Restaurant/Brewery revenue/cost split advice needed

[frenchc]

Does anyone have any thoughts or advice on how to split revenues, costs and operation between a brewery that is attached to a restaurant facility as a shared space, but the brewery and restaurant are under different ownership? Basically it will be a bit like a brew pub, but the restaurant side will be open for breakfast and lunch. Obviously 1 way to do it is food/beer split, but we feel that brewery will help food sales, and we also would not do the brewery if the restaurant was not an option, but obviously we would like to receive food revenues. Another thought was to split it based on time of day - e.g. until 4pm, the restaurant gets all food sales/costs, after that the brewpub covers. Anyone have any experience with this sort of thing? Is this a disaster waiting to happen?

[frenchc]

I shouldn't say we wouldn't do the brewery if we couldn't sell food, but the financials appear much more viable if you can sell food and bring in more people and we are at a point where we need to figure out how this split is going to happen before we go forward with an investment in construction and equipment for the brewery.

[nateo]

Is this a disaster waiting to happen?

Yes.

[frenchc]

Nat,

Thanks for the response. It's starting to feel that way to me. The arrangement has changed a bit since we originally started and now we are faced with this dilemma. Original plan was the brewery with restaurant concept in the afternoon under our control, but now we are faced with the possibility that we may have to share the very small space and revenues with the restaurant in the evening. I thought there would be some examples out there were a brewery partnered with a restaurant in the concept of a brewpub, but still remained separate from a business standpoint, but maybe it just doesn't happen. I know many breweries allow food in their taprooms, but don't charge, but I was really counting on some food revenue.

I'd love it if someone else could chime in if they've had any experience with this type of thing.

[Brandjes]

Who owns what equipment and what happens to it if one or the other venture fails?


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[frenchc]

Good point. The building owner owns the restaurant equipment. The other party will be leasing it and space. I'll own the brewery equipment and will lease space as well. What I'm struggling with is how to come to an equitable way of splitting operations, costs and revenues. Originally the plan was to have 2 types of operations - breakfast and lunch cafe during the day (run by party 1), brewery/brewpub in the evening (run by us). Party one doesn't know exactly what they want to do, but they don't want the option to do dinner later, so we need to figure out how that would work.

[Thirsty_Monk]

How about all beer sales for brewery and all food sales for restaurant.

Question then is how is rent paid, utilities, water, heating ...

You better have it hashed out before you start.

[nateo]

Even in the best cases a business partnership is all the worst parts of a loveless marriage without the "fringe benefits." if you can't work together in the same company I doubt you'll be able to work together in the same building.

[mashpaddled]

What you propose is a real mess of a situation. Many costs cannot be broken up in a meaningful way that would attribute costs based on the time of day.

There are a lot of unknowns in the relationship and that is going to make crafting a meaningful solution difficult. I think you need to collect more information about the costs and expected profits for each side before you start trying to commit yourself to what could be a terrible deal.

[frenchc]

Yeah, I know it doesn't sound like the best arrangement, but it's what I'm dealing with, so any advice is much appreciated. I figure if anyone is going to have good suggestions, it's the people from this forum. That being said this type of arrangement does sound like a bit of a rarity, so I may have to remain flexible and play it by ear and have a regular negotiation period with the other party. I'm also curious if people feel the brewery will be more of an attraction than the restaurant? My thoughts are the brewery will be quite valuable to the restaurant. But...the restaurant will also be good for the brewery. Which leads me to think alcohol/food split option may be the best.

[nateo]

There are so many problems with this, I can't come up with an exhaustive list. There's a very good reason bars and restaurants operate in the same building under the same management.

But how will you handle wait staff? Who is in charge of them or do you both need your own staff?
How will you divide the overhead?

You say you can renegotiate terms later, but is that really feasible? If so, do you really want to invest a substantial amount of money in such an unstable relationship?

