Diners are quick-service restaurants found all over the US and Canada. They began to appear in the USA back in the nineteenth century as small, stationary restaurant-cars. They were usually used by workers as a place to eat breakfast before the start of their shift. Later on they became twenty-four hour places where you could come across just about anyone. Diners have always had varied menus, large portions, low prices and swift service. Diners usually incorporate elements of the design of railway carriages, and have booths with red leather seats, a long counter, jukeboxes and photographs on the walls.
It all started with there being nowhere to go and eat
“The idea of opening a restaurant came up quite by chance,” Paul relates. “On Sundays, I used to play basketball with my friends in the sports-hall of the American Embassy. After the game we were usually terribly hungry. But where could we go to eat? There weren’t any decent places with a menu familiar to Americans. You could eat in the hotel restaurant or in McDonald’s. But that was it: there was nowhere else to go. At one point we thought that it wouldn’t be a bad idea to open our own restaurant. My friends asked “If we found the money, could you do it?” And I said “Sure!” I had spent many years dealing with hotels and restaurants in the US. By then I had already opened three restaurants in the Radisson, so there was nothing I didn’t know about the business. And I had a Russian partner as well which made everything a lot easier. We weighed up all the pros and cons and decided that the best idea would be a diner-style restaurant (One of the meanings of the word “diner” is a restaurant-car).”
If you can succeed in making it truly popular, a Hi-End restaurant will bring in more profit than one like the Starlite.
“We opened the first Starlite Diner in Aquarium Park right opposite the Mossovet Theatre,” continues Paul O’BRIEN. “The building was entirely constructed in America: only the foundations were laid in Moscow. The walls, furniture, equipment, pictures: they were all shipped to St. Petersburg and came to Moscow by train. It was hard to find materials in Russia at that time. You couldn’t even get your hands on stainless steel. And an American diner is like a Lego set: a free-standing building made up of four assembled units. Two seven-tonne cranes lifted each unit, and some guys from the States put it together in eight days. Everything was finished in two weeks, and, in all, from the idea to its realisation, took six months.”
How do you turn one restaurant into a chain?”
“The first establishment cost in the region of $1 million,” O’BRIEN remembers. “A lot of people predicted disaster: “What are you doing this for?” they asked. But I knew that it would be a success. And when we opened, not even I expected such staggering success. Then, we had hardly any competition: 85% of our customers were from abroad, and 15% Russian. Jumping ahead, I can say that now it is the exact opposite: 85% of our customers are Muscovites or visitors to the city. We noticed that in Russia the traditional way people eat in a restaurant differs from in the West. Here, people spend a long time over their meal and order a lot of drinks: tea, coffee and alcohol.”
“The returns from our first restaurant exceeded all our expectations. And still, in 16 years, no-one else has been able to open anything resembling a real diner in Moscow. Some have attempted it - but they have not had the success we have had. After two years, we opened a second establishment near to Oktyabrskaya metro station. That restaurant cost more: somewhere in the region of $1.2 million. But it was bigger. That place also became popular, which enabled us to keep moving forward.”
Franchising Will Help You Get Your Money Back
“For all of those years we did not to take any money out of the business: we ploughed everything we earned back into it,” admits Paul. “As soon as we had accumulated enough, we immediately opened another restaurant. We figured that we’d stop when the number of establishments reached five. But in 2010, we decided to add one more, and opened the Chicago Prime steakhouse. It’s a Hi-End Steak Restaurant on Strastnoy Boulevard. Starlite is for the lower middle class, Chicago Prime is a cut above. All the fittings and furniture were also brought over from the US. A Hi-End establishment costs a great deal more: at least $2 million. But the average bill there is much higher than in a diner. So, if you can succeed in making it truly popular, a Hi-End restaurant will bring in more profit than one like the Starlite.”
“Once we had five Starlite restaurants and one Chicago Prime, we decided to stop and begin selling the franchise rights: simply because we had been investing money for all those years, and now it is time for a return on our investment. We have prospective partners already. They are looking for a place, land with a restaurant on it, and then we can talk over the finer points of the agreement. The main difficulty with a franchise is that you have to make sure that the quality and original concept are maintained. In Moscow alone over 100 establishments have been opened on the basis of a franchise, but going from one place to another you could be forgiven for thinking that the food doesn’t correspond to what it is supposed to be. That is pretty sad.”
What does a restaurant business start with?
