High costs felt in every aspect of doing business
In Kyiv, where the real estate market continues to boom and systemic corruption means rental agreements are often only as good as the paper they’re printed on, it would seem logical that ex-pat restaurateurs would be reeling from rent hikes in a city that has already put a French butcher out of business in recent months. But not necessarily, at least depending on who’s talking.
In fact, it seems the uneasiness in the market and increased talk of an impending real estate bust have had little effect on foreign restaurateurs, at least long-established ones like Joel Frantz of Gorchitsa.
Frantz, who has been in the restaurant business here longer than anybody, has seen it all, price-wise. Since he helped open Kyiv’s first French restaurant, El Dorado, back in the early 1990s rents have ebbed and flowed – from sky-high to pitifully low during the Russian financial crisis at the end of that decade and back up to the high prices seen today.
“Rents might be high right now,” Frantz says, “but that doesn’t mean I’m not able to make a profit.”
Frantz, whose restaurant occupies a central location in the city’s prestigious Lypky neighborhood, says that he pays less in rent than many surrounding offices because of a deal he struck last year with his landlord.
When Frantz’s Ukrainian landlord proposed a rent increase of 75 percent, the Frenchman balked. The property had been poorly managed before by a previous tenant and had lain inactive for as much as years at a time. Frantz reasoned with the man, saying it would be better for him to earn less money more consistently than to earn more in the short term, but without guarantees of future income.
The rent Frantz pays at Gorchitsa has been agreed to, and gone up since last year, but he says he’s been able to manage the difference. Of greater concern to him now are things such as produce and meat, prices for which have gone up at least 20 percent in the last year, and gas price hikes, which he says have already impacted his bottom line.
Stories echoed
Mike McDermott, the head chef and manager of Limoncello Fusion restaurant, part of the Happy Days group which includes Shooters nightclub and Shooters Catering, and Desmond Reid, the general manager at O’Brien’s Irish Pub, tell much the same story as Frantz.
McDermott says higher rents in other parts of the city have led him to double staff salaries in just 12 months because of the growing cost of living in Kyiv, and also to prevent poaching of staff from some of the many restaurants that have opened in the city since last year. Reid noted having the same problems with regard to his staff, as did Robyn Attryde, general manager at Golden Gate pub.
What’s more, the increasing cost of imported foods such as fish, canned goods and even furniture has made McDermott – and not only him – turn to local suppliers for local solutions in order to cut costs. Attryde and McDermott also mentioned the problems some local suppliers are having keeping up with rising costs.
McDermott, a Virginia native and veteran of the Moscow, Donetsk and Odessa restaurant scenes, talks with some incredulity about how downtown restaurants manage to survive.
“Rents are so high downtown,” McDermott says, “that some of them are paying $10,000 a month in rent. If they’re just starting out, it’s going to be hard to turn a profit.”
Olha Nassonova, a leading Kyiv restaurant consultant, says she cautions new restaurateurs to do their homework before starting out. Rents are high, but a properly done business plan and a good understanding of the market will ensure that this is taken into account.
“It’s important for restaurateurs to understand what they want to accomplish and where,” Nassonova says. McDermott adds that many new restaurants in the city center are opened by rich Ukrainians who have little concern with turning a profit.
But speaking of legitimate restaurateurs starting out, McDermott says the high rents downtown will likely mean they’ll open smaller restaurants outside of downtown. But conscious of the McDonald’s restaurant development policy, he and Frantz individually echoed the fast-food giant’s familiar mantra: The three most important things in starting a restaurant are location, location and location.
Dane Kristian Jensen of local restaurant supplier Jan Jensen Foods says low rent outside the city center was one of the keys to the opening last year of two locations of another business venture of his, Danish Bakeries. One location opened in Podil and the other on the city’s Left Bank, where rent is 80 percent lower than in the center, he says.
“Our concept is to open in residential areas, so downtown rent prices are not a factor.”
Improvements seen
On the upside to the rising costs, Frantz says he’s noticed a more deliberate, tolerant tax inspection policy put forward by the new government of President Viktor Yushchenko. Whereas under the regime of former President Leonid Kuchma tax inspectors would look for any breach of tax policy, Frantz says current tax inspectors are looking for gross violations and generally trying to establish mutually acceptable standards of business conduct.
Jensen, who has been a restaurant supplier here for 10 years, says 2005 was a breakout year for his business, as the new government helped “level the playing field” with respect to clamping down on illegal businesses and decreasing duties on many items, including frozen seafood products for which there are no local producers. In general, he says, he’s quite happy with business these days, price increases nothwithstanding.
Reid at O’Brien’s says he’s also seen a noticeable shift change with the practices of the new government. What’s more, he says standards are increasing in the industry and choice is improving – both good things, in his estimation.
“While I’ve lost some customers to many of these new places over the last year, this has been offset by the number of new ex-pats we’ve seen here since the Orange Revolution,” he says.
Like Frantz, Reid says rising food and beverage costs are his biggest concern these days. He says it’s difficult to strike a balance between keeping prices low on key items while still managing to keep his margins stable. “People think we’ve got heaps of money in this business, but it’s not true,” Reid says. “We’re all just trying to make a decent living.”