It was April 2009 and the third day since the grand opening of our first Peli Peli location, at Vintage Park. I was excited and proud of myself because I had finally persuaded a group of women to come try our unique, South African cuisine. A minute later, my server walked up to me with a startled look on her face. “The ladies are not happy, and they are leaving,” she said. “What’s wrong?” I asked. “They are mad and wondering how a Chinese restaurant doesn’t have dumplings.”
This was my rude awakening to the restaurant industry, and my failure to properly communicate our concept to others was the first of what would be many mistakes.
There is no better city in which to open a restaurant than Houston, Texas. With cuisines ranging from Tex-Mex to Vietnamese to Pakistani, Houston has arguably the most diverse culinary makeup in the country. Eating out is an obsession in this town and diners are educated, experienced and not afraid to try new flavors. And thanks to three James Beard award winners — Justin Yu (Oxheart), Chris Shepherd (Underbelly) and Robert Del Grande (RDG +Bar Annie) — Houston is finally receiving the national recognition it deserves.
That said, for the above-mentioned reasons, Houston is also one of the most competitive markets in the United States. Opening a restaurant here, especially a South African one, can be a daunting experience if you’re not fully aware of the potential pitfalls. With more than 10,000 restaurants in the greater Houston area, a robust variety of cuisines and several celebrity chefs, it has been an uphill battle for us to survive.
This month, I, along with my partners, chef Paul Friedman and Peli Peli CEO Michael Tran, will be opening our first fast-casual South African concept, called Peli Peli Kitchen, and third overall restaurant, and it has been frustrating because we seem to be repeating many of the same mistakes that we made when we opened our first restaurant. Fortunately, a few successful Houston restaurateurs shared some of their experiences, and together, we hope that our mistakes can help others who are looking to open their own restaurant.
ARE YOU SURE THIS IS WHAT YOU WANT TO DO?
Likely the biggest problem facing restaurant owners is underestimating the difficulty of owning and operating a restaurant. Great chefs are not always great business people, and vice versa. Jon Schlegel, co-founder of Snooze, an A.M. Eatery, agrees, and thinks a lot of owners will not be ready for the challenge. “What I get so intrigued by is how many new folks want to open a restaurant. They go through the heavy lifting of research, writing a plan, looking for capital, creating the documents, packaging an investment strategy, design, construct, hire, invite. They are exhausted and close to burnt out. But the real lifting has not even begun. Open the doors, go through a real busy shift short-staffed, go through a real slow evening fully staffed, a holiday away from your family, flagrant guests, poop stains in the toilet, throw-up in the sink, a hair in the food, and then you are really just getting started.”
Chris Cusack, co-founder and CEO of Treadsack (Down House, Hunky Dory, Bernadine’s, Foreign Correspondents, Johnny’s Gold Brick, Canard), shares a similar sentiment and believes that opening a restaurant is a seductive proposal for a lot of people. “The fantasy many people imagine is sitting at a dark booth with a bottle of wine, sending cocktails to your friends and well-wishers from across the room. They rarely imagine the nuts and bolts of the operation — staffing, training, policy-making, finances, and the many twists and turns that get the doors open to begin with.”
“During the fourth month of our first year at Vintage Park, we had our first scare of not being able to make payroll because we didn’t have enough sales,” remembers Friedman. “It was the first time we had to think about the possibility of bankruptcy if things didn’t change, and I was afraid Thomas was going to give up. He was so inexperienced in the restaurant industry.”
This was the first of three scares we had in 2009, and I remember each time vividly. The difficulty was in keeping a smile on my face in front of my employees. They all knew we were in a bad spot, but I didn’t want them to lose hope even though on some days I was starting to. Hiding it from my parents was even more difficult. I had to move back in with them after I quit being a lawyer, and they did not accept what I was trying to do at the time. They told me that restaurants always failed, and I believe they expected me to fail at that time. I didn’t want to give them that satisfaction. During the time when we were developing and building our concept, being in the restaurant industry excited me and seemed so glamorous and cool. This was the first time it got real for me, and it made me realize that this is what I wanted to do.
NO MONEY, MO’ PROBLEMS
Money may or may not be able to buy you happiness, but in the restaurant industry, money is one of the most critical elements of a successful restaurant operation. In order to have enough time to develop traction for your business, you must have enough funds to cover operating losses, marketing fees, labor and food costs, and infrastructure development for the first six months, if not more. New restaurateurs almost always underestimate the amount of working capital that’s necessary. The most expensive components of a new restaurant are often the design and construction, and any delays will result in additional expenses. Compounding the problem is the fact that getting loans to start up a restaurant is extremely difficult because financial institutions generally consider restaurants to be high-risk.
