Expanding with Partners
The cliché that too many cooks may spoil the soup ironically doesn’t always apply to restaurant operations. A lot of cooks—and in this business those cooks can be restaurant operators, investors, or indeed the chefs—can make the restaurant run more smoothly, have greater financial backing, and lead to expansion.
That’s certainly the case for Deming Maclise and James Weimann, owners of three restaurants in Seattle with two more opening this year.
Maclise and Weimann have worked together for more than four years, since they dreamed up their first restaurant, Bastille, which opened in May 2009. Since then they’ve also opened Poquitos and Macleod’s.
Although they own Bastille outright, each with a 50 percent stake, the two men are no strangers to leveraging partnerships to foster growth, having worked with silent partners for their second two restaurants. Poquitos has five investors and Macleod’s has one, but all are silent partners.
This year, things are changing—beginning this month when the duo opens Von Trapps, a German-Austrian beer hall and restaurant in Seattle, with five silent partners plus two active partners. And in May they’ll open Stoneburner, which will have two silent partners (who are also invested in Poquitos) plus two active partners.
The decision to bring operating partners into the mix was motivated by a number of factors. For starters, having partners who are involved in the day-to-day operations, and in this case also working in the restaurant, means they are much more vested in the restaurant.
“It’s different going to a job where you’re employed vs. going to a job if you’re an owner,” Maclise explains.
Weimann adds: “There’s more heart and soul that can go into the restaurant for owners, because it’s theirs.”
But there’s also a little more security when you have partners, explains Weimann. “The restaurant industry has a very transitional workforce, so when you have a great chef or manager, the next new restaurant might try and steal someone away. But if you give them a percentage ownership, they are invested in the restaurant. And in the restaurant world, one thing that can kill you is turnover.”
Maclise and Weimann invited employees from their existing restaurants into partnerships. At the new Von Trapps restaurant, the partners will be Rich Fox and Dustin Watson, who are also the general managers of Poquitos. And Stoneburner is named for the chef of Bastille, Jason Stoneburner, who will be the executive chef of both restaurants. The restaurant’s name, Stoneburner, is also a play on words since the restaurant will serve fresh pastas and pizzas cooked in a stone hearth oven. And James Lechner, general manager and wine director of Bastille, will oversee both restaurants.
Having partners who are vested and active also frees Maclise and Weimann, who have further plans for expansion. Once the two new restaurants are fully functioning, their partners will keep them running smoothly while they work on future projects.
Building Unique Relationships
Similarly, RJ Melman, the managing partner of several restaurants that fall under the umbrella of Chicago-based Lettuce Entertain You, also believes in bringing in partners to help run a restaurant, and he often invites employees into his restaurant partnerships.
“We do it because people deserve to have ownership in something they’ve worked hard for,” Melman says. “It stems from our belief that we should have partners and that it brings a better product to the table.”
Melman has partnered with his brother, Jerrod, and sister, Molly, for almost five years. In that time the trio has opened four restaurants in Chicago and two in Los Angeles, including HUB 51, Studio Paris, RPM Italian, and M Street Kitchen. The most recent, Bub City, opened in December; the company’s seventh restaurant opens next month in Chicago.
Bub City, which features live country music, prompted the Melmans to invite music partners. They are working with Ed Warm and Tommy DiSanto, who own a music venue and bar called Joe’s On Weed Street in Chicago.
“Ed and Tommy clearly bring something to the table that my brother, sister, and I don’t,” Melman points out. They will be responsible for the live-music programming at Bub City, are also financial partners, and have equity in the restaurant.
The Melmans are also partnered with Paul McGee, who Melman describes as “one of the best mixologists in the world.” McGee has been the director of cocktail development for all of RJ Melman’s restaurants for the past year, oversees the liquor programs at all restaurants, and is also a financial partner who gets a percentage of sales.
Because of him, Melman says, “we have a better liquor program, more talented people wanting to work with him, and a more creative bar menu.”
