Gordon Ramsay's Nightmares

On his show "Kitchen Nightmares," chef Gordon Ramsay helps turn around troubled restaurants. But his own dining empire has been in a bit of trouble. Four of chef Ramsay's high-profile restaurants in Los Angeles, New York, Paris and Prague "were starting to hemorrhage" cash last year, Gordon Ramsay said. He breached terms $15.7 million, in loans that were partially backed by his own money. An auditor recommended his company, Gordon Ramsay Holdings Ltd., file for bankruptcy. Mr. Ramsay sold his Ferrari and considered unloading his multimillion-dollar London home.

"All of a sudden, this whole thing was nothing to do with cooking," Ramsay said in an interview from the Los Angeles set of his show. "I had my own personal nightmare." Now being forced to restructure chef Ramsay has left Prague and handed back ownership of the kitchens in Los Angeles and Paris to the hotels they are in, though he still supplies the chefs and menus.

He has fired about 15% of his roughly 1,200-person staff and is changing out expensive pieces of meat for cheaper cuts like shank and brisket. chef Ramsay and his father-in-law have plowed $8.2 million of their own dollars into the business.
Diners are eating out less often and spending less when they do, particularly on wine and spirits, where the biggest profit margins are. Corporate entertaining, which can account for as much as a third of a luxury restaurant's business, has fallen sharply.
Others are struggling. Upscale chain Ruth's Chris Steak House, saw first-quarter same-store sales fall 18.5% from a year earlier.
The global reach of Mr. Ramsay's empire leaves him particularly exposed. Unlike some of his peers, he owned many of his restaurants outright, rather than relying on licensing agreements where he earned fees for the use of his name. The approach gave him more control, and more profit in good times, but also more risk when the economy soured.

"I've learned a lot from a chef's point of view in terms of business," he says. "I'm not a businessman, but I certainly don't walk around with my head tucked up...my backside. For me, it was a learning curve."
Mr. Ramsay, who owns 69% of Gordon Ramsay Holdings (his father-in-law is the chief executive and owns the other 31%), says he feels the company is in much better shape as a result of the restructuring.

A big boost came to Gordon Ramsay earning $16.4 million dollars in annual revenue from television, publishing and endorsement contracts. That includes as much as $250,000 a show for the U.S. versions of "Hell's Kitchen" and "Kitchen Nightmares," which both air on Fox.

He has let trusted executive chefs in charge of his restaurants and this has left him open to critics who claim that paying a premium to eat at a Ramsay restaurant when he's not in the kitchen is expecting too much. When you're paying between $300 and $500 per person or more, people want to see the actual chef behind the dishes. Jason Atherton, who oversees several of Mr. Ramsay's restaurants, says the name symbolizes a level of quality and service diners can expect. But by late last summer, Ramsay found customers were spending less. Demand from corporate clients for lucrative private dining rooms dropped sharply. That set off the alarm bells, he said.
Ramsay braced for the worst. In October, he and his father-in-law and CEO, Christopher Hutcheson, met with the head chefs and operations team, warning of an expected drop in revenue heading into 2009, and ran through plans to cut costs and adjust the business.
"We had to be brutal," said Mr. Hutcheson. They fired staff and pressed vendors for discounts, in some instances reducing the number of merchants in order to negotiate better prices through larger orders. They rebalanced their wine lists, adding more moderately priced choices and more options by the half bottle or glass.
By December, four of Mr. Ramsay's overseas locations -- Los Angeles, New York, Paris and Prague were bleeding cash.

The week before Christmas, the bank sent in its auditors to comb through the books.

Their recommendation: File for bankruptcy protection. A bank spokeswoman declined to comment. Faced with losing the business, Mr. Ramsay sold his Ferrari, discussed with his wife the possibility of selling the house and considered selling a stake in the business.

Instead, he and his father-in-law set out to fix the problems.

To save on staff pay, they closed two London restaurants during slow times of the week.

Chef Ramsay says he encouraged his chefs to choose more economical ingredients, banning expensive out-of-season asparagus and using shank or brisket rather than more expensive cuts. A spokeswoman for Mr. Ramsay said that lower-cost ingredients would be reflected in the menu prices."I didn't want to see any menus laced with caviar. I wanted all that formal glam gone," he recalls telling a gathering of about 40 of his chefs in January at his restaurant in Claridge's hotel. Mr. Ramsay says his goal was to make menus more "accessible" to diners.
It's too early to tell whether the menu and staff changes will affect his ratings or his standing with reviewers. Several restaurant guides, including Michelin, are updating their reviews, which are due to be published in coming weeks and months.

Ramsay turned to New York, where he runs a two-star Michelin dining room and a less formal restaurant under the Maze name, both housed in The London hotel in midtown Manhattan. He shut the 45-seat upmarket dining room at lunch to halve staff costs, removed flowers from the tables to save $4,000 a month, and introduced a $65 pre-theater menu to get more traffic through the door. The menu builds on humble ingredients such as mackerel, fluke and chicken, whereas the regular $110 dinner menu also offers langoustines, diver scallops and veal sweetbreads. As a result of the changes, the New York operations for the month of May were $5,000 short of breaking even, which Mr. Ramsay says was an improvement over previous months.
Still, revenues at Mr. Ramsay's company dropped sharply in the first two months of this year -- down 15% from 2008 for both January and February.

Chef Ramsay says the company now runs more efficiently and business is improving. Sales for May were up 5% from a year ago, he says, though that includes revenue from three restaurants that opened in the past year. Customers are spending about 5% less per person, on average.

We will see what unfolds throughout the remainder of the year.