Vanishing act
By : Celia Barnes
The waiting game: Amid the economic gloom, restaurant owners need good news to bring back customers.
Tsarina was one of Warsaw's most expensive restaurants two years ago. Customers such as tenor Jose Carreras, Prime Minister Jerzy Buzek and film director Roman Polanski dined within its gilded walls and they would have been lucky to get out of there for less than $150 a head.
But book a table for dinner tonight at Tsarina and you'll know exactly what you're up for a set menu of nine courses for zl. 99. And chances are there will only be a handful of other guests dining there.
Like the economy, Poland's restaurant industry is feeling the pinch. During 2000, Tsarina's owner one of Poland's most high-profile restaurateurs, Magda Gessler says the number of customers dining at her lavish restaurant in the heart of Old Town has fallen by 30%.
She no longer uses the word "aristocratic" to describe Tsarina's pre-revolutionary Russian cuisine. Instead, Gessler says she's turned it into a "people-friendly restaurant" backed up by a glossy three-month advertising campaign in Playboy, Elle and Viva magazines.
"There's a huge recession, a huge crisis in Poland and I've had to change and that's why I've made the restaurant cheaper," she said.
"People here have started counting money and they know what they have and if they can afford to spend.
"What we used to have was a 'nouveau riche' kind of philosophy and it's all gone now."
Forbidden fruits
In the heady days of growth following the fall of communism in 1989, restaurants other than the local restauracja or Bar Mleczny started opening and for the first time Poles could taste the forbidden fruits of foreign cuisine and ingredients imported from the West.
"Up until then, in Poland there was nothing like Chinese, French or Italian cuisine," said Piotr Bikont, who has been a food writer for the past 10 years at Gazeta Wyborcza daily.
"You practically got the same in each restaurant and each dish had to be approved by some kind of government authority. How thick a pork cutlet should be was stated in the administration law, or how much coffee you could put in a cup of coffee."
According to statistics published by the Central Statistical Office (GUS), during the 1990s the food industry was the biggest sector under the hammer for privatization, with 96% of today's food establishments being privately run. Service and quality began to improve, and as more Poles traveled abroad, their notion of what a Western restaurant should be also evolved.
"People experienced new food and they got a much greater choice and therefore much greater knowledge and expectations," Bikont said.
By 1999, GUS estimates there were 6,425 restaurants operating in Poland. Profits from the food industry that year (including restaurants plus cafeterias, bars and food stands) totaled zl. 6.7 billion ($1.7 billion), and the hotel and restaurant sector employed almost 226,000 people.
But as the economy's growth slowed during the past two years, the picture that emerges after speaking with industry players is that the number of people dining out is also slowing.
Expats traditionally big spenders in Warsaw's top restaurants have been declining in numbers since the Russian crisis of 1998 and the figure has dwindled further in the past year.
The loss of high-paying customers has hit restaurants at the expensive end of the scale. And the general opinion is that things won't improve for another two to three years.
With this in mind, Magda Gessler recently helped her fiance, Mariusz Diakowski, open an inexpensive cafe, Zielnik, which she says is full every night. Likewise her cakeshop-cum-cafe, Slodki Slony. Her flagship Polish restaurant, Fukier, is still expensive, but Gessler says that's because it's found its own upmarket niche.
"I have to fight for business 10 times more than I used to," Gessler said. "These cheaper restaurants are my answer to the crisis because I know that lower prices are all that people can afford."
According to Warsaw restaurateur Marcin Kreglicki, these are some of the toughest market conditions he's experienced since opening his first restaurant, Mekong, in 1989.
Back then, as one of Warsaw's first Asian restaurants, every night Kreglicki taught his curious customers to use chopsticks for the first time. He struggled to find fresh ingredients, and to manage the ongoing problems with the immigration department to allow his Asian cooks to work here.
Today, the customers have dried up and he's wondering what he can do to keep Mekong's doors open. Like his other restaurants, El Popo, Santorini and Chianti which opened in the seven years following Mekong Kreglicki estimates business has dropped by around 40% in the past 18 months, and profit margins have halved.
"The competition out there is very strong now," Kreglicki said. "There are so many restaurants in this city and we don't have as many guests as before."
For some reason Mekong has been particularly badly hit. He suspects that Asian food has become passe to Varsovians, who can now eat everything from Cuban to kangaroo any night of the week. And then there is the question of quality. Kreglicki is the first to admit that Mekong's recipes aren't always true to the original, so he has found a new chef, recommended by the Polish consul in Beijing.
"This chef comes with high recommendations and we plan to renovate the interior of the restaurant and do some advertising," Kreglicki says. "We're sure we'll get more customers. We really want to take better care of Mekong because it's the base of our business."