Partnerships can bring many advantages, but Maclise and Weimann both advise against simply jumping into a partnership. One thing many restaurant operators don’t consider, they explain, is that a restaurant needs to be large enough to be able to satisfy partners. Their restaurants are all large, ranging from 140 to 420 seats.
“You can’t do this successfully with a 50-seat restaurant,” according to Weimann. “There’s not enough money in it, not enough money coming in, or enough profit to be divided among partners. Your returns are going to be very small in a business of small margins.”
On the other side of the country, a restaurant group that’s growing thanks to two different types of partnerships is Merchants Hospitality Group, a New York City–based company with 13 restaurants under its belt.
Two of these—Southwest NY and Black Hound Bar & Lounge—opened in the final two months of last year, but both had their openings delayed by Hurricane Sandy. In the coming months, Merchants will also launch Watermark Bar & Lounge and Cones Café, both opening in March, and Merchants River House (East), opening in April 2014.
Merchants is run by three partners: Abraham Merchant, Richard Cohn, and Andrew Emmet. President and CEO Merchant manages operations and creates concepts; Cohn, an attorney, deals with administration and finances; and Emmet handles IT.
The 25-year-old company also works with silent partners who invest money into the different restaurants, but are not involved in the day-to-day management.
But the group is about to make changes in the way it works with these investor partners.
Tennessee restaurateurs and Food Network celebrities Patrick and Gina Neely partnered with Merchants Hospitality Group to open Neely’s Barbecue Parlor in New York City in 2011.
“The one-offs become difficult because we’re always raising money,” Merchant explains. “Now we’re looking for global partnerships that finance the whole company instead. We are approaching hedge funds and bigger groups that are investing in the company as a whole rather than in individual restaurants.”
Another advantage to this strategy is that fewer people will be involved.
“It’s better to have a few large investors rather than several smaller investors,” Merchant explains. “Fewer partners with deeper pockets are better because you’re committed to them and they’re committed to you, and you don’t have to try to figure out lots of people’s interests.”
The global investors also give Merchants Hospitality Group “expansion capital” to play with prior to opening a restaurant,” Merchant says.
Restaurant investors tend to be fairly easy to come by, says Mitchell Littman, LLP, a founding partner of Littman Krooks, a New York City–based estate-planning law firm. “There’s still a keen interest in investing in the restaurant world, even in these times when investments from institutions are hard to come by.”
Part of the reason the market for restaurant investment is fairly fluid is because people are typically enthusiastic about the industry. “People are very involved and viscerally passionate about restaurants,” Litman says. “They are looking to invest, not only because they want the investment to do well, but also because they want to touch it, feel it, and see it. People look at this as more than just a return on money—it’s something to be part of that they want to build.”
But it’s important that restaurant operators perform due diligence before accepting the first investor partner that comes along, Littman cautions. “Just because someone has the financial wherewithal doesn’t mean you want to take their check. Ask yourself: What do they bring to the table? Do they understand the industry? Can this be a long-term relationship?”
Investment partnerships work in different ways but typically there’s an initial return on investment to the investors, explains Littman, and then the percentage of profits investors receive drops substantially so that the operators begin to see financial returns.
Maclise and Weimann, who operate with an established percentage-based model, thought this all through before they opened Poquitos, their first restaurant with outside investors, all of whom were either friends or relatives.
“We thought it was best to just give a straight percentage because these are people we know,” Weimann says. “This way, we’re all in it for the same risk.”
Even though they knew all the investors, they didn’t jump into the partnerships without a great deal of thought.
“There are a couple of different types of people who invest in restaurants,” Weimann explains. “The first are not thinking about financial return. Then there are people who are thinking about the bottom line and want to see a return. We want to be involved with the second type, with investors who are very happy in their decision to be involved with us because it is a business. We want them to look at their annual return and then look at the upcoming projects and want to be involved.”
The two Seattleites also were careful about inviting individuals to be active operating partners. “We would never do this without working together first or having some kind of track record,” Maclise points out. “Because the way this formula works is you must have the right people.”