Monday, October 21, 2013

Help Me, Obi-Wan Cooley; You're My Only Hope


PJ just can't get himself any favorable press coverage:


A sobering effect: As bars, restaurants pop up, longtime Corktown biz struggles
Paul "PJ" Ryder is at an entrepreneurial crossroads: He loves doing business in Detroit but is struggling to make ends meet, having been denied bank loans to help relieve some debt obligations. So he is considering selling his rock 'n' roll dream.

After all, his Corktown business, PJ's Lager House, made a profit of just $1,000 last year.

Ryder, 59, is one face of reality within the Detroit restaurant and bar industry, even as new eateries and watering holes are popping up in some of the city's thriving neighborhoods such as Midtown and Corktown. And establishments just a stone's throw away from the Lager House, such as Slows Bar BQ and Sugar House Bar, are by all appearances doing a booming business.

"I owe just about what I owed when I bought the place," said Ryder, who will celebrate his six-year anniversary on Oct. 23. "Usually people say, 'Well, I'm not making any money,' but there's usually something they take home as the owner, as the manager, as the person who is working there every day. I still have not been able to pay myself anything in six years. I'm living off the kindness of my wife, Donna."

He's being talked off the "just sell it and move on" cliff by his wife, friends, family members, real estate agents, Corktown business neighbors, his accountant and, of course, by the bar's patrons. None of them want to see the neighborhood joint, with its low-key vibe and beer-and-whiskey attitude, close. Now is not the time to sell, they say. They encourage him to stay and fight for Detroit. But those words aren't helping him pay the bills.

Ryder has more than $30,000 in credit card debt, money he used to open a kitchen three years ago. Although he never wanted to be in the restaurant business, when Michigan's smoking ban went into effect in 2010, he realized he would need more of a draw than just music and booze. He also owes $24,000 in back taxes, mostly sales tax.

PJ's brought in $481,000 in sales in 2012, all of which went right back out the door in the form of running the business. Here's a breakdown: His cost of goods, including beer, liquor, food and music: $242,000. Wages: $108,000. Sales tax: $27,000. Rent: $58,000. Business fees: $13,000. Other expenses, such as bar supplies, T-shirt printing and paying his accountant: $32,000. His total expenditures were $480,000.

Ryder has been trying to borrow $50,000 to $60,000 from Bank of America to keep things afloat, but has been denied. Early on he was told that he had to be in business for at least two years. Check. Then he was told that he needed his sales to top $250,000. Check. Just two weeks ago, loan officers said his business must make $1.25 in profit for every $1 being spent to run it. That's a far cry from his 2012 profit of $1,000.

Still, other entrepreneurs aren't discouraged. At least eight new Corktown restaurants have opened or are scheduled to open this year, including Motor City Wine, Ottava Via, Rubbed, St. CeCe's Pub and the Detroit Institute of Bagels. But many of the new businesses are clustered up the street and are within walking — and parking — distance of each other, while PJ's is stranded on a block closer to downtown, his only neighbors the not-yet-open bagel shop and breakfast/lunch-only Brooklyn Local.

"One person's story doesn't necessarily indicate the state of the industry — we are seeing that the industry is definitely growing," said Adriane De Ceuninck, vice president of marketing and communications for the Lansing-based Michigan Restaurant Association. "We've hit the bounce back from the economic downturn from 2008 and 2009. We have several members extending their current businesses, opening two or three additional locations."

De Ceuninck said Detroit is an interesting case study because there's a mix of bars and restaurants that have weathered the storm and been in business for decades, while there's also an explosion of new establishments trying to find an identity.

Ryder said he believes Detroiters just assume he's doing good business because the Lager House, which employs about a dozen people, has been a Corktown fixture since it opened in 1914 as a bakery and restaurant. There have been various versions and owners of the space, but because it's been at the same location and open for so long, he thinks it might get overlooked.

"What we need is more people," he said. "I love that all these places have opened up, but I wonder how they are going to feel three years from now if their cash reserves have been depleted like our cash reserves have and they begin to wonder, 'How do we increase business?' "

Erik Melander, Ryder's accountant, warns that profit expectations need to be tempered in the bar and restaurant world.

Lager House sales have been flat in 2013, but Ryder has grown the business every year since it opened. He said Ryder is undercapitalized — he has too much debt and not enough profit — like many other restaurants around town. Still, he continues to watch them open.

"I call it the 'starry-eyed effect' — there are people who just want to own a business and decide they want to open some place where all their friends can hang out," said Melander. "You see a lot of people getting into business for emotional reasons instead of economical ones."

Phil Cooley, co-owner of Slows, which opened in 2005, has a connection to PJ's — he worked as a weekend janitor there when he first moved to Detroit in 2001-02. Ryder did not own the bar then. Cooley praised the current menu and said a live music venue is needed in the neighborhood.

"Most of the places opening up seem to be doing fairly well, but that doesn't mean that everyone is doing well," Cooley said. "There was definitely skepticism when we opened up, but it's certainly better than it was. There is more optimism about Detroit's future and doing business in Detroit.

"I hope PJ sticks with it, and I hope that he becomes more profitable," he added. "The investment he's put in it has been really great. I know that we all in this neighborhood have struggled in many ways. We spend money every year on security that you wouldn't normally have to. There are additional costs of doing business here. There's a lot of upside, but I don't want to ever make it seem like it's easy."
 
The solution is so simple. Sell the business to Phil Cooley. The first priority to owning a successful business is to control what everyone says about you. Cooley has that covered. He knows all the voodoo incantations necessary to insure that people only say good things about him in all of the places that matter. Every time he takes a shit, it gets good press coverage.

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