Meal Ticket: A look at Calgary Restaurant Investing

The restaurant business never met a baseball metaphor it didn’t like, which is why it won’t take long before you’ll hear the man behind Murrieta’s in Calgary lovingly refer to it as his “Grand Slam.”

That proud parent would be Ron Salverda, a spry 50-something who arrived in Calgary in 1996 via a Montreal childhood and a younger-years stint in Toronto. Born to an executive chef father, Salverda grew up around restaurants and accepted it as his destiny as he grew into adulthood.

In Toronto, he worked his way up to vice-president of the Hard Rock Cafe Canada chain. After the company was sold to Hard Rock Cafe International, the newly married Salverda determined that Calgary had the perfect mix of opportunity and access to ski hills and, like many other entrepreneurial-minded souls before him, went West. He started on the local scene by opening two locations of the Jack Astor’s restaurant franchise in 1997 and 2000, but it didn’t take long before he began salivating for a room of his own, so he sold both restaurants in 2000.

Even with the wealth of industry experience Salverda was bringing to the table, opening a new restaurant was inherently risky. For every restaurateur who rises to gastronomic glory, there are scores of failed attempts. For every Grand Slam, there are countless strikeouts — elaborately planned ventures in impeccably decorated, seemingly prime locations that launch to impressive fanfare but can’t continue to draw the requisite crowds. There are noble efforts to resuscitate, changing concepts, chefs, menu and design, until these dying stars ultimately collapse into themselves and fade away into “Hey, whatever happened to ... ?” obscurity.

The statistics around new-restaurant failures have an urban legend quality about them. Sensational claims were made in a 2003 American Express commercial featuring New York celebrity chef Rocco Di Spirito, star of former NBC reality series The Restaurant, that nine out of 10 restaurants fail within their first year — a figure he quoted as testament to his own success in the industry. While this made for good TV, a 2007 article in Bloomberg Businessweek, “The Restaurant-Failure Myth,” revealed how that figure was challenged and disproved by H.G. Parsa, an associate professor of hospitality management at Ohio State University.  His numbers revealed a more reasonable, yet still frightening first-year failure rate of one in four.

Closer to home, according to Calgary Economic Development figures, there were 1,195 full-service restaurants in the city in 2008, and 1,147 in 2009, a decrease of 48 in the course of one year. While that doesn’t sound as sensational as a 90 per cent first-year failure rate, it’s still a sobering statistic for anyone thinking of trying their hand at the biz. And yet, people do — both the restaurateurs and the monied types who finance their visions. Those investors know there are easier ways to make a buck, yet there are certain intangibles to having a stake in a restaurant that extend beyond the bank balance sheet.

Across this and other cities the saga continues with those who have found success in a variety of areas, from real estate to commodities trading.  It may not be the sanest investment, but it’s one that has an undeniable cachet.  
There was certainly more than the desire to make a quick buck behind investor Wayne McNeil’s decision to support Salverda’s proposed restaurant venture. An associate through Jack Astor’s, McNeil says he got involved because he believed Salverda had what it took to bring his vision to life. This gut feeling remained even as they took a gamble on the location — a second-floor space in the historic Alberta Hotel building at the corner of Stephen Avenue and 1st Street S.W.

Although Murrieta’s is now a cornerstone of downtown’s dining-out scene, McNeil recalls the restaurant’s ruder origins. “Where the glass roof is over the main dining room at Murrieta’s today was wide open,” he says. “It was actually the old courtyard for the hotel. It was all open. There was concrete on the ground like an outdoor parking lot. There was water and puddles and pigeon shit all over the place … Not an easy building to move into.”

Add to that the fact the space for the restaurant was on the second floor, something common in Toronto and Montreal, but almost unheard of in Calgary at the time.

“A space tells you what it wants to be,” Salverda says. “In the case of Murrieta’s, the second floor was taboo; it shouldn’t have worked.” People told him he was crazy for choosing the space which didn’t allow for walk-by traffic to look in and see the space, but he took a chance. “Once you get people up there, the room is second-to-none … It is a great space, a real wow factor.”
A Grand Slam, you might say.

For Salverda, who would go on to open Murrieta’s locations in Edmonton and Canmore, as well as Calgary restaurants Trib Steakhouse and, most recently, ParkerHouse Grill & Wine Bar under the banner of his company, C.A. Restaurants, the success of the first Murrieta’s established him as a restaurateur of note. As for McNeil, the experience confirmed his faith in Salverda. “When I got into the restaurant business, everybody I knew — I’m talking accountants, lawyers, guys that invest in everything — cautioned me not to invest in restaurants,” he says. “I would say 90 per cent of the people I knew at the time when I was contemplating investing [in Murrieta’s] said, ‘Don’t go near it.’?”

And yet, he did go for it, despite those naysayers who told him he was throwing his money away. McNeil maintains he always “invested in Ron,” not necessarily the restaurant itself, and has continued to support subsequent C.A. projects for the same reason. Since McNeil lives outside the city, he says, he doesn’t dine out in downtown Calgary very often and rarely has the chance to experience first-hand the gastronomical mini-empire his funds have helped to create. Even so, McNeil can’t deny there’s an emotional element to his restaurant investments.

“Other investments are very paper-oriented, while the restaurant can be a little more personal,” he says. “You take pride when somebody says they had a great restaurant experience, versus, ‘I just made 20 cents per share on my potash investment.’?”



