Who's coming to dinner?

Amid recession, downtown Palo Alto restaurateurs voice hope, apprehension about their bottom lines

The last time restaurateur Rob Fischer opened a new restaurant, the Palo Alto Creamery at Stanford Shopping Center, the dot-com bust hit.

Then came Sept. 11.

"They closed every mall on 9/11. It was hard. We had to buckle down and watch every penny," he said.

Now Fischer is about to open a new Mexican restaurant — Reposado — in place of the old Caffe Verona at 236 Hamilton Ave. in downtown Palo Alto.

The food-industry veteran is hardly one to shrink from a challenge.

Working at break-neck speed, Fischer presided over a crew of nearly a dozen laborers who were sawing, hammering and laying cement last Friday. He plans to open the two-story restaurant, complete with two Margarita bars, this weekend.

"By Tuesday this place will look very different," he said a week ago, indicating the painting would be completed during the weekend and the tables and chairs would be delivered early in the week.

Fischer has been in the restaurant business for 43 years. He is confident he'll succeed, despite opening smack-dab in the middle of an economic crisis, he said. The ominous predictions just mean he'll keep a tighter rein on management.

"We'll have to be very careful. ... You don't just curl up and hide. You have to react to what's happening. It's always changing," he said.

According to downtown restaurant owners and managers, business has slipped dramatically in the past year, sparking concern over what the next few months will bring.

Timmie Cheng, a 28-year restaurant veteran and owner of Mandarin Gourmet at 420 Ramona St., said this time last year, bookings for holiday parties were down about one to two percent. But that drop increased to 10 to 12 percent starting in April or May when gas prices went up.

If things don't pick up after the holidays, Cheng will have to start rethinking her business strategy. After Christmas, she might have to lower her prices, she said.

"Everybody's in the same boat. I have asked around. Everybody's waiting to see what will happen after the New Year," she said.

Elisa Hernandez, manager at Andale Mexican Restaurant at 209 University Ave., said she hasn't seen anything like this downturn in her 12 years with the restaurant.

"It's very slow. It's busy at lunch, but dinner is dead. (Sometimes) there is nothing," she said.

Cameron Boos, manager at Nola Restaurant and Bar at 535 Ramona St., agreed.

"There's a definite 10-percent decrease from last year, across the board. A lot of companies cancelled their holiday parties," she said.

It's not just the restaurateurs who are noticing. Palo Alto developer and landlord Jim Baer was able to book a private room at a restaurant with only two weeks' notice — something unheard of at this time of year, where it is usually necessary to book six weeks in advance, he said.

The economic troubles are being felt by restaurants throughout the state, and by all types of establishments, according to Dan Conway, spokesman for the California Restaurant Association.

Restaurants that rely on tourist dollars, such as in San Francisco, began suffering during the summer. Other types of eateries are feeling the impact now.

And the recession is hitting every sector of the industry, from fast food to casual dining to high-end, white-tablecloth establishments. That's because eating out is one of the first places where people cut back, he said. In addition, restaurants are facing higher costs of doing business, due to rising commodities prices, higher cost of fuel and shipping, he added.

"In the last two months this recession has truly set in. ... (Earlier in spring) the higher-end and fast-food restaurants were doing better longer. Their incomes and spending tended to be less tied to the business cycle. But I do think in both segments there is starting to be as decline," he said.

Real problems have hit the Central Valley, where unemployment has reached 15 to 20 percent in some sectors, he said.

"Palo Alto is an economically unique and distinct region" — thus far, he said.

But that relative immunity could change. A report by Forrester Research, an independent technology and market-research company, indicates that Silicon Valley will see a reduction in spending and layoffs next year, Conway noted.

"Go talk to them after the first quarter," he said, referring to Palo Alto restaurants.

Despite the dire predictions, some restaurateurs say they are doing well and they expect to continue to thrive, regardless of what lies ahead.

At the Old Pro on Ramona Street, business has been brisk.

"Basically, when people are depressed, they drink, and when they are happy, they drink," Mehran Hafezi, general manager, said.

He pointed to the 19 big-screen televisions around the bar-restaurant's walls.

"Sports are something that people turn to. It's an excuse for everybody to keep going. We have a big and strong fan base," he said.

In most restaurants, the ratio of food to alcohol sales is 60-40, but at the Old Pro, the numbers are reversed, according to Hafezi.

Fischer's two Palo Alto Creamery restaurants are still doing well, offering comfort food and good value, he said.

Baer said his renters who are restaurateurs are doing well, and he thinks downtown's icons will continue to remain strong.

"Some, such as Il Fornaio and Evvia have such a fine business and are so well-managed they will sustain in the slowing economy," he said.

Panos Gogonas, Evvia's general manager, said the restaurant is having one of its best years.

"Thank God. You hear so many things. ... I still believe they will come. People won't stop eating," he said.

But Gogonas acknowledged that changing times means adaptation — and carefully watching the bottom line. Deliveries of goods now come with service charges, something that didn't exist until about a year ago. Business owners and managers now examine invoices for hidden charges, Gogonas said.

