Lean times: Neighborhood restaurants feeling pinch of slowing economy

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When North End neighbors phoned Neo Bistro early this month, instead of getting reservations they got a recorded message. "I regret to say that the restaurant is closed - permanently," intoned owner/chef Marc Moray. "To our valued customers, we would like to express our heartfelt gratitude. ... "

Neo Bistro's story is a restaurant romance whose ending is far from happy - and far too common. The Seattle area's neighborhood restaurants are in trouble, thanks to a sagging economy, rising wages and utility costs - even the Mariners' success.

"I've had four years' worth of seasonal variables, but when the M's can beat out "The West Wing's" final episode, that's when I said, 'That's it. Let's pull the trigger,' " Moray said. "After whittling this down to the bare essentials, I found that the pennies that used to be left over have turned to nothing. If a bean counter had been running this company, I'd have shut it down two years ago."

Just how bad is it? Ballard's Market Street Grill opened in September to immediate and dramatic customer response. It was an instant hit. But that was then, and this is now.

"Everything started to slow down this spring," says co-owner Ellie Chin, who estimates that the average number of nightly "covers" (patrons served) have decreased by as much as half in recent months. "In a neighborhood restaurant, you can have no reservations at 5 p.m. and be full at 8. That's how it was on a recent Monday. The next week, we had two reservations on Monday and continued to be dead all night."

Chin says that the break-even number for the restaurant's fixed costs (lease, wages, insurance, utilities, etc.) is approximately $2,000 a night - "$2,400 if (partners) John and Shing aren't working in the kitchen" to help defray hourly wages.

"Last night we did $1,300," Chin says. "That's scary."

Like Moray at Neo Bistro, the Chins and their partners John and Kendell Sillers chose their location hoping to tap into an unfilled niche: the casually upscale neighborhood restaurant where locals might meet for a cocktail, stop in for an after-work repast or go out for a night on the town in their very own neighborhood. And like Moray, they've found that running a neighborhood restaurant whose focus is high-quality eats is a far cry from running a downtown venue that can draw from the tourist, convention and expense-account trade.

To weather these times, Market Street's owners are continuing to promote the menu that brought them initial success, trimming costs where they can, putting a little money into advertising, promoting their chef at a handful of public events and hoping for the best. "Two years ago," says Chin, "anyone could open a restaurant and make money, but when the economy goes down, who's going to be able to stay open?"

A clear concept

Arnold Shain believes he knows the answer to that question. "Red Robin," says the restaurant consultant, whose company, the Restaurant Group, often works with independent operators and small chains. "At Red Robin, you're in for $10 a person. It's a no-brainer. You know what you're going to get. It's not a mystery. And that's why it's been so successful in the neighborhood market."

Shain says that at times like these, neighborhood restaurants must have a crystal-clear concept to lure diners. "If you were to say `Il Terrazzo Carmine'— the marketplace thinks: 'terrific Italian restaurant.' If you were to say, 'Cucina! Cucina!' they'd say 'Italian café.'" But restaurants with more generic names and eclectic menus, he says, have a harder time appealing to the average neighborhood consumer.

Pricing is also key, especially when serving families in a soft economy, says Shain, who has worked with both Cucina! Cucina! and Red Robin. "I tell my clients, 'Give them the low-end choice' (on the menu), because what you find in most neighborhoods is families, not singles. You want a place where you can bring the family without making a significant investment.

"In the past six months, people have become extremely conservative in their buying habits. Going to a restaurant that's going to run them $25-$30-plus per person, well, that's no longer going out for a bite to eat - that's an event. And that's when people start thinking, `If I'm going to have an event, I'm going to go downtown.' "

Marketing is a necessary evil, says Shain. "A lot of times, operators don't want to do it. They say, `If we provide good food, good service and keep things looking OK, we'll be fine.' It's hard to disagree with that, but in the last six to nine months, we've seen that that is not enough.

"Neighborhood operators must go after a target market. They need to go after customers within a three-to-five-mile radius, a 10-to-15-minute drive, and then they have to start doing things to motivate that customer: happy hours, in-store merchandising, direct mail, door hangers with $10-off coupons."

How an MBA does it

Jill Levine, owner of Fremont's Seattle Catch Seafood Bistro says the cost of promoting a small independently owned restaurant through advertising and public-relations campaigns is prohibitive, and that most neighborhood-restaurant owners don't have deep enough pockets to get their word out the way bigger corporate outfits do. But keeping tight reins on the bottom line is paramount when it comes to staying in business, says Levine - especially today, when it's clear that business is making a downturn.

Levine, armed with an MBA, knew to pull the plug on her second Fremont restaurant, Khana Himalayan Lounge, three months after it opened. She sold it to another restaurateur and recouped the majority of her initial losses.

So how is Seattle Catch surviving? "I've killed live music. I've killed lunch, and I won't bring it back because there's too much competition in Fremont. In order to be as efficient and streamlined as possible, I've even killed Mondays. I pulled out all my Monday numbers in the last two years, put the results on a spreadsheet and figured I'm better off giving the restaurant a day off than staying open and losing money."

Levine is even doing things she once swore she wouldn't do, such as soliciting customer feedback in the form of a comment card presented with the bill - a card she carefully scrutinizes and uses to institute needed changes. She's even reluctantly agreed to put a TV in the bar for sports fans - though the volume, she insists, will be turned off. "I'm tired of losing business because customers have no way to keep score," says Levine. "I have broken down all of my defenses. I need people to sit at my bar and drink longer instead of running to the bar next door to watch the Mariners' game.

"You will not find me investing a lot of money in things I can't pay for, and my staff doesn't like it, let me tell you. My chef really wants new plates. I said `No.' We use paper napkins because I'm trying to minimize linen costs. My silverware is mismatched, but I'd rather be able to give somebody a great meal at a reasonable price and a throw in a salad than give them a linen napkin and matching silverware."

Voting with your dollars

Times are tight. Competition is fierce. But restaurants continue to open - and close. One out of five closes or changes hands annually, according to Anthony Anton of the Washington Restaurant Association, with 50 percent closing or changing hands within three years.

"Everyone's complaining," says Anton. "More than I've heard in a while. And I'm specifically hearing from the middle-end restaurants - the full-service operators with one or two units. They're complaining, loudly, about two things: Customer count is going down, and customers are buying down."

Consumers who were buying salmon at lunch last year are now buying the club sandwich, says Anton, citing statistics gleaned from the WRA's 2001 menu survey. Instead of buying prime rib at dinner, now they're buying chicken. "Today's customers are only willing to pay so much, and yet rising cost factors are forcing operators to charge more," Anton says, calling this a "very dangerous combination for the industry."

Meanwhile, Arnold Shain's consulting group is keeping busy. As are Levine and the Chins and the Sillerses, who, like small-restaurant operators all over town are working harder to make a buck. Moray spent the past few weeks closing down his restaurant. He says he'll spend the next few months decompressing, picking up work where he can find it before looking for a full-time job.

"The motto that keeps ringing through my head is `Support the Arts,' " Moray says. "People need to vote with their dollars. If good food is one of the finer things in life, they need to spend their money accordingly. Once the dining options go away and there's just the chain restaurants, I think the state of the arts have suffered."

Nancy Leson can be reached at 206-464-8838 or nleson@seattletimes.com.