Ebb & Flow

The financial realities of running a restaurant

Illustrations and Photography by Emma Meskovic

“There’s an ebb and flow to everything,” says Ed Cabigao, co-founder and CEO of SOB Hospitality.

And right now, he says, the restaurant industry is in the deep ebb part of that ebb and flow. It’s why customers are seeing higher prices on restaurant menus. It’s why you may see hours changing at your favorite spots. And it’s why some restaurants are seeing no option but to close their doors.

But why is there such a seemingly constant ebb and flow to the restaurant industry? What financial realities do the people who own your favorite spot face day in and day out? And what’s unique about this moment in history for local restaurant owners? We sat down with Ed Cabigao for his perspective. Ed and his wife, Brittany, have been in the restaurant business since 2009; they founded SOB Hospitality, which includes South of Beale (three locations), The Liquor Store, Hen House, and Bangkok Alley.

In 2009, the couple opened South of Beale—and quickly realized they were facing a steep learning curve. “When we opened SOB, it was blindly from the financial lens, which I would not advise anyone to do,” says Ed. “We had worked in the restaurant industry, but had not been privy to industry standard metrics.”

They spent much of that first year researching and aligning their business strategy with industry standards. They learned that, ideally, for every dollar a restaurant brings in, about 30 cents should cover food and alcohol costs, 30 cents should go to labor, 20 cents takes care of fixed costs (like utilities, linen, office and cleaning supplies, smallware, and more), and 10 percent goes to occupancy costs, i.e., rent; the 10 cents left is profit. 

When times are tight or something goes wrong, restaurateurs often look to those two 30 percent figures—food and alcohol costs and labor—as places where they can make up a deficit. “Most restaurants focus on that 60 percent because managers can directly affect that based on how they schedule and what they order,” Ed says.

They also learned about details like the sales-per-square-foot metric. “If a restaurant is doing $300 per square foot for the year, they would be breaking even; profit margin would be 3 to 5 percent. If you’re under that, you can’t make the metrics work,” he explains. “If you’re hitting $400 to $500 per square foot for the year, you’re probably hitting a 10 percent or so profit margin and feeling more comfortable. If you’re selling $700 to $1,000, that’s a really strong business.”

Then they learned to forecast—projecting expenses week to week, quarter to quarter, and year to year. “Food costs and taxes were the biggest liability looming every month,” says Ed. “And payroll for every business can be a challenge in terms of making sure we have the right amount of people for the right amount of business.”

At the time, South of Beale inhabited a 1700-square-foot space. “The size was easy to manage and learn on the fly,” says Ed. “But the first year was the school of hard knocks.”

Once they had the basics down and SOB became financially successful, Brittany and Ed started thinking about how their daily lives could be less tied to the grind of restaurant work. Restaurant profit margin was running between 5 and 15 percent. “Based off of that, we couldn’t hire managers and still have enough profit margin to live off of,” says Ed. “We knew we had to expand in order to reach that scale so there was enough profit margin to work on the business as opposed to being in it.”

That’s when SOB Hospitality was born. They eventually opened two more South of Beale locations and acquired The Liquor Store, Hen House, and Bangkok Alley. 

They also opened Zaka Bowl, a fast-casual restaurant. “That was our first taste of financial struggle,” says Ed. Zaka Bowl wasn’t making enough sales to keep up with fixed costs. And just when things seemed to be improving, Covid came along. “That took the wind out of our sails,” says Ed. Like many restaurants, Zaka Bowl didn’t survive the financial challenges of the pandemic.

For the restaurants that have survived, life hasn’t been the same. Food costs, rent, and labor are more expensive.

“The price of food is just higher; it outpaces how much we can charge for it without being seen as too expensive,” says Ed. 

Rent pre-Covid was more affordable. “Nowadays, as a restaurant leasing, it’s hard to feel like we’ve gotten a strong deal,” he says. 

But Ed is a landlord, too, so he understands the other side of the coin: “The interest rates are terrible; they have to charge that just to make their mortgage note.”

Labor costs are also higher. “Post-Covid, it’s almost like labor is about 35 percent [of the income a restaurant brings in],” says Ed. “If you don’t do anything different, our 10 cents [profit from every dollar] becomes 5 cents. If you’re only making 5 percent, you’re really breaking even. At that point there are no funds for surprises, like when you need a new HVAC system or you’re closed for a week for a snowstorm. Now we’re looking at questions like, do we get cheaper food products? Or do we up our prices to make our food costs go down to 25 percent? That’s where guests are feeling it. We either have to have higher menu prices or food that isn’t as good as it should be.”

Many restaurants experienced a boom in business in 2022. “For us, the first half of 2023 was also great,” says Ed. “But even though our sales were up, our profit margin was still 2 to 8 percent because of higher costs.”

But the last half of 2023 was a different story. “All the concepts took a hit when it came to sales,” says Ed. “Other restaurant owners felt the same thing.

It’s an economic issue. People are not dining out as much, and when they do, they’re being more discerning.