In many brewpubs, the restaurant consistently operates at a profit while the brewery operates at a loss. In others, it's the opposite. How long will you be willing to run a business that's loss-making? How long will your counterpart?

If you're proper business partners you have to work together, and it doesn't matter which part of the restaurant subsidizes the other. In separate businesses, this will sink the operation.

[Bainbridge]

This sounds like a whirlwind of fun.

In college I used to live in a big ol' house with five other guys. It was great, we split the rent, had a badass house near campus, great parties. But then came the electrical bill. "I like my room 56 degrees." "I like mine 95." "I went on vacation and left the window open for two weeks!" Ultimately it became everyone heat your room to what you want, and no where else in the house gets heat because "F-it if I'm going to pay for that!' Then came the kitchen. Ever seen what six guys who don't particularly give a crap about each other and are frequently drunk can do to a communal space? And don't get me started on the bathroom...

Point is, this is just the beginning of the chaos.

You're running the house at night after they've torn it up during the day, what's their incentive to clean? What's yours after midnight if they're taking the AM shift? What happens when your chef gets in a fist fight with theirs because "He moved my #$%&ing towels!!!"

What if someone wants a beer at lunch, or breakfast (and they will.)

What if their food and/or service sucks? People will not think "Oh that's just the morning shift, the evening is totally different!", they're going to say "That. Place. Sucks."

Oh, and don't forget your state and federal liquor control laws. If they're your taps, presumably you can sell your own beer on site. I don't know, Minnesota right? But if they are 'in charge' then they'll be needing to buy your beer from either you or a distributor. How's that going to work if you have a half-empty keg on tap? Going to switch out every shift between yours and theirs? Or record the brite tank level at each and every shift? Then there's the intangible issues. Let's say their staff is lax at checking IDs, overservice, etc.. Liquor Control comes in to spank them. And comes back, repeatedly, to check on them. Only they're showing up to check them at 8:00 on a Friday night and they don't even realize they're repeatedly checking you.

But, thinking outside the box and ignoring all that, I'd suggest you talk to a competent business attorney. Maybe you could arrange some kind of Joint Venture type contract, two companies working toward a common goal, splitting the profits according to some ratio of capital contributed and revenue raised, procedures for joint decision-making (and tiebreaking) and all that other fun stuff. In writing. And be sure to set aside some cash if/when you have to sue them later on.

Can this sort of thing be done? I think it can, with the right organization. For example, Crooked Stave in Denver is part of The Source, a multi-vendor food market space thingy. http://www.thesourcedenver.com/ That to me seems a viable option.

[Montanaandy]

Sharing Space and The Source

I believe that the tenants in The Source such as Crooked Stave each have their own "unit" or "store" which separate and apart from the other tenants. The place has a European market kind of vibe to it where you can go to the bakery, butcher shop, the pub, etc all under the same roof. My recollection the last time I was there is that all of the businesses line the perimeter of the interior and the rest of the interior space is communal (its an old foundry/factory that was gutted). We only visited Crooked Stave and a butcher shop across the way from them so I may be wrong about this.

[larryberlin]

Why don't you just rent space to the restaurant people. Then you'll generate revenue from the rent and if you don't like what they're doing you can give them notice and bring in a new restaurantuer.

[frenchc]

Natgeo/ Bainbridge,

I didn't realize that for many brewpubs, the brewery side actually operates at a loss. These businesses are for profit and will have to make a profit though, so operating at a loss is simply not a consideration for us. We either make it or we don't, there is no subsidizing.

I agree there are a lot of things to consider as well - things about utilities, storage considerations, temperature control, liquor laws, wait staff , carding. Some of these I've considered already and plan to address, but this dialogue is bringing up some good points for me to consider as we do finalize our working arrangement. I like the idea of talking to a business attorney, but....that could be expensive.

larryberlin - interesting thought, but we will both be renting from the owner as we are not the owner.

Thanks for the input and feedback, I welcome it even if it isn't exactly all peachy.