John Bishop remembers what it was like in 1985 when he got a group of investors to put up $80,000 so he could open his own Vancouver restaurant.

"That was tough at first," he says. "I remember the economy was rocky at the time and we did it on a shoestring. You can't even renovate a bathroom now for that kind of money, never mind open a restaurant."

Today, Bishop's is a 45-seat fine-dining restaurant that has built a loyal following in its Kitsilano neighbourhood. Diners usually call a week or two in advance to see if they can get reservations.

"Things are much tougher this year, though. Food prices are going way up and people don't seem to be eating out as much with the economy slowing down," Bishop admits. "We're doing OK, but I feel sorry for the guys who are just starting out."

File photo by Larry MacDougal, Business Edge
Calgary's James Joyce pub owner Gerard Curran says staffing problems are a major challenge in the sector.

Competition in the industry can be fierce with more than 100 other restaurants listed nearby in the Vancouver telephone directory, he says.

"One of the biggest things you have to watch is your costs. For a fine-dining restaurant to work, you need to have the right ambience with linen tablecloths and nice artwork on the walls," Bishop explains. "It's very expensive to do it right. I mean, a single china plate can cost you around $50."

Bishop says his biggest recipe for success has been using fresh local food as much as possible. But he admits that has been expensive lately.

Statistics Canada released its Consumer Price Index late last month, which showed food costs were up three per cent in June compared with a year earlier. Bakery products rose 12.3 per cent. Statistics Canada researchers explained food prices had been steadily rising around the world except in Canada, where a strong dollar, intense competition and local production had kept prices in check - until now.

"There are places you can cut your costs, but not with ingredients," says Bishop. "You need the quality ingredients in order to serve quality food."

He said hiring the right people for key jobs was also important. Just after he opened, Bishop was introduced to accountant Chris McDonald, of Vancouver-based McDonald and Rickett, who met with him every few months to go over how the business was doing financially. Bookkeeper Marlene Quan helped with the numbers on a daily basis.

"Quite often it's the people behind the scenes that are important. You need a good team helping you with your business," Bishop says.

Statistics from the Canadian Restaurant and Foodservices Association (CRFA) show typical industry food and beverage costs are only 35.4 per cent of operating expenses.

But then you add salaries and wages at 31.5 per cent, rental and leasing costs at 6.8 per cent, utilities (including telephone) at 2.8 per cent and advertising and promotion at about 2.8 per cent. Repairs and maintenance chip away at profits even more at 2.5 per cent and other expenses come in at 13.9 per cent.

That leaves an average pre-tax profit of 4.3 per cent, according to the CRFA's 2008 Foodservices Operations report. The highest pre-tax profit margins were reported in Manitoba at 6.8 per cent of operating revenue, while Ontario had the lowest profits, holding steady at 2.9 per cent.

The report explained those profit margins varied slightly by sector, with "limited-service" restaurants like cafeterias able to save slightly on food and labour, boosting their profits to about 5.7 per cent of operating revenue.

In comparison, the report showed full-service restaurants having the lowest pre-tax profits of 3.1 per cent.

It added while "drinking places" like pubs and bars had the highest food costs as a percentage of operating revenue, they also had the lowest labour costs. As a result, pre-tax profit margins for drinking places were 4.5 per cent, up 3.3 per cent from 2005.

At the James Joyce pub in downtown Calgary, owner Gerard Curran says there are really two reasons for his success. "I love being in Alberta, and I love even more being in the city of Calgary," he says.

"This city has been good to me. It's definitely not easy, but enjoying what you do and the people around you is the most important thing."

But Curran still faces a familiar challenge for operators in the foodservice industry - trying to hire and retain good staff. Just over a year ago, he sold one of the two pubs he owned in Calgary, partly due to not being able to find enough employees.

This year, a pilot program run by the Alberta government that allows hiring foreign workers is making things easier, he said. The provincial nominee program (PNP) allows hospitality operators to hire a limited number of qualified foreign workers if they meet strict criteria. For example, the employer must also submit to the government a detailed plan showing how they will assist the worker in integrating into the community.

"It's been a big help by the provincial government this year and definitely has made our lives easier. Now it's up to us to create a great place to work and lots of opportunity," Curran says.

Peter Oliver couldn't agree more about creating a great place to work. At his Toronto restaurants - Canoe, Jump, Auberge du Pommier, Biff's Bistro and Oliver and Bonacini Café - company culture is stressed to new hires.

The chain has 425 employees and he makes it a point to help train each one on service excellence.

A Business Edge writer slipped into one of his restaurants alone late last month on a busy Sunday afternoon. The server asked if the guest wanted a local newspaper to read while waiting for lunch to be served. When he learned they didn't have the newspaper the guest wanted, a staff member was sent immediately to a local news vendor to try to purchase one.

"That's what I like to call a moment of truth," Oliver said the next day. "If it's feeding quarters into a parking meter for a guest while they finish their dinner inside or whatever it takes, we need to create positive experiences. If eight out of 10 people in the restaurant industry go under during the first three years, that means two out of 10 make a lot more money. We have to be that two out of 10 by doing extra, being more than everyone else."

The New Zealand-born Oliver got his first taste of the restaurant industry in 1978 when he made a bet with himself that he could make a better sandwich than the local deli. That led to Oliver's Old Fashioned Bakery, and a string of other restaurants. In 1993, he joined Michael Bonacini to form the Oliver Bonacini restaurant group.

Today, about 12,000 people a week dine in Oliver Bonacini restaurants, Oliver says. He declined to divulge revenue or profit figures, but did say all the restaurants were profitable in the "double digits."

"A lot of people around here are smarter than I am," he explains. "You need to hire people that have a wide range of knowledge. The other day I was invited to a staff seminar, but they had me do some reading beforehand. One of the topics was called Quantum Theory in a Newtonian Age. It was brilliant."

The paper went on to explain how one tiny atom, or one employee in an organization, can spread out and cause a considerable effect.

"Peter Oliver is one of the best in the business when it comes to service quality," says John Walker, dean of the Centre for Hospitality and Culinary Arts at George Brown College in downtown Toronto. "He looks after the finer details, which is so important."

George Brown College is home to one of the largest, and most distinguished, chef schools in the country. Its graduates include Jamie Kennedy, Mark McEwan, Bonnie Stern and Food Network Canada's Christine Cushing.

Asked to name other well-known graduates, Walker laughs. "What I'm most excited about is this group of chefs who just graduated the past few years. They haven't made it that big yet, but there is so much potential."

Walker says he often dines out and notices the details, like when someone isn't at the door to greet him when he arrives. But the most frustrating is when restaurant staff aren't passionate about what they're doing.

"In order to survive in this business you need to have that passion to serve the guests and create memorable meals. That will keep them coming back and you will go home happy every night," says Walker. "People should have no illusions that this is an easy business. This will take a lot of work. But that success is a wonderful feeling if you can reach it."

(David Hatton can be reached at hatton@businessedge.ca)