Still, after 15 years in the restaurant business, Ed believes things eventually will look up. “We definitely treat it like it’s more of an ebb and just something we need to ride out,” he says. “But I do feel like the new reality of the restaurant industry is that the profit margin target will be much lower than it was in the past.

The new reality is that labor will continue to go up and food costs might stabilize, but I don’t think fixed costs will go down.”

So what’s a restaurant owner to do as he rides out a deep ebb while also adjusting to hard realities that aren’t likely to change?

“The only thing we can control is how good our product is and how good our service is,” says Ed.

“As long as we’re controlling what we can control, that’s how we’re trying to ride out the ebb we’re in right now.”

For SOB Hospitality, that means getting back to the basics with ongoing training for front and back of house staff and making sure they have the right systems and processes in place. “We want to make the job as frictionless as possible so staff can focus on the guest,” says Ed.

And Ed looks at the fact that they own multiple concepts as risk mitigation. “We have seven locations, so if we have one or two stores that aren’t doing well, at least we have five that are doing well,” he says.

As he considers other restaurant concepts for the future, he knows he’ll need to simplify. “A lot of it has to do with being smaller and leaner,” he says. A smaller, leaner restaurant might have a concise menu with cross-utilization of ingredients, leading to lower food costs for the restaurant without compromising quality. 

It would have a smaller square footage and, therefore, lower rent. “If I’m spending $200,000 in rent, at minimum my restaurant needs to sell $2 million a year just to feel like we’re meeting industry standards,” he says. “That’s a hard metric to hit.”

Smaller square footage also means lower staffing needs. “In 2,000 square feet, you can have one manager; in 5,000 you need two,” he explains.

So what might Ed’s restaurant-of-the-future look like? “If we were to open up anything else or acquire another restaurant, it would be smaller square footage, a more concise menu, really great service, and a really great brand,” he says. “You can still make it as a 5, 6, or 7,000-square-foot restaurant, but the chances are really not as strong.”

Despite the challenges—and the fact that the industry is likely never to return to where it was just a few years ago—the restaurant business is exactly where Ed wants to be. 

“I love working in the restaurant industry. I love what we’re doing—being able to create or take over a concept and shepherd it to our guests and our community. There’s something really rewarding about that,” says Ed. “It’s definitely worth it—and it is a lot of work!”

Monique Williams, Biscuits & Jams

A relative newcomer to the restaurateur world, Monique Williams is creator, co-owner, operations partner, and chef at Biscuits & Jams. Its original Bartlett location opened in August 2021, and she’s planning for a second location to open soon in downtown’s Hotel Indigo. 

Before she dove into restaurant work, Monique spent 26 years in clinical research, so she naturally looks at her business from a project management and logistics standpoint. For 2024, that means focusing on streamlining costs and waste—in supplies, food, and labor. As they prepare to open a second location, policies and procedures are particularly important. “If you’re chaotic in the first location, it’s gonna be worse in the second,” says Monique.

Even with her careful planning, Monique couldn’t anticipate that January 2024 would include several days when the restaurant couldn’t open its doors because of a snowstorm. “You’re already in a month that’s quite slow. They always say ‘dry January’ in reference to alcohol, but from a restaurant standpoint, it’s with customers coming through the door,” she says.

Before that unexpected closure, her restaurant was bringing in less revenue than she had anticipated for the month, but it was still passable. But the closure made them have to pull from their reserves to cover costs. 

“As much as our team and I enjoyed and needed the rest, nobody made money—and I’ve got to make money,” she says. “From that aspect, it didn’t kill us, but to a certain degree we’re sort of hanging on like anybody else.”

They delayed expenses that could be put off, like the purchase of a new kitchen inventory system. And though Monique usually doesn’t work in the kitchen anymore, she did during January, just to cut down on costs.

So in a business where Monique has to carefully consider every penny she spends, where does she choose to invest? In her people.

“Your people are your most valuable asset,” she says. “The goal is to find good people and keep good people—to pay them their worth and provide them with the training they need. We cannot grow our business without our people.”

She says she’s seen other businesses with blueprints for success that ultimately fail because they don’t invest in their employees. “A lot of time in small businesses, we don’t want to invest in our people,” she says. “We think, ‘I’m not making money, so why should they make all the money?’”

Monique is so committed to investing financially in her team that, when she first opened Biscuits & Jams, she returned for a time to her clinical research work so she could invest all of Biscuits & Jams’ revenue back into the business rather than paying herself through the restaurant. 

She’s built leaders into her business who get paid at a higher wage. Her kitchen leaders help develop SOPs (standard operating procedures). And employees are paid to do online training at home. “To have a business that is going to be profitable, likable, organized, and operational, you have to do those things and foot that cost up front,” she says.

For Monique, investing in employees is about more than growing a successful business. “I look at it as part of my ministry, part of my purpose,” she says. “The majority of my staff are in their early to late 20s. I’m growing up leaders. Whether you stay with me or not, when you leave here you’re going to know a lot—and most of it is going to be good.”

