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Cover story part 2: Rooms to let

Rooms to let 

As though the food business weren't hard enough, some restaurateurs are opting to be innkeepers, too.

Taking over a 150-year-old building in historic downtown Charleston, the partners behind barbecue chain Sticky Fingers had a dilemma as to what to do with the space. The first two floors were easy: restaurant on ground floor, banquet room on second floor. The third floor was more of a tossup.

At the previous restaurant, it had served as an unofficial employee lounge, where staff could tie one on or sleep one off. But the new proprietors saw more potential this time. So they invested some cash, hired a contractor, and had the floor transformed into four, hotel-style suites intended as stay-over accommodations for their customers. Before long, the restaurateurs had added the title of innkeeper to their job descriptions.

Not every operator has the space for an inn—or the capital required to fix up that space—but many that do have found it a valuable source of revenue that compliments the bread & butter business nicely. Of course, being an innkeeper has its own set of operational headaches, but many have figured out ways to make it thrive, essentially subcontracting the biz so as to not lose focus on the restaurant.

About a year and half after opening the suites, Sticky Fingers co-owner Jeff Goldstein says it's profitable (though it'll take several years to recoup the $1 million investment). But with suites renting between $225-$325 a night, and an in-season occupancy rate of 80%, he's optimistic. "It looks like it'll be a moneymaker," he says.

That is, after the salary for the manager (albeit a small one) is deducted. The experienced hotel manager that Goldstein had to hire gets the majority of his compensation through an equity stake in the business, proof that adding a suite of rooms also means adding a few fiscal obligations, too.

In the small resort town of Berkeley Springs, WV, restaurateur-turned-innkeeper Tari Hampe pays her caretaker in board, not salary, which helps to keep costs down. That's a relief for Hampe, as she sunk a half-million into fixing up the guest rooms in the century-old building her restaurant, Tari's, also occupies. That meant everything from new plumbing to wiring and air conditioning—even a new roof.

But Hampe also found a way to use her restaurant resources to help run the inn. The bartender handles check-ins, for example, and Tari's husband takes care of repairs. Hampe was also fortunate that, in her location, there were no additional zoning issues involved, and she was able to use her restaurant's insurance policy to cover the rooms.

Despite the added operational challenges, innkeeping is worth it, according to this restaurateur. "Restaurants are dying on the vine when there are so many pockets of revenue they've never explored," says Hampe, who estimates the rooms represent 12% of her total business. "This is a nice way to build extra revenue without extra costs. I truly believe that, if we didn't have these various venues for revenue, it would've been very hard to survive."

Product Lines

From cakes to cheeses, products with your restaurant's name on them can make more than just a good meal.

For years, Peninsula Grill's Ultimate Coconut Cake—a 12-lb. monster confection that serves 16—did exactly what it was supposed to do. People in the know could buy the cake ($55), and have it shipped to their homes (for an additional $35-$50 tacked on) to serve for parties and special occasions. It turned a tidy profit for the restaurant, and that was about as far as management took it.

Then the cake turned up on a Food Network special last spring, and suddenly things got batty at Peninsula, a normally demure, four-star establishment in Charleston, SC. After watching that program in a room upstairs from the restaurant, partner Robert Carter made his way downstairs. By the time he got there, there were 75 cake orders on his reservation line.

"In a down economy, I never expected a hundred-dollar impulse buy to take off like that," he says. "It was a phenomenon—it absolutely exceeded expectations." He's not kidding. Over a two-month period, Peninsula sold around 650 cakes, grossing over $35,000.

While product lines have been around as long as the Mason jar, and not many of them turn a profit ["Shelf Lives," July 15 issue], many operators in search of growth opportunities have discovered that product lines are still worth the time. From New York restaurateur Terrance Brennan's line of boutique cheeses to Smith & Wollensky's foie gras lollipops, operators are finding that a well-planned line isn't just an added revenue source, but another way to market a restaurant's name. For example, Brennan, who runs acclaimed New York eatery Artisanal, imports and sells an extensive array of cheeses through his new web site that bears the restaurant's name. Artisanal gift baskets and cheese-tasting plates are for sale, too.

Of course, product lines aren't as easy as just slapping your label on a signature cupcake. Apart from the obvious sourcing and distribution considerations, one key question for operators is: What hasn't been done to death? David Lourie, the operations manager for upscale Mexican restaurant Las Canarias, located in the La Mansion del Rio Hotel in San Antonio, says that the company's choice to produce a line of jams, jellies, and tapenades stemmed from the realization that "there were already lots of vinegars and oils out there."

There were labor issues, too. Las Canarias' executive chef spent time away from the kitchen to develop the line, and a web specialist had to be brought in to oversee online sales.

Carter says he needed every warm body he could find when demand for the cake peaked. "I had to beg, borrow, and steal pastry chefs, Johnson & Wales students, everyone I could find, to work on the coconut cake assembly line," he says.

Yet Carter says the efforts have been worthwhile. And with the Food Network episode that featured his cakes scheduled to air again shortly, he's got all his cakes in a row. "We've got 125 of them in the freezer," he says. "We're ready this time."

Airline Contracts

Where are you supposed to find new customers these days? Well, have you looked up in the sky lately?

Like many chains, Atlanta Bread is always in search of a high-traffic location with built-in customers. Unlike many of them, however, it found one with both—one that also happens to be inside an aluminum tube at 30,000 ft.

