| Gordon Ramsay's show, Kitchen Nightmares, has | | | | Campania's Chance of Being Open =.192 -.001*[80] |
| brought hope to the greasy spoons and dirty dive | | | | +.532*[1] =.644 or 64.4%. In actuality, Campania's |
| restaurants across America (but mostly New | | | | did stay open, so the model is accurate in this |
| York) for two seasons now. Ramsay made his | | | | case. |
| name first as a soccer player, then gourmet | | | | As a second example, we can do the same |
| restaurant owner, and now as a TV host to a | | | | exercise for Trobiano's (Episode 13) which had |
| variety of competitive cooking shows, most | | | | $500,000 in debt and was jointly owned by two |
| notably Hell's Kitchen. He's been named the #1 | | | | men and one woman. The model would predict: |
| most successful restauranteur in the world thanks | | | | Trobiano's Chance of Being Open =.192 |
| to his kitchen acumen, high standards and vitriolic | | | | -.001*[500] +.532*[.67] = 0.048 or 4.8%. |
| temper. | | | | Trobiano's is closed, so again the prediction is |
| For Fox's show Kitchen Nightmares, Gordon | | | | correct. |
| Ramsay visits restaurants which are financially | | | | It worked a couple of times, but how accurate |
| floundering and attempts to turn them around. | | | | are these predictions generally? To find out, I did |
| This may mean producing an entire new menu, | | | | the above calculations for all the Kitchen |
| renovating the décor, or installing | | | | Nightmare restaurants I knew the debt total for. |
| state-of-the-art kitchen appliances. In spite of | | | | When comparing the theoretical result to reality, |
| these efforts, many still go belly-up after Ramsay | | | | the model predicted correctly 80% of the time. I |
| leaves. | | | | usually strive for better than a B- but for these |
| Before the show starts, most Kitchen Nightmare | | | | purposes, it's sufficient. |
| restaurants are under a mountain of debt. The | | | | What does this mean for you? Well, if you're |
| stubborn owner of Sabatiello's was over a million | | | | considering starting a restaurant with your |
| in the hole before Gordon Ramsay showed up. | | | | significant other, letting it go downhill until you |
| Facing such a dismal business scenario, even | | | | could be a Kitchen Nightmares feature, and then |
| expert advice can only go so far. Are heavily | | | | trying to turn the business around, you can |
| indebted restaurants doomed to bankruptcy, or is | | | | substantially improve your chances by selling your |
| Gordon Ramsay not the miracle worker he's sold | | | | loved one into slavery to pay off credit cards and |
| as? | | | | then taking on several men as co-owners. The |
| With some simple econometrics, we can take a | | | | numbers don't lie, right? |
| stab at answering that question. Data was | | | | The Fine Print: |
| collected on the amount of debt, proportion of | | | | This small study shouldn't be taken too seriously |
| male owners, and whether each restaurant was | | | | (which is why you're reading it here, not in the |
| still open. After watching the twenty-one episodes | | | | American Economics Review). The sample size is |
| from Season 1 (so I like reality TV, sue me) and | | | | small so the statistical significance could be better. |
| running it through a regression program, here are | | | | For five of the episodes the amount of debt |
| the results: | | | | wasn't disclosed, making the number of useful |
| - Of the restaurants shown in Season 1 of | | | | observations even lower. I might revisit this |
| Kitchen Nightmares, 28.5% are still in business. | | | | subject in a little while, after the restaurants on |
| The other 71.5% have been either sold or | | | | Kitchen Nightmares Season 2 have a chance to |
| foreclosed on. For each additional $10,000 in debt | | | | sink or swim. Basically, if you're a restaurant |
| before Ramsay arrives, the restaurant's chance | | | | owner, don't bet your retirement on these |
| of staying open decreases by 1% (holding | | | | scribblings (at least until you've paid me as a |
| constant whether the management is male or | | | | consultant). If you're interested in the t-stats and |
| female). This makes intuitive sense -- as a | | | | significance levels for the variables, see the table |
| business' debt load increases, it becomes | | | | to the right. |
