader Gary’s, it wouldn’t have such impact,” said co-owner Gary Hirano, who anticipated an average check of $42.75. Instead, the average has been $49.

Liquor sales up

Why? In short, drinks. Nationwide, liquor consumption is up. And Hirano says the response to Vic’s Polynesian cocktails has been ”overwhelming.” And, this is the first Trader Vic’s to have its own pastry chef. Desserts ($8) are big-ticket items.

Still, Hirano’s staff has had a hard time keeping up, and he’s anxious about January.

Steps from the new Parcel 104, Birk’s owner Don Durante is more sanguine. High-end wines aren’t selling as fast as last year, but check averages are holding steady. Birk’s simple American menu of steaks, chops and fresh fish remains a draw, particularly for people who come to talk about business, not food.

Birk’s doesn’t have a large banquet facility, so it isn’t affected by that slump. And business for smaller parties of 20 to 40 people is the same as last year. However, with the drop in out-of-towners, who account for about 25 percent of the restaurant’s sales, Durante figures Birk’s profits to be down 8.5 percent from last year.

To compensate for the drop, Durante has focused his servers’ attention. ”Birk’s servers aren’t just order-takers, they are sales people,” Durantesaid. They are trained to encourage a diner who orders a $7 glass of wine to try the much better $9 wine. If someone asks what’s best on the menu, it’s the pepper filet, at $27.95.

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About The Author
Steven Zimmerman, CBI, M&AMI, CBB, FIBBA

Steve is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1000 restaurant, bar or club businesses, sold many commercial buildings and completed over 3,000 restaurant valuations since 1996. His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building. Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company Steve had over 20 years of restaurant experience and was President and Chief Executive officer of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area. READ FULL BIO | HIRE EXPERT WITNESS - LEARN MORE