Ryan Trimm, Across the Board Restaurant Group

As an owner of Across the Board Restaurant Group, Ryan Trimm has his hands in a lot of different parts of the restaurant industry. He serves as head chef and operator at Sunrise (a fast-casual spot with two locations), Belle Tavern, and 117 Prime (a traditional steakhouse), in addition to his work with Across the Board Catering.

“A restaurant is a cash-flow business,” he explains. “You’re constantly buying and selling. I buy what I need to get through the weekend. Then I use it up and buy more.”

It doesn’t take a lot to throw that system out of whack. When the January snowstorm happened, for example, no trucks were able to get to his restaurants with supplies. “There was nothing to sell anybody,” he says.

At the same time, their liquor tax was due January 15. Then sales tax was due on the 20th. And they still had to make payroll. “It was really tough; loss of sales at all locations is a gut punch,” he says. “We had to dip into our emergency fund.” 

Like Monique, Ryan makes his employees his priority, even when times are tough. “The most important thing you have to do before anything else is pay your employees; I always make sure they’re taken care of,” he says. “After that, you have to pay the government. Then after that it’s rent.”

For Ryan, paying employees is more than just a paycheck. They offer insurance and paid vacation and strive to create an environment that people like to work in. Wages have increased significantly in the last few years too. “People are starting to realize their self-worth. For a long time, people were getting away with paying less for labor. Now people are saying, ‘$12 per hour isn’t enough to cook soup all night; I want $18.’ I say, ‘Ok, you’re worth it.’” 

Though Ryan believes his employees should be paid what they’re worth, the reality is that wage increases have significantly raised the price of doing business. Food prices are much higher than they used to be too—and seem unlikely to go down. “I hate to blame things on Covid because that’s a cop-out, but pricing on food and everything that comes with it has not been the same since,” he says.

They’ve had to raise their prices to keep up with their increased cost. “I can’t lose money,” says Ryan. “This is a business first. I can’t charge you less than I pay for it.”

Ryan says making a profit is harder than it’s ever been—especially in fine dining. “Eggs are cheaper than steaks, period,” he says. When the cost of the product—like the steaks at 117 Prime—is so high already, it’s difficult to charge enough to make a decent profit.

“Fixed costs are also more in fine dining,” Ryan explains. “That linen tablecloth costs a couple bucks to clean, towels are 11 cents, napkins are 10 cents. This is a nickel-and-dime business. There are the candles on the table, the coat check at the door. You don’t just pay for the oyster; you pay for the guy shucking it. This stuff adds up. And electricity, water, and gas add up as well.”

Ryan knows the increase in menu prices has been jarring for customers. And at Across the Board, they’re working to keep those prices as low as they can. “But try to be a little understanding that we’re not ripping you off,” says Ryan. “We’re trying to make money just like anybody else.”

Jimmy Gentry, The Lobbyist

His years as the longtime owner of Paradox Catering & Consulting, P.O. Press Public House & Provisions (now closed), and The Lobbyist—which opened downtown in 2023—have made Jimmy Gentry an optimist.

“We’re restaurant people; we’re always going to be optimistic to some extent,” says Jimmy. “You always have to think tomorrow is a better day.”

But downtown’s current restaurant reality is challenging his optimism. “Over the last six months, there’s a perception that downtown is the Wild Wild West,” he says. 

That perception has led to a significant decline in restaurant clientele for The Lobbyist and many other downtown restaurants. “Does it stretch us? Completely,” he says.

In 2022, many restaurants saw a major uptick in customers, and Jimmy expected that trend to continue after the opening of The Lobbyist. What he didn’t expect were the headlines that have led to many people being afraid to visit downtown. “We opened well, but right after we opened, more of that perception came about,” he says.

Now The Lobbyist relies heavily on nights when events at the Orpheum and FedEx Forum bring more diners downtown. “As of now, they’re our saving grace,” he says.

Still, ever the optimist, Jimmy believes his situation downtown—and the challenges the restaurant industry is facing in general—is temporary. But if it continues, he says he’ll get creative to keep the business running.

In the meantime, Jimmy hopes more people will return to downtown dining and to the accessible experience The Lobbyist has worked to create. “If you overprice yourself to make it, you start running off a lot of your clientele. We like to stay in that middle area where you appeal to more people but give an elevated experience,” he says. 

Working with local farmers has helped them keep menu prices down. “We do raise prices if our costs are more expensive, but we haven’t seen that as much,” he says. “The local farmers are steady.”

And when diners decide where to spend their dining dollars, he hopes they’ll choose local. “I love good fast food as much as anyone, but most of those businesses very rarely give back to the community,” he says

It’s often local businesses like The Lobbyist that invest in their neighborhoods—and he hopes the community in turn will support those local businesses.

Manda Gibson is copy editor at Edible Memphis. She loves the whole storytelling process—from getting to know all the wonderful people she interviews, to weaving together a story, to being entrusted with editing other writers’ work. 

Emma Meskovic is a digital content manager, illustrator, and super fan of this publication who loves taking photos of her food. @emmamesk