Jonathan Horowitz, CEO of Legacy Restaurants (Antone’s Famous Po’boys, Original Ninfa’s on Navigation), believes that the No. 1 cause of failure is undercapitalization and an unrealistic estimation of the true expenses associated with opening a new location. “There are so many unexpected costs and expenses, any hiccups along the way can send an otherwise promising restaurant tumbling into unsustainable economic waters. My advice: Figure out how much you think it’s going to cost, and then add at least 50 percent. That should give you enough working capital to get through the lean times in the beginning.”
Cusack doesn’t think that would be enough. “I used to say add 30 percent to your budget; now my advice is to double it if at all possible. ‘Oh crap, we forgot speakers and cameras! Oh crap, the chairs we ordered aren’t available and the next best thing is twice the price!’ There will always be unplanned expenses and increased expenses.”
In April 2015, Friedman, Tran and I flew to Los Angeles to compete on CNBC’s Restaurant Startup, a Shark Tank-like show geared toward restaurants. Not only did we want a strategic partner to help us grow, but we needed a substantial investment to help alleviate the debt we had accumulated in creating the Peli Peli Galleria location. We not only won the competition; we ended up receiving the largest offer in Restaurant Startup history from famed Las Vegas-based restaurateur Elizabeth Blau. We thought we had finally made it. We selected Elizabeth because of her network and her promise to help us grow the concept on a national level.
A month after the show, Elizabeth flew down to Houston to see us and had her financial consultant, Dan, carry out an audit of our financials and perform their due diligence. Ultimately, the relationship soured and we were unable to close on the deal because of our debt and our use of money. “I don’t think she believed in my ability to run the company,” says Tran. “She felt uncomfortable with the amount of money we were paying our managers and spending on developing company culture, but our team and our culture was what impressed her most on the show.”
FIND THE RIGHT LOCATION, EVEN IF IT COSTS MORE
Finding the right location is one of the most important elements of a successful concept. While great restaurants can make it in hard-to-find locations, generally, the tougher it is for customers to find you, the longer it will take for your place to develop a consistent clientele. If it takes too long, many restaurateurs will not have enough cash to survive.
For us, we knew a lot of people would be apprehensive about trying out South African cuisine, so we were willing to pay higher rent in order to be in higher-end locations like Vintage Park and the Houston Galleria. We get a lot of new business from people who are shopping at the mall and just happen to see our restaurant when they’re looking for something to eat.
Pay a bit more in rent and look at the big picture instead of focusing on finding locations with the lowest rent. Look for locations with high foot traffic, demographics that provide your pool of targeted customers, and great visibility. It’s better to be in a center with strong anchors (popular stores that have a constant flow of customers), so that you can benefit from their traffic, than to be in a location where your restaurant is the only destination.
CHOOSE THE RIGHT ARCHITECT AND CONTRACTOR
Every business begins with its design and construction, and these components are absolutely critical to the success of a restaurant. Spending time to find the right architect and contractor for your project is the best thing you can do. Once you retain an architect or a contractor, if that firm is not performing in a timely fashion, replacing it often results in substantial delays and added costs.
Sandy Le Tran, co-founder of Tout Suite and Sweet, believes finding a good architect is always the first step. “Construction may be a large investment, but in the end it will save you time and money. Interview with several companies and make sure not only are you meeting with the person facilitating your drawings, but to meet the entire team. Who are the actual engineers that sign off on your plans? Who is involved in each section of the project? What is their turnaround time? It will be money well spent.”
“I would go so far as to say you should never, ever hire a contractor who you don’t have a personal reference from,” states Cusack. “Not from the list provided by the contractor, but from someone you’ve talked to candidly, personally — ideally from someone you trust. Our last project took double the projected build time, and we had to fight them on every single issue to get the restaurant built as designed and bid. Picking a reliable contractor is a game-changer.”
YOU ALWAYS NEED TO BE HIRING
Hiring enough waitstaff for a new location or concept is one of the most difficult tasks for a restaurateur. Unless you already have an established brand, it will be difficult at first to find highly qualified employees who will fit into your culture. Many experienced servers don’t like new restaurants because sales are often slow and inconsistent at first. Hire more employees than you need in the beginning because you will lose more than half of them during the first month, for two reasons: 1) Many of the employees you hire will not make it through training; and 2) Many employees will not be a good fit for your business. Make sure you have enough employees to sustain the initial turnover.
