The risks and rewards of opening a new restaurant

YAKIMA — Jon Dunsmore knows the sacrifice that comes with developing a new restaurant.

He's been separated from his family since moving here a year ago. He's paying a mortgage for his family home in the Chicago area and renting an apartment here. Without his family around, his life has revolved around the restaurant.

But he's confident that all the work will pay off when Tony's Steakhouse, a new upscale restaurant at the corner of Third and Yakima avenues, opens.

"I think they're really starving for something like this," he said. "I truly believe we can have five of this kind of restaurant."

Such confidence comes amidst the problems facing the restaurant industry nationwide. Some national chains, such as the company that owns the Bennigan's and Steak & Ale restaurants, have declared bankruptcy, and many more local, regional and national restaurants are feeling the squeeze of declining sales and rising costs.

History has shown that it's a challenge to open a new restaurant in Yakima County. According to the Washington Restaurant Association, nearly 25 percent of restaurants in Yakima County fail or change hands yearly, much higher than the state average of 17 percent.

That's quite a risk for such a hefty front-end investment. Costs vary on the type and size of the restaurant, but on average, opening one costs nearly $452,000, according to a survey from RestaurantOwner.com, the Web site of Restaurant Startup & Growth magazine. Toss in the land purchase, and the average increases to more than $700,000.

But that has not stopped several local restaurant owners and managers.

On North Second Street, Pete Blue continues his work to transform his old night club, Pete's, into The Second Street Grill, a new restaurant that will offer outdoor dining, a martini and tapas bar, a brew pub and high-definition televisions for sports fans.

"(There are) elements that will have mass appeal to women and men of all ages," Blue said. "It has everything that everybody really wants when they have a fun dining experience."

El Mirador, a Mexican restaurant, expects to open its second restaurant in Terrace Heights this month. Roads have been built for Sage, an upscale wine bar and restaurant in the works at South 40th and West Washington avenues in Yakima.

Recent figures show that Yakima County's restaurant industry is faring well, thanks to a solid agricultural-backed economy.

On average, first-quarter sales for Yakima County restaurants increased 4.3 percent from the same period a year ago, compared to 3 percent for the state overall.

But food and labor costs for restaurants statewide, on average, have gone up 9 percent and 7 percent, respectively, making those gains a wash.

At Tony's Steakhouse, Dunsmore anticipates dramatically higher prices for corn-fed beef, thanks to the rising cost of the grain used to feed the cows.

Blue also feels the pain. "It's not just food, it's paper products, it's beverages, it's every product," he said.

But while restaurants statewide have not been immune to national trends, the economy statewide is still fairly strong, a positive asset for operators, said Anthony Anton, president and CEO of the Washington Restaurant Association.

And there are ways to mitigate those higher costs, Anton said. Restaurants have bought high-end menu items that cost less, stocked up on wine, which at a 30 to 40 percent margin can make the entire meal profitable, and generated other sources of income, such as cooking classes or off-site catering.

Dunsmore and Blue each have ways they will keep costs down. Dunsmore has conducted job fairs at the restaurant to find the best and brightest workers. He believes doing so will reduce turnover and the costs associated with it.

"You have to manage your personnel so you can maximize productivity," he said.

To remain affordable, Blue plans to offer lower-priced versions of many menu items. "We feel with people cutting back, they still want to go out and be entertained," he said.

And both plan on utilizing local produce and products to reduce those higher food costs. Blue is aiming to have most of the products come from a 100-mile radius.

Tony's Steakhouse has a 47-acre organic garden in the works in Naches. Dunsmore hopes the garden will also provide additional income by producing produce for other restaurants.

Such tactics will be key in weathering tougher economic times, Anton said.

"When your average margin is 4 percent, you can't just eat that," he said. "You have to find a way increase your profitability."

* Mai Hoang can be reached at 577-7685 or mhoang@yakimaherald.com.

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