A New York Scale of Mind
More so than in other cities, New York City is a tough place to operate a chain of mid-priced independent restaurants based on hefty costs and skyrocketing rents. Despite the obstacles, mid-priced eateries such as Westville and Havana Central have managed to expand. Westville is set to open its fifth outpost and Havana Central has grown to four eateries, with more on the way.
Even in pricey New York, restaurateurs derive benefits from escalating outlets based on cutting costs and obtaining other advantages—some intangible.
When founder Jay Strauss and two partners opened Westville, named for its original West Village location in 2003, their strategy entailed “providing really fresh, great food at reasonable prices. It was simple, fresh American food,” he says. Its menu covered burgers, fish, steak, salads and sandwiches. “Everything but veal chops,” he quips.
Indeed, Westville attracted New Yorkers seeking tasty meals that wouldn’t strain their budget. Average checks at lunch run $12 to $30 per person and $22 to $45 for dinner, considered moderate in Manhattan. “We appeal to the vegans, the carnivores, the rich, and the poor,” Strauss says.
Since the original eatery was successful, Strauss was eager to expand. “We had the kitchen crew, the managerial staff, the front of the house, the experience,” he says. In 2006, the second Westville opened in the East Village, followed by Chelsea in 2008, Hudson Square in 2012, and Dumbo, Brooklyn, is slated for fall 2016.
The fact that four of the eateries are situated in a 5-mile radius meant Strauss “could bicycle to all of them in 15 minutes.” Two of his partners live in Brooklyn and will be 15 minutes away from the new outpost.
Westville has accrued several benefits from proliferating. Strauss says when it buys scores of vegetables daily, “the cost of tomatoes comes down a bit and so does the cost of ground beef when you’re buying twice as much.” But he adds, costs “don’t go down forever,” and some expenses like electricity bills don’t dip at all.
He also cited intangibles that transcend prices. When he calls his meat supplier and says, “I have one steak left and I need 20 steaks, a half hour later you get the 20 steaks delivered.” If you own one café, the likelihood is you wait.
Much of the art of sustaining a restaurant in New York depends on negotiating 10-year leases with landlords. Without any commercial rent controls, landlords can charge whatever the market will bear. Since Westville has a track record of renewing leases, “We get approached by landlords now,” Strauss reveals. And that heightens the chances of obtaining prime locations at a reasonable price.
Savvy Strauss doesn’t wait until the lease is ending, but calls the landlord after seven years to begin negotiations and suggest moderate increases over the next 10-year lease to ensure longevity.
When Jeremy Merrin opened Havana Central near Union Square in New York City in 2002, he was trying to appeal to the growing Latino and ethnic market. Havana Central’s main concept was “straight Cuban home cooking. There wasn’t much beyond Mexican food.”
From the outset, Merrin had expectations of growth. His goal was to “build a brand, something that had legs. We realized there was very little like us on the national or regional market.”
He debuted his second Havana Central near Times Square in 2005 and then went beyond New York City to its adjacent suburbs in Yonkers, New York; Roosevelt Field, Long Island; and Menlo Park, New Jersey. “We had to get out of New York City alone; we had to prove we could open in suburbia,” he says. After the Union Square lease ended in 2011, he closed that outlet.
Multiplying outlets has benefited Havana Central in two key factors: Costs are driven down when purchasing goods from food vendors and owners can “amortize” their overhead. When restaurants grow, they need to hire a purchasing director, marketing director, HR director, and CFO. The more the revenue spikes, the lower the overhead costs for these staff compared to revenue, Merrin explains.
Hiring more employees also helps owners develop new managers. “The more you can develop management from within, the chance of failure is greatly reduced,” he says. Owners observe employees in action, know how dependable they are, and how they interact with customers.
As a restaurant chain grows, “it all gets easier. Your bargaining power increases. And if something goes wrong, vendors work hard to correct it,” Merrin says.
Landlords alter their view of successful restaurant chains. “If you’re a start-up restaurant, landlords are suspicious of you,” he says.
Havana Central expects to open one or two new restaurants annually and is looking to expand to Southern Florida. “It’s where many Cubans reside and where many Latinos live, and it presents a great opportunity for us,” Merrin said. Already, some employees have said that they’re prepared to relocate to Southern Florida if the need arises.
“As you expand intelligently, financials are getting bigger, revenue is rising, and your scale improves. You think you know what you’re doing and that should add to the bottom line,” Merrin says.
By Gary M. Stern