Restaurateurs are increasingly investing in building restaurants customized for their needs because it’s more cost effective than retrofitting existing restaurants.
Vancouver-based restaurant chains such as Cactus Club Café, Earls Kitchen and Bar and Glowbal Group are at the forefront of the trend.
For example, Cactus Club owner Richard Jaffray has invested:
•$7 million to build a restaurant in the Bentall 5 tower in 2008;
•$6.5 million to build a restaurant in Edmonton in 2009; and
•$6.5 million to open a restaurant in Abbotsford six months ago.
In early 2010, Jaffray expected to spend $5 million to build his recently opened restaurant at English Bay. He now anticipates that the final tally will be $7.5 million for the 5,400-square-foot bistro that has 170 seats inside and another 104 seats on its patio.
Jaffray said the cost to build the 8,300-square-foot restaurant in Coal Harbour near Jack Poole Plaza that he hopes to open by fall could top $7.5 million.
Former Cactus Club co-founder Scott Morison cashed in his shares in the venture in 2005 in part, he told Business in Vancouver, because Cactus Club was spending too much money to build new restaurants.
Jaffray, however, has succeeded in making the Cactus Club brand far more upscale than when he and Morison opened the 22-location chain’s first restaurant in North Vancouver in 1988.
Ian Tostenson, president of the British Columbia Restaurant and Foodservices Association, told BIV that larger restaurants have made Cactus Club and Earls far more upscale than they were years ago.
He said their restaurants are aimed at providing diners with a “sense of arrival” and being at the centre of the action because they can choose what kind of experience they want.
“Take the Earls in Yaletown,” Tostenson said. “There are different components there: a bar and a dining room upstairs. They create different atmospheres within a large framework to attract different crowds. You have several atmospheres going on.”
Spending more to build new restaurants is good value for money, Jaffray said, because floor plans can be designed to fit the Cactus Club concept and maximize customer experience and food preparation and delivery.
He believes retrofitting restaurants, which he did early in his career, can cost as much as building facilities from scratch yet often result in an inferior layout.
Construction budgets in the $7 million range typically take around a dozen years to pay off.
So Jaffray usually aims to negotiate site leases of at least 30 years when he builds a new restaurant.
Other successful longtime restaurateurs, such as Bud Kanke, who earlier this month sold Joe Fortes to David Aisenstat, agree that securing an option on the space for multiple decades is key to running a successful restaurant.
Landlords who approve lengthy leases typically require an option to raise lease rates at five-year intervals.
Earls owner Stan Fuller similarly seeks long-term leases and has been investing heavily to build new restaurants to compete with chains such as Cactus Club.
He spent about $6 million apiece to open several restaurants in Ontario in the last couple years. He’s doing the same thing for a restaurant he plans to open in May in London, Ontario.
“Richard’s right. We’re starting to spend increasing amounts of money to build restaurants,” said Fuller, who financed Jaffray when Cactus Club launched in 1988 and still owns a single-digit percentage stake in Cactus Club even though Jaffray makes all the decisions.
Jaffray and Morison once worked for Fuller at Earls.
“We’ve got a competitive game going on in the casual dining segment, particularly between Cactus, Joey [Restaurants] and Earls,” Fuller said. “I’m trying to kill him every day, and he’s trying to kill me.”
Fuller also owns a small stake in Joey Restaurants, which is run by his brother Jeff Fuller.
Glowbal Group’s Emad Yacoub is also spending lavishly on new restaurants.
He spent about $5 million to build his 10,000-square-foot Black + Blue restaurant on Alberni street – the largest steakhouse in the city.
“It cost us quite a bit of money, but I spend money wisely,” he said. “My $5 million is worth $7 million or $8 million for other guys.” •
