These last years, I have been surprised by statements of different actors or experts referring to the low profitability of the great restaurants business.
For some, the staff costs, the prime cost and the investments necessary to satisfy the customers are too high. For others, diversification of activities is the best way to cope: hotel, consulting or communication in restaurant TV shows would be necessary to sustain the business. Hence the statement of a Chef who also invested a lot in the hospitality business: “The great restaurants that have no rooms have no future.”
If these opinions may make sense in this or that case, do they correspond to the existing reality? To know it, let’s look at their last P&L statements and strategy
Our most profitable independent great restaurants
In France, 28 Michelin three-star restaurants fuel the gastronomic dreams of millions of locals and tourists alike. According to their last fiscal records, in 2016 or 2015, the average profitability of the 20 independent three star restaurants, 13 of which have diversified activities mainly in the “family” hotel industry, amounted to 6.5% of sales :
The three most profitable three star “core” restaurateurs are:
- In the temple of gastronomy, the Restaurant of the late Paul Bocuse – Abbaye Pont de Collonges near Lyon, where the executive Chef Gilles Reinhardt officiates, has a 10.4% profitability rate in 2016 with revenue of $12 million;
- In Paris 16th, Astrance, the smallest of the great restaurants (1290 sq.ft.), lead by generous chief Pascal Barbot and his partner Christophe Rohat in the dining-room, has been reaching the peaks for almost a decade and obtained in 2015/2016 a 12.6 % net profit ratio with revenue of $2 million ;
- In Paris 7th, Arpege by Alain Passard gets revenue of $8.5 million and a profitability of 12.7% or 5 times more than the average of French starred or 3 times more than the average high-end restaurants in the US, according to the economic press.
Among the most profitable diversified restaurants in 2016 or 2015, are :
- La Bouitte, located in a small village in the Alps (Saint-Martin de Belleville), by René and Maxime Meilleur, whose activity was boosted (+ 43%) by the granting in 2015 of their third star and by a policy of savvy investment: 10.38% profit rate with revenue of $4 million;
- Bras (Le Suquet) by Sébastien Bras, in Laguiole (Aveyron) has a 13.5% profitability rate, which is the record for independent great restaurants. Michel Bras, who is the founder, former Chef and Sébastien’s father, diversified 30 years ago in hotel business because his restaurant is in an isolated area, but the hospitality business represents only 10 % of sales of the restaurant ($6 million) and is separated in another family-run company. From 2006 till 2015, although they chose to run their restaurant activity only 7 months a year, Michel and Sébastien Bras obtained a 15% average profitability rate by concentrating on their core business. Last year, Mr. Bras asked to be removed from Michelin guide, for he wanted to be liberated from the pressure and is seeking culinary liberation.
In a difficult economic and secure context, core-business strategies get a 7.9% profitability average. That is almost 40% more than diversified (including Bras) strategies, or 60% more without Bras.
While hospitality diversification can increase the sales revenue per customer, it can also often reduce the sales per employee. Diversification brings revenue security to owners with a strong aversion to risk and helps them achieve their family estate-oriented goals. If the diversified restaurants employ more staff, they pay however mostly lower salaries and have a higher staff turnover than core restaurateurs. It’s a different business model with more revenue and less profit.
Successful great restaurants focused on their core business get a stronger profitability than other competitors because they know how to maximize seating and revenue. Their business model creates for most the greatest wealth or added value, from 60 to 70% of the turnover, because they perfectly manage their product costs and overheads. These most profitable core restaurateurs have at least twice as many customers as employees and offer substantially higher wages than others great restaurants. They still have a future.