The company recently inked a deal with Delta Air Lines to serve its food on all flights between Atlanta and Dallas. No, it's not a unit in the sky, but COO Basil Couvaras hopes it'll be just as good. "If executed properly," he says, "the partnership will mean great exposure and brand awareness for us."

Atlanta Bread is not alone. For several chains, expansion is no longer limited to the planet itself; companies such as Starbucks, Eli's Cheesecake, and Einstein Bros. have all gotten their products onto airplanes.

Apart from the obvious marketing benefits that come from having your brand served to a captive audience, restaurant companies see the arrangements as an added revenue source, too—though they're loath to discuss specifics. "While the marketing of our brand in this partnership is vital," Couvaras says, "it needs to make sense money-wise, and we believe it will." (Unlike some partnerships in which a restaurant product is simply served in lieu of a no-name house one, Atlanta's sandwiches will actually be sold on the flights, though there's no word on what cut of that, if any, Atlanta will get.)

But one thing's certain, the brand exposure with airlines is tough to beat. The airline's web site features prominent pictures of Atlanta Bread sandwiches, salads, and snacks (and news of the partnership), menu boards are posted at the gate, and announcements are made both at the gate and on the plane.

At Einstein Bros., getting product onto 324 of US Air's domestic flights earlier this year wasn't just about money (though Einstein execs won't reveal the financial aspects of the deal). Management hopes it'll be a good way of getting a rebranding message across to customers. The struggling bagel chain is attempting to reposition itself as fast casual, and VP of business development Greg Powell says that serving its new line of upscale sandwiches will deliver the message that Einstein is now about more than just bagels. In fact, none of the in-flight meals even include bagels. "It's a great way to not just showcase our brand," says Powell, "but to let people know our concept has changed."

There are risks with these partnerships, of course. Both Einstein and Atlanta have to entrust the preparation of their branded foods to the airlines' existing caterers, which essentially puts their brand integrity wholly in the hands of a different company. To make sure production was up to snuff, Powell mystery shopped his company's own lunch in the upper atmosphere, and is confident things will work out. "I was very impressed by what I saw," he says. "This isn't just airline food anymore."

Writing A Book

Reveal your recipes or tell your secrets. The public might just run to bookstores to buy your story. And that's not fiction.

As CEO of a restaurant company that boasts $3 billion in annual revenue and the most units of any U.S. chain, Subway's Fred DeLuca surely has plenty to do. Yet a few years ago, the seasoned restaurant executive took time out from his demanding schedule to close his door and power up his computer. At work on a new expansion plan? Changes to the franchise model? No. Fred DeLuca was writing a book.

The result is Start Small, Finish Big, a comprehensive account of DeLuca's journey from being a flat-broke college student who bought into a sandwich shop to the head of one of the world's largest restaurant companies.

These days, it seems that everybody's written a book. So, if Jesse Ventura, Hillary Clinton, and Jack Welch can do it, why not a restaurateur? In fact, plenty have: Howard Schultz of Starbucks, the late Dave Thomas of Wendy's, and former National Restaurant Association head and Godfather's Pizza CEO Herman Cain are among the restaurant bigs who have stamped their names on dust jackets.

Yet authorship, for many in the biz, isn't only about seeing your name in print. Many have found producing a manuscript —from cookbooks to tell-all exposes—can be a practical, and lucrative, adjunct to their core businesses. And that's not only true for celeb restaurateurs, either.

After all, the time is ripe for restaurant stories. With the public's interest in food at all-time highs, books about the business have a proven audience these days. "I'm seeing a great demand for food books right now," says literary agent Angela Miller, who's brokered deals for celeb chefs Jean-Georges Vongerichten, Waldy Malouf, and Marcus Samuelsson. And while Miller says a big-name chef can expect a six-figure advance, one needn't be a celebrity to reap the rewards a book can bring—especially because those rewards are often paid in increased visibility for the restaurant.

Ask Clark Frasier, owner and chef of Arrows Restaurant in Ogunquit, ME, and the author of the The Arrows Cookbook. The book has sold 800 copies since its publication several months ago, but the benefits are largely in the marketing. "We've gotten a huge amount of press. It's a great vehicle for promoting the restaurant," Frasier says. "In the difficult economy, the book has kept our business strong."

This is not to say that creating a book is easy, of course. To produce its popular series of cookbooks, Moosewood Restaurant in Ithaca, NY, requires the efforts of 19 partners to research recipes, test them, and do the actual writing—all of which takes 18 months per book. And apart from the time taken away from running the core business, the economics of publishing can be even tougher than the restaurant business. "Unless you're an Emeril Lagasse, the profitability of book writing pales in comparison to restaurant operation," cautions cookbook publisher James Connolly.

Which is part of why raw-foods proponent Jeremy Safron, who wanted to capitalize on his expertise, decided to publish himself. Printing his cookbook/food guide Raw Truth cost him several dollars a copy, which he then turned around and sold for up to $20 per. It took him plenty of time and effort, but the returns from four self-published books (and the publicity those generated) eventually landed him a traditional publisher—and prompted him to sell his restaurant.

"Writing books is a much better moneymaker," says Safron, who estimates he's sold 70,000 copies of Raw Truth. "Restaurants, you just keep pouring money into.

Meanwhile, the publisher of Start Small, Finish Big won't disclose how many copies of the $25.95 book have sold to date. All proceeds go to DeLuca's non-profit business that provides microloans to entrepreneurs. But that's not to say that the chain hasn't benefited from the book. DeLuca tells his readers about many business opportunities out there—among them, buying a Subway franchise.

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