Cusack believes in interviewing many more people than you need to hire and hiring many more people than you need. “Restaurant turnover is almost a cliché at this point, but the added stress of opening a new business is hard on servers and line cooks — who have their own bills to pay and hundreds of options for employers — and can lead to even more turnover. If you have half your original staff six months in, you’re beating the average.”
KNOW WHAT MAKES YOU SPECIAL
You can’t be everything to everyone, and in a hypercompetitive restaurant market like Houston’s, you have to know and be able to communicate effectively to customers what makes you special. With literally thousands of restaurants to choose from, why should they eat at your restaurant? Do you use ingredients no one else does? Do you provide cuisine that no one else has? If you don’t know this, then your customer will not likely know it either.
When you ask someone to try “South African,” usually you will get either a blank stare or a look of apprehension because most people have never had it before. So in order to survive, we knew we had to give potential customers every reason to try us out besides the food. As a result, Peli Peli tries to stand out by focusing on our reviews and creating a unique dining atmosphere, such as by having a ceiling completely covered in LED lighting at the Galleria location. A majority of new customers try Peli Peli specifically because we are ranked in the top five in Houston on Tripadvisor and Yelp, not because we are South African.
DON’T DRINK YOUR OWN KOOL-AID
Until you open, you really will not know what works and what doesn’t. Even if this isn’t your first location, it is likely in a new area, and in the restaurant industry, there are never any guarantees. Listen to your customers and be aware of their comments — even if you do not agree. When it comes to reviews, where there is smoke, there is fire. If a critic or customer says your food could use some improvement, determine the validity of the critique and incorporate the necessary changes — quickly.
“Get over yourself,” states Justin Yu, owner of Oxheart and a 2016 James Beard award winner. “You may be the best chef or service person out there, but the goal is to make people feel happy. Now, that doesn’t mean completely giving up on your ideals or ideas or to not stand your ground on what you want to do, but a fantastic restaurant owner is always ready to pivot on a daily basis. If you can’t give in to people’s needs, not even one bit, then you’re a preacher, not someone who works in the hospitality industry.
“That being said, know the difference between people who are trying to cheat you and someone who maybe just doesn’t have the same ideals as you. There’s always people out there looking for a free meal, and they shouldn’t be allowed in restaurants in the first place.”
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It really isn’t about you or your restaurant; it’s about the customer’s dining experience. I was our general manager for the first four years at Vintage Park, and one of my favorite memories involved an older couple and their son. They started dining at Peli Peli during our first year. They were the sweetest family, and came in every week. This meant a lot. especially back then when we didn’t have many customers. Each person would order the same dish on every visit.
As we got to know each other, every time they walked in the door, they would shout out “Hey, Michael!” At first I thought maybe I had heard them wrong. And then each subsequent time I wanted to tell them that wasn’t my name, but then I thought, “Nah, maybe next time.” Eventually three years had passed, and I knew it was too late to let them know because I didn’t want them to be embarrassed or feel uncomfortable. And honestly, it didn’t matter what they called me. What mattered was that they were genuinely happy to see me, and my day was brighter every time they came in. It was not about me; it was about their smiles and how they felt every time they walked in the door. I haven’t seen them in several years. It would be nice to hear “Hey, Michael!” again.
TAKEN CARE OF EVERYTHING? GREAT, NOW DO IT AGAIN
In the restaurant industry, you are only as good as your last meal, and that is exactly why it’s such a difficult business in which to succeed. The restaurant industry is chaotic and it never truly stops. No day is ever exactly the same, and you never stop learning and teaching others. The food you serve will change daily depending on the mood and performance of your chefs. Your customers’ experiences will have to be re-created every day by your waitstaff. Did I mention that there will be better restaurants than yours opening almost every day? Opening a restaurant can be an extremely risky proposition, but knowing the potential pitfalls beforehand will help you minimize the risks and increase your chances of success.
Thomas Nguyen is co-owner of Peli Peli and Peli Peli Kitchen, South African concepts with locations at Vintage Park (110 Vintage Park Boulevard), the Houston Galleria (5085 Westheimer) and Spring Valley (9090 Katy Freeway), the latter of which opens in October 2016.