Tuesday, March 30, 2010

Doing our homework, part 1

"A small leak can sink a great ship." – Benjamin Franklin

Over the past few months we have been researching the restaurant industry to educate ourselves about the space and make note of macro trends. We’ve read a lot of books, articles, case studies, and business plans. We’ve interviewed numerous industry experts, restaurant owners, chefs, and even our friends. It’s amazing how much there is to absorb! But research comes in many shapes and forms and by far the best part of doing our homework has been trying out various restaurants that offer kabobs. While we’d like to think our concept is pretty unique, the truth is there are lots of similar restaurants we can learn from.

One such example is a fast-causal Mediterranean startup in New York that my friend Sophia told me about. Sophia is an Equity Research Analyst at Barclay’s Capital covering the restaurant space (by day), and a food connoisseur/critic (by night). She always knows about the best restaurants in the city and writes about them in her blog: http://restomanifesto.com. When we first heard about this startup, we were a bit disappointed that there was a restaurant that seemed so close in style and feel to our idea. But a closer look revealed that there was no mention of ‘kabob’ anywhere on their menu. While they had a similar ‘do-it-yourself’ approach, we were relieved to know their positioning was very different than what we envisioned for Saffron Grill. Plus if you look at the fast-casual Mexican restaurant space, there are several chains that are all very similar, yet successful in their own right (think Chipotle, Qdoba, Baja Fresh, Boloco, etc).

In any case, the last time I was in NY I knew I had to check this restaurant out for myself. Luckily I had my two awesome colleagues, Sara and Evan, to join me in conducting firsthand research! We all enjoyed the experience and it was amazing how similar to Chipotle it felt – from the rustic-modern d├ęcor to the black polo shirt uniforms. One thing I really liked was that their menu board was a digital screen rather than a static poster board. Sara pointed out (from her past experience working at corporate Chik-fil-A) that this was likely also more cost-effective in the long term because printing traditional signage is a lot more expensive than you would think. I also learned that the containers you serve your food in are just as important as the taste of the food itself – well, almost. I personally felt the food tasted okay but the containers made it seem even less enjoyable because they weren’t big enough to stir things around the way I like. While these are all seemingly trivial points, it was interesting to assess the restaurant from a critical standpoint and pay attention to the details that stand out to different consumers. After all, we will have to make each of these decisions at some point down the road, and the sum of all their parts will make a difference to our success.


Saturday, March 27, 2010

Everything happens for a reason

No trumpets sound when the important decisions of our life are made. Destiny is made known silently. -- Agnes DeMille

We heard back from the broker for the Comcast Center last week. He said he was very interested in our concept and wanted to get on the phone to learn more. We were a bit nervous because the broker would be joined by the director of the food court who has a reputation for being a bulldog. Luckily our senior advisor, a friend’s father who has significant restaurant experience and is investing in our startup, was able to join us on the call. Now I normally don’t get anxious about calls with my clients at Google, but selling your own idea is a whole other story. In any case, he grilled us but we were able to impress the director and he asked us to move forward with creating a ‘nickel package’ which is architectural lingo for a basic sketch of the construction to be done. The broker also mentioned that there were a few terms on the LOI that we would need to discuss further but that we were close to making a deal.

We were super excited about this outcome and began talking to general contractors and architectural firms to work on the drawings. After a few conversations we decided to move forward with one architect. But first we wanted to confirm with the Comcast Center broker that it made sense for us to invest significant dollars in these drawings since we last spoke. Little did we know that the broker had been aggressively pursuing a deal with another restaurant owner at the same time. We had heard rumors of this but didn’t put much weight in it because the space has been empty for nearly two years and it seemed more like a negotiation tactic on the broker’s part. To our dismay he told us that we should hold on the nickel package because they had signed an LOI with this other restaurant owner, and they have a two-week exclusive period to close the deal fully.

We tried to push back on this but it seems like they had a week’s edge on us and were able to get together their drawings and agree on terms more quickly. So all we can do is wait on this now and hope for the best. If for some reason their deal falls apart, we will have to be aggressive with moving forward. But it is more likely that they will close the deal so no we need to start back at square one. This felt like a setback for sure, but we believe that things happen for a reason and ultimately we will see the silver lining in the clouds. Perhaps the Comcast Center location wasn’t meant for us and this is a sign that we should keep looking elsewhere, which is just what we’ll do.


