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Business within a business

Question:

Our bar and grill does almost all of its business in alcohol, not food. I was thinking of converting a back room into a dining room, and finding a chef/manager who could take over the kitchen as a separate business. What do you think?

– Christine Zagari, Owner, Bean Post Pub, Brooklyn, NY

Answer:

I admire your thoughtful approach to diffusing risk in this situation, but my advice, especially for independent operators, is against any sort of messy business structure where you have one business operating inside another or complicated arrangements of responsibility. Put simply, these structures are rarely win-wins and often the only clear winners are the lawyers who both draft these arrangements and sort out the damages when something bad happens. For example, even if you separate food and beverage service from a business standpoint, the Department of Health will consider you a single operation. Imagine you receive violations and penalties—who is responsible? What if a required correction requires a few days of closure—who is responsible for the lost revenue?    

I think that what you are really asking is whether you can be profitable with food sales in addition to beverage sales. While food is almost never as profitable as beverage sales in a bar, it may be a loss leader that brings people in to drink.  A guest knowing he can order a plate of wings at the Bean Post rather than just a bag of chips at a competitor may bring him and his friends in to your operation to spend money on both food and drink.

It is challenging to earn a healthy profit in a full-service restaurant. To ask someone to try to do so with the sales of food only is even harder. Ultimately I think you are looking for a strong manager to work for your operation rather than a separate business entity. You can focus on recruiting an experienced broad-ranging manager who can handle both food and beverage or, if you are more comfortable with a smaller investment, partner with a culinary or hospitality school to recruit someone less experienced but hungry to develop your kitchen into more than an afterthought.

Finally, look at the market. While some bars are required to offer food for licensing reasons, if you consistently lose on food sales, the demand simply may not be there. Alternately, you may need a more enticing menu or a more talented cook!

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