The Beer's Great, But . . .
The headline over Inc.'s restaurant review forecast at least a few dark clouds over Sieben's River North. The beers created at the woody, tavernous, grab-a-pitcher-and-pull-up-a-bench Chicago restaurant were wonderful, but dinner? "A disaster.'
Indeed, food was the red flag that drew all our commentators' attention when Sieben's was profiled last April. "If the food doesn't maintain the same quality and standards that the beer does, there'll be problems," predicted one. For while the six general partners financing Sieben's aimed to brew a beer for the connoisseur, they also were setting out to fill a large, 398-seat restaurant. The concept of chugging a fresh pint in a noisy hall had cachet enough to draw the crowd when Sieben's was new, but it was the rest of the operation that would be relied on for the longer-term pull.
Unfortunately, the rest of the operation did not deliver in Sieben's first year. Instead of turning $54,000 profit on $307,000 sales in November 1988, as the managers had projected in our article, Sieben's lost $40,000 on sales of just $138,000. The company was $150,000 in debt.
Location and concept can't be blamed. Other restaurants now dot the block, and evening crowds fill the streets. Merging a brewery and a food operation has proven to be a popular strategy, with three brewpubs opening in Chicago since Sieben's did, and 69 operating nationally at the end of 1988, compared with 29 a year earlier.
The problems began with food costs. Starting at 49% in the company's first months, they roller-coasted down to the targeted 36% last spring, then crept back up to almost 50% over the summer and early fall. Bill Siebel, president of the general partnership for most of 1988 and operator with his brother, Ron, of the nation's top brewing school, Siebel Institute, says it was the general manager and chef who dropped the ball, failing to cost out the menu properly and oversee the food in the kitchen adequately.
As costs were going up, sales were steadily going down. Food quality, by all accounts, was spotty at best. Service was mediocre. But it was management turmoil that brought the most trouble to Sieben's. Jim Krejcie, the entrepreneur who championed the brewpub into existence and put together its team of financial partners, was fired as general manager in late 1987 by a majority of the group. Several months later Laurel Hanson, a consultant brought on to help Sieben's coordinate its opening, was handed Krejcie's old job because of her "restaurant experience' -- yet even she concedes that her strengths were not in day-to-day operations. Hanson, in turn, says the board lacked direction and was plagued by infighting, personality clashes, money disagreements, and an unwillingness to let her make key personnel changes. Krejcie, who remains a partner, adds that the restaurant lacked a clear focus: "At one point it was a German beer hall with Cajun food and jazz music. Talk about confusing the public.'
By September Sieben's was losing almost $10,000 a week. Hanson was removed, and the partners began looking for more capital. Ultimately one partner, based in Texas, came up with another $162,500 in return for about 60% of the company and oversight of a reorganization. In January, Chicago Dining Authority, a management group already running two well-regarded restaurants, was brought in to run everything but the brewery.
So what are the lessons? It's a bit trite to say that too many cooks spoil the broth, but it is difficult for a manager to answer to a divisive board and 46 limited partnership unit owners. A new venture needs a leader, with a concise vision of what the company is about.
Jim Krejcie, for one, is confident Sieben's will survive. "Last year it was a three-ring circus, a zoo -- and still, it was doing $2 million." He, Hanson, and Siebel, meanwhile, are looking to get involved with new brewpubs. Krejcie wants to open his in Chicago. -- Leslie Brokaw