"We try to limit deliveries to two times a week rather than every day or we go out and get the produce ourselves. ... There have been a lot of changes in the last few months," Gogonas said.

"We used to serve four lamb chops, now we serve three, and we've dropped the price," he said.

Restaurants are more likely to offer incentives these days, and more and more sandwich boards are popping up outside of downtown restaurants, offering everything from two-for-one executive power lunches to a "Celebratory Hour as Prelude to the Holiday Season. A three-course prix fixe early dinner at lower prices."

One window sign advertised: "Refer someone who uses our catering ($200 minimum) and get a free meal and a cocktail."

Paul Zumot, owner of Da Coffee Spot at 235 University Ave., has brought in a marketing manager to help drum up business. He wants to capitalize on having University Avenue frontage. Free samples of holiday drinks have been handed out to passers-by, and a new breakfast menu is getting a good reception. One Monday each month may become a free coffee day, and his marketer is looking at e-mail blasts and other Internet tools to generate presence. Sales have risen 10 percent since adding the new incentives, he said.

Zumot also owns Da Hookah Spot, a cafe that opens up on the side of the building and serves up 30 to 40 flavors of low-nicotine, fruit-flavored tobaccos mixed with molasses smoked through water pipes. It's a popular spot with the college crowd.

Zumot makes most of his money through his four Bay Area hookah shops, which serve Turkish coffee and Moroccan teas. Despite the popular belief that people drink and smoke more during hard times, business has dropped 30 to 40 percent overall, he said. But the Palo Alto is doing better than the other stores. Zumot surmised that's because Stanford students have more discretionary income than their less-well-heeled counterparts at San Jose State.

Not all downtown restaurants will be able to ride out the recession. Some have already failed.

The Mint Leaf Asian Noodle House, a Thai and Vietnamese restaurant on University Avenue, closed in early November after relocating from Middlefield Road. It had moved into the former site of Palermo and the short-lived Chicken Ranch, adjacent to Borders Books & Music.

A few blocks away, on Bryant Street, an eviction notice was taped to the door of Zucca Restaurant in early December, after the restaurant's two-year stint.

Piles of stainless-steel shelving were stacked outside in the alleyway. All that remained on the terracotta-colored walls was the outline of lettering that had spelled out the restaurant's name.

The space is empty, cavernous.

Jim Nunan, the building's landlord, is familiar with the comings and goings of restaurants. His mother, Annie Nunan, owned Nouveau Trattoria and Chez Annie, both located at the Zucca site. Before those places, the building housed Trattoria Romana.

"In the restaurant business, if you can't make a go of it in three to six months, you won't succeed," Jim Nunan said.

Zucca has another location in Mountain View, but owner Praveen Singh did not return phone calls for an interview.

Other restaurateurs have moved away from downtown.

Fred Maddalena had owned Maddalena's Restaurant and Café Fino on Emerson Street, two longtime downtown fixtures. After closing Maddalena's, he had planned to revamp Café Fino, but two situations arose: first, the place needed seismic retrofitting; second, the landlord decided not to renew the lease, he said.

Maddalena couldn't stay out of the business, though. He would have preferred to stay downtown, but has since opened Maddalena's Cabaret Club in the Crowne Plaza Cabana Hotel and Resort at 4290 El Camino Real. The clientele are loyalists and are more mature than in most bars — 40 and older, he said.

For Maddalena, the move brings him full circle. He started working there when Doris Day still owned the place in the 1950s. When he was invited to open the cabaret, he couldn't resist, he said.

Maddalena started in the restaurant business at age 16 when he had to take care of his parents in Toronto, Canada, he said. Now pushing 80, he has seen many downturns, and he doesn't worry, he said.

"It's the same, the same," he said, comparing the present situation to the past.

"You have to work very hard to keep it going — to keep people pleased. But I say 'Yesterday's history, tomorrow's a mystery. Today's the present. Enjoy today.'"

For every departure comes a new opportunity — a cycle that is familiar to downtown restaurant watchers, recession or no. Last week, Melt Ultra Lounge opened in the space formerly occupied by Maddalena's. Billed as a bar and restaurant, Melt offers "self indulgence, delectable food, electrifying music and heavenly cocktails."

Next door, Café Fino remains shuttered, its windows covered in brown paper, awaiting the next restaurateur ready to try his luck.

Related stories:

Dining downtown: by the numbers

What it takes to open a restaurant


Like this comment
Posted by Richard Clark
a resident of Mountain View
on Dec 20, 2008 at 2:25 pm

I have to agree it's a tough gamble. At Austin's in Mountain View I was there for 8 1/2 years, and you would have thought I was safe. Then property values escalated and I had three landlords in 20 months. I still had the lease in hand, but the property taxes were a different issue. It went from $4,000. a year to $18,000. then $22,000. More than 2.5 months in rent. "It's all about greed" In fact I get a shuckle everyday that I pass that property and see that the Harmon Group never got there approval for a drive-through on their A&W/KFC concept.

In my opinion there should never have been a sale unless their high priced attorneys had better insight on Mountain View zoning. I applaud the surrounding homeowners and the City of Mountain View for there final decision.