Tuesday, March 23, 2010

Shifting our mindset

I can accept failure, but I can't accept not trying. --Michael Jordan

Up until now we have been so set on Philadelphia and finding a standalone site that we didn’t really consider other options. So we spent some time recently driving through various parts of central New Jersey to see if we should look there. After all, there are several Chipotles scattered throughout and they seem to do well. But we quickly realized that it would be much more challenging to bring a new concept with no brand image to a suburban town than an urban city. We can’t expect people to drive several miles to try our restaurant in Jersey, whereas we know people are always looking for new places to eat as they walk around in the city. So we felt more conviction in our plan to find a site in Philadelphia, but we also decided to branch out and explore some food court locations.

So one stormy day, we fought the rain and wind to visit the food court in the Liberty Place, a building in Center City comprised of shops, offices, residences, and a Westin hotel. It was surprisingly busy for a rainy Saturday afternoon and we were excited when we heard from the Chick Fila cashier they serve 400-500 customers on an average weekday. We also saw a food court space in the new Comcast Center building, which is the tallest high-rise in all of Center City. It houses hundreds of Comcast offices with some shops and restaurants on the lower level. We are very excited about this one in particular because the rent is lower than the Liberty Place and the surrounding restaurants would all serve our brand image well.

We submitted a bid for both of these spaces the other day and are waiting anxiously to hear back from the landlords. Hopefully this shift in our approach yields more positive results. Either way, we know we have a long way to go and we just have to keep trying :)


Tuesday, March 16, 2010

The city of brotherly love... not!

I just grabbed a spoon. -- Ross Gellar, Friends

This is a big project and we have a lot to learn before we can make it happen. At this point we have interviewed various chefs, restaurant owners, and industry experts to pick their brains about our concept. So far we have gotten very positive feedback on the idea and have acquired sufficient funding for an opening. We have worked hard to put together an initial business plan and are conducting a market research survey to gather more data. I’ll tell you more about all this later but for now our focus is finding a space for our restaurant.

We are in the process of working with real estate brokers to identify the perfect location. This is our biggest challenge right now as our team is based in Boston, MA but we are looking at sites in Philadelphia, PA. We chose the city of brotherly love as our first location because it is a major metropolitan city that suits our concept well, and the real estate costs are lower than other markets like New York or Boston. Plus, Amir and I know the neighborhoods well having gone to college at Penn and the three of us are all comfortable moving there when we open. Unfortunately, finding the perfect site within Philly is not as easy as we thought it would be.

We were very interested in a location on Penn’s campus that used to be a former bagel and sandwich shop. We saw this place with our first broker back in November, and he told us Penn wasn’t interested in our concept because they wanted to bring in another breakfast/bagel shop. Just recently we found out that Penn is moving forward with another restaurant that doesn’t specialize in breakfast and the deal is almost closed. This was very upsetting because our broker didn’t really vouch for us the way we had hoped and we weren’t as aggressive as we should have been. But we learned our lesson not to take no for an answer and keep checking in on locations we are interested in.

Another site on Penn’s campus was a brand new space on the ground floor of a residential building. It would have been the perfect size and location, but Penn told us the university doesn’t want another food unit there because there are already a few restaurants in the strip. We pushed back some more and the broker said he would let us know if they changed their mind. This was a bit of a bummer as well but perhaps there are some blessings in disguise as the block is extremely competitive and it would have been very expensive to build out the space for our restaurant.
The third site we were very excited about is a former burger shop in Center City. It seemed like prime real estate and it was fully fit out as a restaurant so the startup costs would be less. Of course the asking price per square foot was extremely high and we put in a bid for much less back in December. We weren’t so surprised when we didn’t hear back from the landlord on our LOI (letter of interest). However, we saw the space again in February with our new broker and this time the current tenant was there as well. This is the guy who owns the burger shop that went out of business and is still paying rent to the landlord. We figured this would be a great opportunity to strike a deal with the tenant to sublease the space from him, rather than negotiate with the landlord. Boy, were we wrong! This guy laughed at us when we said we had no previous experience and told us he would only sublet to someone already operating a few restaurants. It didn’t make sense to us because we thought he just cared about getting money and we could provide financial statements and a personal guarantee to him. But he refused to budge and told us it wouldn’t work out.

So much for the city of brotherly love, huh? This was the first taste of rejection due to our lack of experience and it was frustrating, but we know we will be dismissed many times down the road so it was a good reminder to experience it early on. At the end of the day, we can’t let these challenges get us down and we have to keep looking ahead for new opportunities.