| increasingly difficult to turn a profit while making | | | | Conclusions: |
| interest payments. Many owners on Kitchen | | | | These are a few things I've learned from |
| Nightmares have taken second home mortgages, | | | | watching all these Kitchen Nightmares. If you |
| maxed their credit cards, and pressured friends or | | | | skipped all the numbers and just want the |
| relatives into loaning them money. As these | | | | Reader's Digest version, here you go. |
| burdens grow, bankruptcy or foreclosure | | | | |
| becomes more likely. | | | | 1. The restaurant business is about high standards. |
| - Restaurants with more male owners have an | | | | Revolutionary, I know. People want value for their |
| increased chance of staying open. Comparing two | | | | money, and expect that food they go to a |
| restaurants with the same amount of debt, one | | | | restaurant for will be better than what they could |
| owned by a husband and wife and one owned by | | | | make at home. Restaurant owners need to taste |
| two men, the second establishment would have a | | | | their food, nag the chef, and check the fridge |
| 26.6% better chance of staying open (sorry | | | | often, or else standards can end up somewhere |
| ladies, it's just what the numbers say). This result | | | | in the back with the spoiled mayo. |
| is somewhat slanted because there was only one | | | | 2. Restaurants have inertia. Once they start to go |
| exclusively female-owned business featured in | | | | downhill, they tend to continue that way. When a |
| Season 1 of Kitchen Nightmares, and it went | | | | restaurant is professionally managed, it closes |
| under. Most of the other women on the show | | | | down when cost exceeds profit for a sustained |
| co-owned the business with their husbands. The | | | | time. However, when the restaurant is |
| advantage this model displays for men is almost | | | | family-owned and represents someone's long |
| certainly the result of quirky data in a small | | | | awaited dream or a parent's beloved memory, |
| sample set, not any objective difference between | | | | shutting the doors becomes much harder. Owners |
| men and women as restaurant owners. | | | | will exhaust everything they have to prevent a |
| - Number of years in business was statistically | | | | business from closing, but often can't break the |
| irrelevant to a restaurant's chance of staying | | | | habits that made them unsuccessful. It's tragic to |
| open. Some places had been floundering for up to | | | | watch, because everyone loses; the owners, the |
| eight years; none on the show had made it past | | | | staff, the community, and most of all the |
| ten years under their current management. Even | | | | customers. Although Gordon Ramsay still doesn't |
| owners who had been stuck in a rut managed to | | | | make my top ten list of great humanitarians, I |
| turn it around after Ramsay's visit. For example, | | | | think he does a real service to restaurant owners |
| the Secret Garden had run at a loss for seven | | | | who have lost their way and need to be |
| years, accumulating $310,000 in debt, but it still | | | | redirected. For that, well done. |
| remains open and is much more successful now. I | | | | 3. The service industry is hard work, and the |
| think this is the best evidence for Gordon | | | | glamor of owning a restaurant causes some |
| Ramsay's influence; his confrontational approach | | | | people to forget that. As someone exclusively |
| helps some owners change bad habits and bring | | | | familiar with the consuming end of the restaurant |
| their restaurant back to profitability. | | | | business, I gained a new appreciation for all the |
| To predict a Kitchen Nightmares restaurant's | | | | good restaurants I've been lucky to eat at. A lot |
| chance of staying open, the formula is: | | | | can go wrong, so it's impressive that so many |
| Chance of Being Open =.192 -.001*[Debt in | | | | people manage to get it right. |
| Thousands] +.532*[Proportion of Male Owners] | | | | 4. Be careful where you eat in New York. You |
| For an example, we can apply this to Campania's | | | | might see them later in Kitchen Nightmares |
| (Episode 9) which had $80,000 in debt and a male | | | | Season 3. |
| owner. The result would be: | | | | |