L.A. Restaurants Going Hungry in Post 9/11 Environment
By DEBORAH BELGUM
Staff Reporter
Already a notoriously volatile business, restaurants appear to be feeling the economic downturn more severely than their retail cousins.
In recent months, several well-known L.A. eateries have either shut down or been put up for sale. Among those that have closed: the Parisian Room on Melrose Avenue, Mistral on Canon Drive in Beverly Hills (the Sherman Oaks location remains open), and Carafe on Melrose Avenue.
While remaining open, Moomba, a once-popular restaurant/nightclub in West Hollywood, Madison’s Neighborhood Grill and Westwood Brewing Co. in Westwood, as well as Ed Debevic’s in Beverly Hills, are up for sale.
In addition, several sources say a real estate package is being shopped around for Delmonico’s Lobster House in Beverly Hills and Encino, although Jason Hwang, the restaurants’ owner, denied it. (The two eateries are not associated with Delmonico’s Seafood Grille.)
Such a denial is not unusual. Restaurant owners fear the price of their business might decline if word gets out.
Brokers have noticed more activity involving larger spaces, where monthly rents range from $20,000 to $25,000. “It seems that recently there has been a flood of large restaurants out there for lease,” said Darlene Heskamp, a long-time restaurant broker with Beitler Commercial Realty Services. “I’m seeing a lot of restaurants come on line between 6,000 square feet and 14,000 square feet.”
Owners are faced with a number of challenging problems, notably rising costs. The state minimum wage rose to $6.75 an hour in January, and workers’ compensation insurance costs that ballooned as much as 50 to 100 percent in the last year. Add to that higher energy costs that are still taxing some places.
“Given all those elements, we’re surprised that many places are still making it,” said Mark Martin, a spokesman for the California Restaurant Association.
Martin noted that since Sept. 11, 8,000 restaurant jobs have been lost in the state. “We have some unique circumstances that have to be overcome,” said Dick Carter, a veteran restaurant broker with May Realty Advisors.
Chef Michael Kang, who for 20 years has run Five Feet, a successful eatery in Laguna Beach, is giving up on L.A. after six months. Kang and partner Eric Nguyen decided to walk away from the $20,000 a month lease and forfeit $1.2 million in remodeling and equipment costs for their location at the former home of Le Colonial on Beverly Boulevard.
“There are a lot of reasons we left,” said Kang. “The economy in general is slumping right now. It was a strategic move for us to concentrate on a smaller scale as opposed to spreading ourselves too thin. Plus, I won’t miss the commute.”
Restaurant revenues in California are projected to increase by only 2 percent to 3 percent this year essentially flat when factoring in inflation. Revenues in 2001 were 11 percent higher than in 2000.
“Los Angeles and high tourism areas like San Francisco and San Diego are doing worse than other inland areas that don’t rely on tourism,” Martin said, noting that Los Angeles County has more eateries than any other county in the state.
If rising costs and fewer tourists weren’t enough, local diners have been downgrading the restaurants they frequent.
Instead of spending $40 to $60 per person for dinner, they’re opting to spend $20 to $30 per dinner. For larger restaurants with greater lease obligations, that takes its toll.
“Restaurants work on a low-profit margin that can’t absorb the downturn,” said Jack Srebnik, owner of the 17th Street Caf & #233; in Santa Monica. Srebnik is faced with the added worry of a living wage ordinance on Santa Monica’s November ballot that would raise the minimum wage for some restaurants to $10.50 an hour.
But for every restaurateur who throws in the towel, there is another who wants to start his or her own business. “There is always someone who thinks they can make it work,” said Heskamp.
