Loss of appetite: It’s a double whammy for restaurants as their Bay Street backers go broke
There’s no question that investing in a restaurant is a high-risk venture. That said, many of the city’s swankiest downtown dining rooms are partially owned by investment-savvy Bay Streeters—those who should be the first to spot a bum deal. Czehoski, Centro, Six Steps and the aptly named Bottom Line are just a few of the dining establishments fed by Bay Street assets. It is no coincidence, then, that Toronto’s golden age of culinary evolution matched up with a golden age of culinary investment. In the boom times, an underperforming investment (even if it was a restaurant) was compensated by market gains. But when the TSX started to slide last year, restaurants got a double whammy: not only were expense accounts drying up, but so was investment capital. Suits who diversified into the restaurant industry suffered, too, prompting us to ask, why keep investing in restaurants?
Ed Ho, owner of the Danforth’s Globe Bistro, doesn’t mince words on the subject: “Restaurants are the most illogical investment, especially if you’re not an operator.” Ho explains that, with nearly four out of five dining destinations failing within one year of opening, the reality of the biz is rougher than many realize. Chef Nathan Isberg agrees: “It’s kind of like me selling widgets. At $1 million or less, it’s way more complicated and frustrating than a $10-million lower-risk business.”
Investors, though, are not always looking to turn a profit on their restaurant; what interests them may be the scenester appeal or having a hand in an operation they love. For one investor who prefers not to be named—let’s call him Brad Bayleaf—putting cash into a restaurant is “more about fun” than finance. He and some colleagues bought into a trendy downtown restaurant when times were good. “It is a bit of a product of excess, for sure,” he says, and compares the practice to buying a racehorse: it’s more about being in the race than the big win.
The social capital doesn’t hurt, either. “It’s neat to bring clients and say, ‘I’m a part owner here,’” says Bayleaf. Even in these tough times, when cocktails are better suited to self-medicating than courting clients, it can’t hurt to have a place where everybody knows your name. Vertical—a restaurant with loads of Bay Street backers—is located at the city’s financial epicentre at First Canadian Place and does a brisk power-lunch business. But even with its plum location and packed tables, managing partner Joe Alberti sees a shift. “People are changing the way they spend,” he says. “Expense reports are being scrutinized more.”
Jamison Kerr, owner of Crush Wine Bar—which is entirely Bay Street funded—has also seen a change in the climate. He’s closing the deal on a new restaurant, a traditional English pub called the Queen and Beaver. “People aren’t cash rich the way they were, so to get money, they have to sell stock,” he explains. This means the stakes are high for restaurants. “No one is giving me money for the hell of it now; people want to see a return on their investment.”
It’s one more kick to an industry that’s already down, and a rude awakening for those indulging in playful side projects. What does Bayleaf—whose firm folded in 2008—say about the experience? “I would be a bit more cautious next time.” Perhaps a racehorse would have been a better bet.