When restaurants fail: Perez to the rescue

Nation's Restaurant News, May 8, 1989 by Carolyn Walkup

When restaurants fail: Perez to the rescue

CHICAGO -- When Jorge Perez opens Mestizo Fonda Mexicana this month, it will be the fourth restaurant he resurrected that others had given up for dead.

"My talent is to renovate something that had no chance to survive; so far everything we have touched is OK," said Perez, who operates J.P.'s Eating Place, J.P.'s at the Claridge, Piazza, and Ah Spuntino, in Chicago, and, in Bloomingdale, J.P.'s, which is temporarily closed. "This is one way for small operators to be in the market."

Typically, the bank that lent money to the previous operator becomes Perez's partner in the new venture. "If I pay the debt, I become the owner," Perez explained.

He also negotiates with the landlords to lower rents that proved too high for past operators. His formula is to pay 5 percent of projected sales in rent.

Another approach he takes is to hold food, labor, and fixed costs to levels that allow a profit margin of 15 percent to 17 percent. "There is only so much margin," he noted, in the restaurant business.

"If something doesn't fit, I don't take it [the restaurant]," said Perez, who has a master's degree in economics from the University of Mexico. "We analyze everything before we buy." Perez said he paid $300,000 for Ah Spuntino in the South Loop, which cost the former owners $800,000 when they opened Orly's there a couple of years ago. "Our margins will be more acceptable," he noted, enabling him to hold down menu prices and, it is hoped, to attract more customers.

Perez prefers to buy restaurants where everything is in place rather than building them from scratch for two reasons: the advantages of lower investment costs and the control of the property that it offers. He encountered numerous cost overruns, construction problems, and delays when he built J.P.'s at the Claridge, he recalled, even though he hired builders with good reputations.

Perez developed his methods of operating restaurants during 20 years of working for others, including a long tenure with Don Roth Restaurants, where he worked his way up from waiter to general manager. He opened his first restaurant, J.P.'s Eating Place on North Halsted Street, in 1984.

While admitting that the transition period from changing over an old restaurant into a new one can be rough, he has found that the advantages far outweigh the disadvantages. He invites the existing staff to stay on, but he does not expect they will stay long because of human resistance to change.

"It's a challenge to make it known that you are a different restaurant," he said. "You have to be diplomatic. Don't destroy what those restaurants built."

By keeping the restaurants open during the transition phase, the staff must "practice" on real customers. Since the staff generally is experienced, this has not proved to be a problem, he said.

Keeping the restaurant open also gives longtime customers a chance to adjust to the new concept. A few may not return, but Perez and his managers work hard to learn what they like and to encourage them to try new menu items.

"The small operator has more sensitivity to meet the needs of the people," Perez said. Before buying a restaurant, Perez thoroughly studies the market and adapts a concept to fit it.

In the case of Ah Spuntino, Perez chose a concept that features the same menu all day and encourages light eating or snacking. By aiming for a moderate check average of $12 and serving familiar Italian food in an informal setting, Ah Spuntino offers something for everyone from neighborhood residents to business people to theater goers.

"This neighborhood is not yet in its prime," Perez commented. "It's coming. Therefore, he did not try a more pricey destination style.

Mestizo, Perez's first Mexican restaurant, will specialize in regional Mexican food not commonly found in Chicago restaurants. It also will have check averages in the $12 range and have late-night kitchen hours to attract the River North area's club goers and restaurant workers.

Perez hit upon that idea after finding the city's Mexican restaurants "mobbed" at 2 a.m. but understaffed and unable to handle the business, he said.

The highest dinner check average in Perez's restaurants, $25, occurs at J.P.'s at the Claridge because of its Gold Coast hotel and neighborhood clientele. The average falls to $20 at J.P.'s on North Halsted, although the menus are nearly identical, featuring an eclectic assortment of seafood, steaks, international appetizers, and Mexican dishes.

Perez prides himself on offering good value, quality, and friendly, rather than overbearing, service. "We know in our hearts that our concepts are comparable with the best," he said.

To encourage his managers and chefs to share his pride of ownership, he gives them a share of the profits. "My organization is like a family," he claimed, a family that thrives on close daily communication.

His goal is to harmoniously blend employees in all sections of the restaurant. "You can't have a great waitress and a lousy kitchen or a great kitchen and a lousy waitress," he said.