The New Grandmothers

Last night I had the great honor to meet world-renowned Chef Massimo Bottura. Chef Bottura is much more than a perennial winner of Michelin stars, best restaurant awards and every other accolade that can be awarded in our business. He is in fact a transcendent figure with a vision that goes far beyond his restaurant in Modena. I encourage everyone to watch his episode of Chef’s Table on Netflix to see what I am talking about.

Chef was in town at American University to promote his new book, Bread is Gold, a collaboration with other chefs of great renown. It is a recipe book, but it is also a vision for the future. In Chef’s eyes, the key to providing food for those who need it lies not in increased production, but in decreased waste.

As part of a panel discussion with local thought leader Chef Spike Mendelsohn, the notion that culinary traditions—and guidance on how to appreciate and not waste food—is less and less a thing passed down from grandmothers or others in our families. Our society, particularly in America, lacks that generational connection in many ways. And so, who is there to replace them? Who can carry on the legacy of appreciating that food comes from effort, from the earth, and it must be savored when eaten, cared for with love, and least of all, wasted?

Perhaps chefs?

Moderator Mitchell Davis from the James Beard Foundation threw out that notion acknowledging that concurrent with the decline in family traditions, there is a rise in the celebrity status of chefs. No longer in the back of the house, they are now front and center on panels, at the White House, on TV and in every conceivable venue for influence that exists.

They wield great power in influencing our culture, especially the younger generations, on how to treat food. They can act as thought leaders and shape generations and perhaps solve this great problem in our world as we race towards a more crowded—and hungry—planet.

Quite a responsibility indeed. Especially when many of these men and women have responsibilities to their businesses and families. However, what an extraordinary opportunity. And it can be done in a granular level by showing people how to prepare food for themselves, in their homes, with love and care for the ingredients. Just like your grandmother might have shown you.

Chef Bottura’s career has been defined by bold—and perhaps reckless—visions that he makes into reality through a singular combination of passion, drive and savvy. And of course, with a tremendous team to support him. This latest vision represents just the latest move for a man who seems hellbent on leading the way and creating change. From Parmesan 5 Ways to making Cacio e Pepe a rallying cry for earthquake victims to driving our world to think differently about how it eats—and wastes—food.

Just another crazy idea. One that may be gold.

Grazie, Chef.

Why Invest in Restaurants? Why Not!

You have all heard some variance of the adage, “Nine out of ten restaurants fail within the first year.” I can’t argue that makes it hard to sell restaurants as an investment. Except for one thing—it isn’t true.

Not even close.

In fact, only 17% of restaurants fail within the first year, the lowest number of any service providing business including real estate agents and brokerages. This myth has been debunked over and over, but the data I am using comes from a comprehensive study by two economists. The summary was published in Forbes.

Hmm. How then, given that the facts override the myth does it linger? Well there is one theory, but this isn’t a column about what are facts, do they matter, and can I make up my own facts if I want to? I’ll save that for another time (teaser: you in fact can’t make up your own facts).

Accepting for now that facts are facts, I think this quote from the researchers sums it up:

“Perhaps due to the visibility and volume of restaurant startups, the public perception is that restaurants often fail. However, as shown in this paper, restaurant turnover rates are not very different from startups of many other different industries.”

The fact is, what we do is for all to see. If the price of gas on a big sign is an indicator of the entire energy sector, or the economy for that matter, then the restaurant on the corner of your block, or the turnover in the entire neighborhood, is a sure sign of the risk of the industry, right?

Hardly.

Humans are notoriously terrible at estimating risk (if we were good at it, we would never drive a car), and the fact that our business successes and failures play out literally in the streets for all to see doesn’t help defeat false narratives.

The reality, however, is that many restaurants and bars and other food and drink businesses make it. In fact, many of these businesses scale far beyond their first store, and there are many opportunities for follow on investments and exits.

Don’t believe me? Fair enough. But would you believe Steve Case? The billionaire co-founder of AOL and founder of venture capital fund, Revolution LLC is very bullish on food. To the tune of tens of millions of dollars over several rounds poured into local startup, Sweetgreen (personal favorite: Rad Thai) and other food ventures. From its inception as a tiny salad spot in Georgetown, Sweetgreen has grown exponentially and is now valued at over $500 million. That’s a lot of green.

That’s one example, and a high profile one at that, but I assure you the list goes on. Whether it is Cava Grill raising $60 million (mostly from Revolution), or Spider Kelly’s entering our seventh year with rosy sales forecasts, examples of successful companies in this business abound.

But sure, there is risk. There are no guarantees, and it is a tricky business—customers are fickle and competition is fierce.

So, what is the secret? How do you improve your odds of picking the right opportunity and mitigating the risk? Ahem. Allow me to introduce myself…

By carefully selecting the founders I work with, patiently curating the concepts so they are ready for primetime and balancing out our portfolio to diversify, I am working hard to put our investors in the best possible position. And of course, I am jumping in with them, side by side.

Will that guarantee success? Absolutely not. But I sure as Hell can beat a 90% fail rate. And you shouldn’t need Steve Case to know that.

Reach out if you want to learn more.

