Under New Management???

OK, we've all experienced this many times, and there's another mention of it in the Smokedaddy thread. The question is, why would someone buy an existing restaurant that's doing a good business and then change everything that made it successful in the first place?

I mean would you buy Superdawg and switch to Oscar Meyer wieners? Would you buy Paradise Pup and change from Merkts cheese? Would you buy Fluky's and start boiling the Polish?

So why do people do this?

Because even if the original incarnation is making money, it might not be making enough money. So you cut corners, or you change things up to try to attract more customers, or you skimp on ingredients.

Or, frankly, some minor part of their menu is not to your taste, so you change it, because it's your place and you can do what you damn well please.

It is not just restaurants. In too many cases the business was for sale because fundamentals were going or about to be going downhill. New owners with more money than knowledge are suckered in, perhaps with large interest payments to meet. When the business ceases to be as profitable as it had been, tinkering starts. Ignorance, possibly compounded by stupidity and hubris, yields bad decisions. New owners end up with less money than they had before. This is the sort of situation we looked for as short sale candidates when I was in hedge fund management. Very few restaurants are candidates for selling short because of little publicly held stock, but the basic analysis holds in many businesses. The number of chumps with enough capital and credit to buy businesses and then run them into the ground is mind boggling. Meanwhile. the business brokers and investment bankers have their fees.

Funny you should mention Fluky's. The Niles location had wildly popular impromptu carshows/cruising on Friday nights for years. Food lines were out the door and the place was known far and wide. The store was sold and the new owners made clear that they were completely uninterested in any cruising. It's now a perfectly forgettable dog joint that I've all but forgotten.

In my professional life (which seems to be all of the life I have therse days), my employer provides financing for restaurants as well as other business acquisitions.

I remember one particularly pleasant little place with a fireplace in Greenwich Village that had been around serving comfort food to the loacals for over 30 years in front of its warm inviting fireplace.

The buyer, a couple from Connecticut who continued to live in Connecticut, who paid in excess of $1 million for this place, based on its very established cash flow, decided that the old menu was too pedestrian and tinkered with it to make it "new American" with a much higher gross per table.

The result? It failed misreably as the comfort food crowd, the source of the very cash flow they had based the purchae price on, who had relied upon it for solid food at a fair price in front of an inviting fireplace for decades abandoned it and the owners were then faced with having to service a million dollars in debt while trying to bring what was essentially now a start up restaurant online. It didn't happen before the lender ran out of patience.

midas wrote: Would you buy Fluky's and start boiling the Polish?

Only if I had proof they were stealing from me.

ekreider wrote:It is not just restaurants. In too many cases the business was for sale because fundamentals were going or about to be going downhill. New owners with more money than knowledge are suckered in, perhaps with large interest payments to meet. When the business ceases to be as profitable as it had been, tinkering starts. Ignorance, possibly compounded by stupidity and hubris, yields bad decisions. New owners end up with less money than they had before. This is the sort of situation we looked for as short sale candidates when I was in hedge fund management. Very few restaurants are candidates for selling short because of little publicly held stock, but the basic analysis holds in many businesses. The number of chumps with enough capital and credit to buy businesses and then run them into the ground is mind boggling. Meanwhile. the business brokers and investment bankers have their fees.

I was thinking ... wow, this guy is saying exactly what I would say and was thinking you came from somewhere in the investment community ... which was confirmed when you said ...

This is the sort of situation we looked for as short sale candidates when I was in hedge fund management.

For some reason, most people think that running a restaurant is a pretty easy business. After all, most people can cook and most people like to entertain.

New owners, as a general rule, underestimate the time it takes to run a restaurant well, overestimate their ability to run the operation, and are too willing to change the things that the prior owners were doing well. And they are generally undercapitalized.

A local guy out here in the boon docks wants to open a coffeehouse that will "blow Starbucks out of the water." Ex-Fortune 500 VP has the money. However, he plans to be open M-F 9AM-5PM. Why not open earlier, like when people want to buy some coffee. "Well, if I wanted to work the hours, I would go back to my old job."

I believe it's in Kitchen Confidential that Bourdain skewers those new to the "easy" restaurant business.

gleam wrote:Because even if the original incarnation is making money, it might not be making enough money. So you cut corners, or you change things up to try to attract more customers, or you skimp on ingredients.

Or, hopefully, stop cutting corners or stop skimping on the ingredients!

An entertaining TV show about tweaking restaurants is Gordon Ramsay's "Kitchen Nightmares." Granted, much of the entertainment stems from Gordon screaming obscenities at cringing victims, but once in a while they do mention food.