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So You Wanna Run a Restaurant

Local restaurateurs rise and fall in the business of dining

Paul Mackay (left) and son Chad Mackay visit the Bellevue construction site where a new iteration of their Seattle eatery, El Gaucho, will open in September 2008. The new restaurant will have a 9,000- square-foot dining room and 23-foot-high ceilings. (Photo by Dan Lamont)

Cantilevered high above Lake Union, the sweeping glass that frames the dining rooms at Seattle's legendary Canlis Restaurant looks out on water and sky. Boats drift below while the Cascades etch the horizon, rising above the glitter of downtown. Inside, candles and crystal sparkle on white tablecloths. It is, in a word, romantic.

For the guests.

Earlier in the day, gazing at the same view from his restaurant's top floor, Mark Canlis offers a different word for the business his family's been in for three generations: "Impossible."

"We tell people interested in starting a restaurant to pay us a $50,000 consulting fee, and in return we'll talk them out of it." Across the water in Bellevue, Joe Vilardi looks up from the table at Bis on Main, the restaurant he's owned for 10 years, and grimaces. "I work 70 or more hours a week. Every week. What makes it hard is to do it every day. And to do it well, every day."

In Olympia, Anthony Anton of the Washington Restaurant Association, himself a family restaurant owner, sums up: "It's a lot of hard work, and a lot of risk, for relatively small returns."

To talk to the people who run our restaurants is to wonder how much romance there really is in this business of wining and dining.

And yet, once the discussion moves past the nuts and bolts and frustrations of creating a fresh world nightly, it's clear there is something else, something bigger, than worrying about the relation between payroll and operating costs.

"It's a living thing, a restaurant. It's a relationship with the community," says Canlis. "You celebrate with people. You become a part of their family."

Everybody, it seems, has heard about how hard it is to start a successful eatery. Half of restaurants fail in their first year, it's said. Or is it 70 percent?

"We keep hearing all these wild numbers," says Anton, CEO of the state restaurant association. Finally, his group did a hand count of the thousands of restaurants here. The result: In any single year the death rate for restaurants averages around 19 percent. "Fifty-one percent of all restaurants open today will be closed or owned by somebody else five years from now," he says.

That's a lot. Especially for an industry that, taken together, makes up Washington state's largest private employer. According to the restaurant association, 193,055 people work in restaurants here ? about 9 percent of the state's total workforce. The 12,500 restaurants they work for take in $10.7 billion in annual sales.

But those restaurants, which include everything from Starbucks to Shuckers to Chez Shea, don't, overall, make their owners a lot of money. The average profit margin is 4.5 percent, "or a little over four pennies on the dollar," says Anton.

Do the math. In King County, the average restaurant has annual sales of $800,000. Four and a half percent profit equals $36,000. "You're not exactly going to buy the big house on Mercer Island on that," Anton says.

Some fine-dining restaurants ? the ones with those white table cloths ? post higher numbers, 15 percent to 20 percent pretax, or perhaps even better, says Bellevue's Vilardi. But that can't be counted on, even by some of the best known names in the area. "Boy, I wish," says Seattle's Tom Douglas, whose empire includes the Dahlia Lounge, Lola and Etta's Seafood. "I've never come close to 20 percent, or even half that."

Part of what Douglas does is take a good product and use marketing to build customers and profits. "I need the volume," he says. He also targets his restaurants -- "local, sustainable, organic are our criteria" -- and connects them. Lola in downtown Seattle is across the street from the Dahlia Lounge and around the corner from Douglas' pizzeria, Serious Pie, which was developed as an extension of his bread bakery, which supplies all the restaurants. And then there are those Tom Douglas cookbooks and Tom Douglas dry food rubs. "He's got a brand, and he's making it work," says Anton. Douglas also holds down his operating costs -- including payroll, rent and food costs. "In my world the numbers really have to make sense because of our high labor cost," he says. "Part of that's Seattle -- we really have to be careful on our rent numbers."

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© Washington CEO Magazine 2008