Spring Brings New Deals

I have been dying to write this blog post as all the details were being settled and all the documents signed. There is a long blog post in me about my love-hate relationship with lawyers. One of whom is my partner. Another time.

Nonetheless, as I write this the sun is bright and warm, and the air smells sweet from new blossoms and feels soft on my skin. Spring is here, and it is the time to leap forward with excitement and hope. As the last nails are hammered in for Takoma Beverage Company, they are only a moment from bursting into life. It has been an incredible—and incredibly fast—journey with founders Seth and Chris, and I am thrilled to see the opening just ahead. I hope you will come visit the store sometime to see for yourself what makes it such a great concept.

And more is coming to life in this season of naissance. We have partnered with two incredible concepts, and we are fundraising for both. Take a look below, and feel free to reach out to me if you are interested in hearing more.


 

City-State Brewing Company
The Flavor of the District

Founders James Warner and Kim Carnahan are committed to paying homage to their adopted hometown of Washington, DC, but they know that it will take more than a name to make a mark on the DC beer scene. James quit a promising career in politics to go all in on his hobby. He has worked in every capacity in the business, and all the while with the intent to learn as much as possible about the beer business so that City-State can be as successful as possible. I was sold on the beer at first taste, and it didn’t take much longer for me to be sold on the team. With a solid business plan in place and a significant amount of money already raised, James and Kim are far along in the process. Mothersauce will join with them to get City-State across the finish line and open for business.

The Eleanor
Bowling Lounge, Music, Bar & Grill

Adam Stein is a well-respected Chef and industry veteran who has launched multiple successful concepts over the years, and now he is ready to launch his own. The Eleanor will help to define Ivy City as the District’s next great neighborhood. The 7,000 square foot location will feature four bowling lanes, event/music space, a movie screen, bar and lounge area and an outdoor patio geared for large scale food and drink events like pig roasts and crab boils. Think of it as a cooler, bolder Spider Kelly’s. The Eleanor has the size, the style and the skill to make a huge impact that will go far beyond its neighborhood. With an LOI in hand for the location, the founders are ready to get going.


I hope that you enjoy this season and the hope and excitement it brings. It is great time for our company, and if you are interested in being a part of all that we are doing, feel free to reach out to me anytime at nick@mothersaucepartners.com.

 

Restaurant Forecast for 2017: Sunny and Warm, but Mind the Thunderstorms

If you have lived in Washington for some time you know that the weather for summer is pretty much the same: hot, often sunny, Amazon-like humidity and a chance for a violent thunderstorm every day at about 4:00PM.

Once you get over questioning why you live here and not in San Diego, you adapt and realize that it is pretty nice here—just find a pool and you’ll be fine.

Same goes for 2017 for Mothersauce and the restaurant business in DC (first up for us: Takoma Beverage Company). I think the weather will be great, but we need to watch out for the storms.

There has been a lot of talk about a local restaurant bubble as well as a national one, and the talk is not going away. To be sure, there are serious issues in our business that are creating problems for many businesses, and it may get more challenging before it gets better.

But I wouldn’t start throwing around the “B” word. I think that kind if hyperbole is great for headlines, but I think it can distract businesses from focusing on what the real issues are. I think that the underlying issues are going to lead to more of a correction than a crash, and there are several areas and specific businesses that will continue to grow strongly this year and beyond.

What are the issues?

Well, there are a lot, and they can be very geographically unique. There are a million reasons why a restaurant or several restaurants in an area can fail, but added up together they are not necessarily indicative of a massive trend.

Still, there are some issues that are universal, serious and not going away: the continuing labor shortage, high rents and segment saturation.

Labor. It is always hard to find good people, but the complaints I hear from operators across the country about staffing have never been this severe. It is an employee’s market out there which is great for the talent, but it strains businesses as they try desperately to fill their schedules. The glut of openings means that there are lots of open positions and not enough people to fill them. Service suffers consequently, and there are operators stalling their own growth to avoid this.

Part of the solution starts with better training and incentives. We need to let people know that this business can be a good career option at any level with tremendous opportunity for growth, and then we need to make sure these people are well trained and ready to succeed.

High Rents. The landlord perspective would be valuable here, but until I buy a building, I can’t offer it. What I can say definitively is that rents in the most popular area for restaurants have been very high for a long time. It is no revelation to state that the rents climb as an area gets hot, and then they decline much slower on the other side.

Rent can be a killer for a restaurant. Already tight margins only get tighter with high rent, and if there is no help from the landlord, if a potentially great long term restaurant suffers a minor setback or needs some time to grow its business, the runway might end before they make it.

But isn’t it in the landlord’s interest to have a sustainable, long term tenant? You would think so, but many landlords require a portion of the lease guaranteed, so the tenant can be stuck with the rent long after they close—and that sure is fun.