And that reaction is a boon because, without the intangibles like pride or personality, there’s little left to get excited about in restaurant investing.
“There are a lot of restaurants that are successful, but in investing, you have to be aware of the probability of success,” says Martin Ferguson, a portfolio manager at Mawer Investment Management Ltd. When you look at how a restaurant stacks up against what Ferguson describes as the “external competitive forces” people in his line of work use to gauge this probability, things look pretty grim.

A restaurant, for instance, doesn’t have power over its suppliers, or over its customers, because there are no contracts to force people to come back. “The customers aren’t linked to you in any way; there’s nothing compelling them to come back day after day or week after week,” says Ferguson.

Becoming known for a high standard of service or food can provide power over existing rivals, however, in this case, the power often lies with the chef or the maître d’, who are able to change allegiances on a whim.

There’s also no control by existing restaurants over new entrances into the market by competitors. “That’s a really bad one,” Ferguson notes. “That’s one of the big reasons why it’s not a good business; anybody can enter the restaurant business.”

And as for substitute products? Well, people always have the choice to eat at home. “When we invest [at Mawer Investment], we’re looking for companies that have power over their customers or their suppliers,” says Ferguson. “If you’re going to make a good financial return on your invested capital, you’re going to need competitive advantage.”

Of course, that’s not to say there aren’t successful restaurants out there. But even a bona fide Grand Slam can fall prey to the fickleness of public taste.
“What we really steer away from here is investing in anything relating to fads or fashion, because one year you’re in, the next year you’re out,” says Ferguson. “With new restaurants, what you try to do is build up a clientele in the hopes that you’ll become ‘hot,’ and a lot of them do become hot, but they only stay hot until something new comes along to displace them.

“There’s a lot of cyclicality and consumers themselves can be trendy … Tastes change and what’s in one year will be out the next year.”
While Ferguson’s advice may serve to dissuade potential investors looking to cash in on the latest trend du jour, the fact is sometimes tastes don’t change. Some investors want a stake in a place that is essentially an extension of their own lifestyle, and that’s often worth putting their money where their mouth is.

“I think there’s something about getting to be the generous host, the dream of having others to your place,” says Beth Hamilton-Keen, a director and portfolio manager at Mawer. “The emotional appeal is huge.”

There was certainly an emotional draw for Bernard Florence when he and his wife, Carol Burch, were approached by restaurateur Fabio Centini to become investors in his eponymous venture on the corner of Stephen Avenue across from the Glenbow Museum, which opened its doors in May 2002. Florence, who heads up his family’s longtime local business, Calgary Jewellery Ltd., and Burch, his fiancee at the time, had been regular patrons of Centini’s previous venture, Centini Restaurant & Lounge on 12th Avenue and 1st Street S.W., and the association had evolved into friendship. When that restaurant closed and Centini decided to move forward with his plan for a new restaurant under the same name serving Italian and continental European cuisine, Florence and Burch both came on as investors.

With Burch travelling frequently to Europe on her own business endeavours at the time, Florence says he was looking to Centini to provide a surrogate home while she was away.

“I knew Fabio catered to my [taste] in food and wine and always treated me royally,” he says. “So, basically, with Carol travelling as much as she did, it was a perfect time to invest in a restaurant that I’d be going to almost every night to enjoy wonderful food, great company, great people and great wines.”
In addition to having a place to dine where everybody knows his name, Florence says he enjoys having a place to take out-of-town guests and international business associates.

“We’ve brought many people from all over the world [to Centini],” he says. “Being in the jewellery business, many of my suppliers come from Europe, the Far East etc. … It’s a nice atmosphere to bring people from around the world.”

Despite the social aspects of ownership in Centini, Florence says he hasn’t lost sight of the fact it is an investment — albeit one whose returns include things that aren’t measured on a balance sheet.

“In my field, when you’re buying a beautiful diamond ring, or a beautiful watch or a beautiful bracelet, it’s to bring you enjoyment,” he says. “The restaurant, sure it’s an investment, it’s a business investment and you look at it that way, you have to, but there’s also the enjoyment. And when you get both of that in the same combination, it doesn’t happen too often, but this one has worked quite nicely.”

Florence says the key to everything running so smoothly for him is his belief in the vision and management skills of the restaurateur. “It’s a good benefit, the restaurant, because of how it’s being run and how it’s being operated by Fabio Centini,” he says. “A restaurant is a very difficult business to make successful … It really boils down to whom you’re partnering up with. In my industry, jewellery, I don’t know of too many people who have [invested in a restaurant].

“Would I have invested in a restaurant if it hadn’t been for Fabio? Probably not.”

Therein lies the paradox of the successful restaurant — while business should never get personal, in this wacky parallel universe where even a sure thing will still be risky on paper, things need to get a bit personal. There will always be easier ways to invest — low-risk industries and enterprises whose success has nothing to do with the mad human circus that is required to create one plate of tasty, fresh food. Mention investing in a restaurant and the naysayers are guaranteed to come out of the woodwork, bleating failure statistics and anecdotes about staffing woes and money being literally thrown away in the form of ill-cooked food, broken dishes and complimentary glasses of wine.

In spite of all this, investors continue to have a go, forging ahead in the quixotic quest to make things that taste good for people.  

“If I get any satisfaction out of it, it’s probably more when I hear people say, ‘We went to this restaurant the other night and it was just phenomenal,’?” says McNeil. “And then I can say, ‘Well, I’m involved in that restaurant.’ That buys me nothing at the bank, but it is a good feeling.”