“Whoever is planning to buy a franchise needs to own the land to be built on”, Paul recommends. “If that’s possible, of course. This will probably constitute the largest investment. But, as a consequence, there won’t be any rent to pay. And that very land in 10 years will be worth a lot more, so if the business doesn’t take off, you can lease the land or sell it at a profit.”
“But it is virtually impossible to buy land in Moscow. In a case like that, I would suggest a long-term lease. 10 years minimum. Or, on the other hand, you could find a partner who owns some land or premises.”
“Overall, price and location are a huge problem in Moscow. Most property has been bought up already and rents are very high. In the US, 6-8% of income is eaten up by premises, depending on the location. Right in the centre of New York, in Times Square, it can be 15% or 20%. In Moscow, there are restaurants which pay 20-25%. Being close to the centre, we pay about 15%.”
“Rents for premises by the Kremlin, along Tverskaya Street, near Patriarch’s Ponds are the most expensive. The last time I took an interest, it was $3,000 a square metre per year. Take a step back – it’s already $2,000 every quarter. And somewhere on the Third Line is already $1,500. The next problem is to find a qualified team of builders. There is some sense in finding builders by recommendation, asking other businessmen with some experience of having building work done. These days there are a lot services in building and decorating on offer, but finding true professionals is difficult all the same.”
How do you recruit staff?
Here, there was no culture of entrepreneurship, few knew what a business plan was. I felt like James Bond.
“A particularity of Russia is that very few people see working in a restaurant as permanent,” Paul laments. “Students work as waiters to earn a bit of extra money, they are in limbo, working hard and then leaving. And chefs tend not to come from society’s highest echelons. And their field of work is by no means considered the most prestigious.”
“Several restaurants bring in their head chefs from abroad. We don’t. All of our head chefs are from Russia. In our first restaurant, we sent two of our chefs over to America for training. They came back and stayed with us for ten years. And it was they who taught the other chefs, and who have filled the top jobs in the kitchens of our other outlets.”
“If I was opening my first restaurant now, I’d simply go round all of the restaurants with those concepts which match mine. I’d find the best place, and entice the head chef away. But I couldn’t act that like that now. A lot of people know me, and I value my reputation and my relationships with my colleagues. Yet, people try to lure our chefs away all the time.”
“You can find candidates for other positions on the internet. A lot of people find out through the grapevine that there is a vacancy and turn up themselves. We prefer to hire people with no experience. We train them up from scratch. It costs more, but it is still better for us. With beginners there aren’t any habits or ways of doing things which we have to iron out. Retraining is always harder. And also, I don’t know if it’s worth mentioning. Generally, they don’t know how to steal.”
Particularities of the Russian restaurant trade
“I sometimes have thoughts of taking up another kind of business,” says Paul O’BRIEN. “For example, I’m thinking about creating a site offering marketing and consultancy services in Russia. Or opening a hotel. In Moscow, there is a great lack of hotels of the boutique variety with rooms for $150-200. But here the cost of leasing land is too high, and that would raise the cost of a room straight away. Generally, I have dreams, but there just isn’t the time.”
“The main characteristic of Russia”, maintains Paul, “is that for every day which goes by in other countries, here three go by. And then, added to that, after three weeks you find yourself three steps back. For example, here there is a unique form of book-keeping. In the States, if you own three restaurants, you only need to employ two accountants. In Russia, due to the tax laws and the intricacies of the system, you need to employ a minimum of six accountants for one restaurant. They have to do massive amount of paperwork. It seems to me that a lot of it could be computerised, but, at the moment, it is the way it is. A lot of things change, but very slowly.”
“Another peculiarity is security. It’s possible to run a restaurant in the States without security guards. But here, 12-15 years ago, you needed a whole service to deal with security issues. Times have changed, but, to this day, you have to have a guard on the door, in the dining area. As well as that, we cooperate with law enforcement authorities and private security firms. All this costs approximately half a percent of the profits. It’s not so much, but all the same.”
“In Russia, overall, there are a huge number of nuances which are difficult for the foreigner to grasp. If I had only just arrived here now, one of the first things I would do would be to look for a local partner who would help prevent me making mistakes. I was lucky: I have had a partner for 20 years now. We will probably always be partners. Finding such a partner is not easy. The main thing is to make sure that they are in actual fact that which they are making themselves out to be, and that they are not a criminal or a con artist.”
“The best thing to do is to make enquiries about them with people who have already been doing business here for some time. There are databases on the Russian internet where you can “punch” people and find out initial information about them. It is worthwhile not ignoring this data either.”