To me, the ideal scenario is to see the tenant-landlord relationship as a partnership where both can be successful. Restaurants often put a lot of money into spaces that improve their value, they can make a building and even a neighborhood more popular and valuable, and if they are doing well they can stick around paying rent for a long time. These are all things that help the landlord. Lower rents and more managed leases are the way to go. I’ll hold my breath…

Saturation. A word that we started throwing around in Clarendon 10 years ago. Yes, 10. It may have taken longer to get over and past that breaking point, but it was pretty clear it was coming. At a certain point, a market can only sustain so many places—there just aren’t enough customers to go around. The customer base gets spread thin, a couple stand outs do well, a lot of places teeter on the edge of profit, and a lot of places have to close. Then it starts to look like a wasteland of empty spaces.

Zoning requirements for ground floor retail in new developments have been awesome at creating vibrancy in neighborhoods, but at a certain point if every single new building has retail options, there is too much space. The rents don’t drop as you think they might, but tenants stream in anyway, and…boom.

There are at least a couple former restaurants spots in Clarendon that are rumored to switch use, and I think that is great. I know this contradicts the rent theory in a way in that less space available will create higher rents for restaurants, but what I think works best is to find that sweet spot—other retail uses can pay rent as well and fill empty storefronts, and the best concepts can fill the best space and be successful.

There are a lot of smart people out there thinking about this, and a lot of us are reading and listening and talking about these issues as we forecast this year and beyond.

I will continue to research and solicit input, but I think that we are not in a bubble in the sense that we are awaiting a big crash like real estate in 2008. I think a correction is already happening, be it in my neighborhood or nationwide, but I believe that we will keep growing, and that there is tremendous opportunity in our business. For that reason, I believe 2017 will be a great one for Mothersauce. We just need to keep our eye out for those storms.

Clarendon Metro

Carnage in Clarendon: Restaurant Trends in Arlington’s Hottest Neighborhood

“Define the definition.”

What the Hell is that supposed to mean? Beats me, but I said it. What can I say, it was my first podcast. I was recently a guest at the ARLnow.com offices for their series, “26 Square Miles-An Arlington Podcast.” Given my background and given the popularity of restaurant articles on the site, I was pretty sure that I was going to be asked about the recent spate of closings in Clarendon. It is a topic worth exploring for sure, and I did my best to contribute to the conversation.

If you are up for it, take a listen here. We jump right in, and then pull back to broader industry trends outside of just our neighborhood. At the end, we talk about the inspiration for Mothersauce, and the plans I have for the company.

So just what has been going on in Clarendon? Well…

Tagliatelle, Brixx (6 months), Park Lane (8 months), Ri Ra, Boulevard Woodgrill, Fuego, Spice, Hard Times, American Tap Room , Amsterdam Falafel.

That’s 10 this year, and I have probably left someone out. Rumors swirl about more closures on the way, and many in the neighborhood are seeing their numbers fall.

So what is behind the Carnage in Clarendon? Hyperbole aside, a lot.

Clarendon has come a long way since the days of my youth when we would head there for Vietnamese food and not much else. The Metro’s arrival, and the brilliant planning by County leaders about how to develop around Metro laid the foundation for the success many businesses have been able to enjoy subsequent. That was 40 years ago. The past 10 years the growth has exceeded even the most optimistic forecaster’s dreams, and Clarendon has become the destination nationally for development. It hit all the right metrics and the residents and businesses flocked.

But there is a limit.

Many of us who have been in the neighborhood for some time felt that the saturation point was inevitable, and we feel we hit it a couple years before half of the businesses above even opened. As operators raced to benefit from the exploding customer base in Clarendon, rents skyrocketed to levels that were just ridiculous. Businesses signed on to high rents right as the market became flooded with concepts.

At the same time, external trends worked to shrink the famous customer base. DC exploded. 14th St., Shaw, Navy Yard, Barracks Row, NoMa. Neighborhoods few would venture to five years ago have become sought after hot spots only a short, cheap Uber away. We have certainly felt that at Spider Kelly’s.

Stuck with high rent and fighting with similar concepts for a shrinking customer base doesn’t leave a business with a lot of runway to make it. This is only heightened if the concept offers nothing particularly distinct.

And so here we are.

As the culling continues, what remains to be seen is what comes next? Many of the concepts that close will be replaced by new concepts (Ri Ra, Boulevard Woodgrill, Hard Times). Others are rumored to be switching to retail. Still others remain dark with no signs of what is to come.

Clarendon is still a great place to live, work and do business, and there is still tremendous opportunity for success. What made it so attractive many years ago continues to be what will make it attractive in the future—proximity to the city, access to mass transit, great schools and parks, and of course a vibrant commercial corridor with great businesses.
The difference is that those of us still here need to work harder, be smarter and continue to try to grow our businesses to offer our customers what they want. Why do you think we built a Beer Garden?

I am a native Arlingtonian, and I still live in the County. My daughter goes to Arlington Public Schools and many years ago when the planning was being done to grow Arlington’s commercial centers and preserve our unique neighborhoods, it was my Mom, Judy Freshman, who helped with the plan. I am invested heavily in the County, and in Clarendon, and I am very optimistic about its future.

In the meantime, at Spider Kelly’s, we will continue to focus on getting better at what we do, and watch to see who is still around when the dust settles. Hopefully, we will be.

Full Podcast: http://arlnow.libsyn.com/ep-12-spider-kellys-co-owner-nick-freshman