Kreglicki has another concern on his mind: Two years ago, when business was booming, Kreglicki and his sister and business partner Agnieszka bought three properties for three new restaurants. But the economy has slowed their plans. In October they will open their new Greek restaurant and perhaps in late 2002 they will open their tapas bar and an internationally flavored signature restaurant will follow. He estimates it costs around $1,000 per square meter to decorate and equip a restaurant.
Real estate conundrum
While Kreglicki won't talk about purchase figures, he says they paid out a lot of money for the properties when the commercial real estate market was overheated. Now they've been stung again since property prices plunged.
"Compared to what we paid two years ago, if we bought those properties now, we would be paying much less," Kreglicki said. "But that's the market.
"We decided two years ago that compared to our profits at the time, we were able to run these restaurants, buy them and equip them. And we are still (financially safe). We don't say we are winners and we may have to take a bank credit now."
In the current economic climate, he anticipates it will take his business another three to four years to recoup the money laid out for these investments.
One restaurant that caused a brief flurry of excitement on the market was Va Banque. Opened in August 2000 in the modern BRE Bank building on ulica Marszalkowska, it had a slick design of soft lighting and glass. It closed in February this year.
Va Banque's marketing and promotion person, Roma Gornicka, believes the recession is being felt by the vast majority of Polish restaurants.
"There are too many restaurants in Warsaw for the needs of Varsovians," Gornicka said. "And because new ones are still being set up, the owners need to create something new and interesting to attract customers. If they don't, then they obviously don't know the market very well."
When the economic dust settles, Gornicka believes the restaurants remaining will be those that already have a strong customer base, or small restaurants that aim for quality meals at cheap prices.
While she won't comment on any specifics of why Va Banque failed, she will say that the main ingredients for success are a restaurant's location, the atmosphere and the experience of the owner.
It is this lack of experience that the Polish Agency for Enterprise Development (PARP) cites as a major cause of failure among small businesses such as restaurants.
"Financial management and marketing are the two main problems," said PARP's chief executive officer, Krystyna Gurbiel. "Usually the owner is well educated or well skilled in the technical aspect of their business, but not in running a business."
More than 71% of restaurants fall under the category of small businesses, employing 50 people or less. Gurbiel believes the soon-to-be-released 2000 statistics will show a reduction in the number of small businesses, plus a decline in their profitability and employment rates.
Gurbiel says the other big stumbling block for restaurants is Poland's high labor costs. More than 66% of small businesses cited ZUS payments as their heaviest burden, followed by VAT and profit tax.
"And this is why in SMEs unofficial employment is the most common," Gurbiel said. "That's their way of avoiding this problem."
Paying the price of labor
For one of Warsaw's newcomers, Soma, labor costs are a big factor. Opened in June 2000, this restaurant/bar/microbrewery employs 55 people, and, says co-owner Alexander King, the cost of complying with the labor code and ZUS payments represents up to $10,000 per month.
"I would say that as somebody operating a small business here, the single biggest thing that needs to be rectified is the labor code and social security system."
In-crowd: Soma succeeds by catering to Warsaws trendy circuit.
King, who opened Soma with business partner and fellow American expatriate Andrew Hope, said the process of finding investors to fund their business plan was "not as hard as one would think."
"But basically banks don't touch this kind of investment," Kind said. "It's too risky." Instead, they raised their money by selling equity to friends.
"As a ballpark figure, to open a restaurant this size, with a brewery in it, takes about $1 million," he said.
While they had the money, bureaucratic delays ensued. In particular, problems with changes to the excise tax laws on alcohol. Soma's microbrewery was an anomaly, requiring the tax office to create new regulations for this specific case. The brewery opened 11 months behind schedule.
The mafia, says King, also still poses a financial threat to restaurants in Warsaw. "It's definitely out there," he says. "There's no question about it and it's important for every business to take precautions against its main risks and to have security procedures."
But King's hard work has paid off and on any given night Soma attracts a big crowd of trendy 20-somethings. The venue recently won City Guide magazine's top award for being the best new place in Warsaw last year.
While King says business has slowed and that people are spending less when they do go out, he believes Soma will begin making a profit within the next two years. And he's not the only one who is looking at the future with rose-colored glasses.
Food writer Bikont is careful to point out that Poland's restaurant industry will always have one thing in its favor. "And that is that Poles are a nation of people who like to spend money going out and eating and drinking.
"I don't believe much in national features, but the strong difference between the ways Poles and say Czechs or Germans spend life, is that Czechs and Germans would rather stay home while Poles like to go out.
"That's why it's a good market for restaurants."