Although I did survive the bust, 911, the stock market scandals(MCI and Enron), a $50,000. Civil Penalty with the IRS for a non-filed document, the outrageous cost of workman's Comp and energy with the then Gray Davis administration. The final straw was the one months rent that I was behind in, when the new owners bought the property, "my lease was worthless" Where was the government bail out or help then? GREED is the single reason why we are lossing middle class America at an alarming rate.

The only regrets that I have is that I should have closed and down sized to catering sooner. Most people in my situation would have filed for Bankruptcy, rather then paying off their creditors. "Again it's all about greed and the loss of integrity in our society"

Happy Holidays,

Richard Clark

Like this comment
Posted by Occasional Diner
a resident of Another Palo Alto neighborhood
on Dec 20, 2008 at 2:59 pm

In my opinion, too many restaurants are similar. True, the styles of food may be different, the decor different and the menus themselves different. But there truly are no restaurants that stand out.

On my travels, I have come across restaurants who are innovative in a way that I have not seen here. Smaller portions, tasting portions, shared entrees, are sometimes possible, but you have to ask and sometimes you are frowned on when you ask for these. Childrens' menus are also rare in Palo Alto.

Like this comment
Posted by Depressed Home Chef
a resident of another community
on Dec 20, 2008 at 11:41 pm

My husband and I love eating out. But since I haven't seen a substantial paycheck in 4 years, we had to shell out so much more for gasoline this year, and am truly afraid for my husb's job security, we've tightened up even more than we did after the dot-bust/9-11. I cringe at any tab over $40, and that doesn't leave us many options besides fast food -- I can think of 2 or 3 on University, and Harry's Hofbrau in Redwood City. So, as much as I'd love to "enjoy life, eat out more often," it's been back to the kitchen for me.

Like this comment
Posted by Mom of 3
a resident of Jordan Middle School
on Dec 21, 2008 at 2:03 am

We have eaten out 4 or 5 times per week for the last 3 years due to transitioning and being "too busy to cook." Because of the economy, we decided to cut back. We now eat out 1-2 times per week. But what I have found is:

1. We have all lost weight.
2. We all have more energy because we are eating healthier.
3. Eating out on weekdays was a huge time sink. The kids can finish their homework earlier if we stay home and they have more free time.
4. We are saving about $20/day by eating dinner at home ($20 or less meals at home)
5. When we do eat out we appreciate it more.
6. Sometimes we don't even feel like going to restaurants anymore.

It's all about finding the right recipes. Bon Appetit can have too many odd tastes for kids (I prefer their recipes from the 90s). Food Network doesn't have tested recipes.

The Cook's Country Cookbook has great recipes and they have been tested. Don't let the word "country" discourage you. These are classic recipes that we think of when we think of home cooking. I bought it at Costco Mtn. View about 4 months ago and it has a coupon for a free 1 year subscription to their magazine.

Like this comment
Posted by Occasional Diner
a resident of Another Palo Alto neighborhood
on Dec 21, 2008 at 9:24 am

It is exactly the reasons you state the makes us occasional diners. As the kids got older, their busy schedules and homework makes family eating out not only expensive but time consuming.

Try some of the ready to cook meals from Costco, and some of the ready cooked options from Piazzas and Whole Foods. Also, get a Crock Pot and if you don't have time to prepare the casserole in the morning, it can be prepared the night before and refrigerated and then switched on one hour earlier the next day.

These options help for busier days and you can control portion size and have your own salad and bread (if necessary) options too.

Like this comment
Posted by Foodie on a budget
a resident of Another Palo Alto neighborhood
on Dec 21, 2008 at 2:53 pm

Hey Depressed Home Chef,
There are lots of options for under $40 (for THREE, not just two) that aren't fast food:
You can get a great meal at Hobee's, check out their seasonal dinner specials. They also often have coupons at some locations for 2-for-1 dinner specials. They are the best place to get a real kids' meal that the kids will actually eat (great broccoli). If you stick with the meal (no extras like wine or desserts), three can easily eat for less than $30.

Another surprising bargain is Max's Opera Cafe. Again, if you forego the extras and stick with the main meal, you can get a hearty, delicious meal for three for a very fair price. I can remember checks for under $35 for three (but again, no extras).

If you clip coupons, Chevy's also has great coupons, buy one meal, get the second for 3.99. We often eat there, again for three, for less than $30.00. Spot A Pizza Place in Los Altos has fantastic pizza, and they send out coupons, two pizzas for a set price (very good price, also way less than $30).

Su Hong,'s has two different sizes for their takeout - they have a small size that allows you to get several dishes for a reasonable price. Other places like Lucky Chinese and the new Ranch 99 store allow you to get reasonably priced cafeteria-style chinese food. You can eat in at Lucky's (and Su Hong, of course).

Don't laugh, but we love to go to the cafeteria at Ikea -- the cost of a decent meal for three usually runs less than $20. If you have kids, this is a fun place to go, though not much on atmosphere for a couple.

Hong Kong bakery buns (Castro) are delicious and a relative bargain (but no eating in).

There are plenty of other inexpensive places to eat around here, you just have to get creative, clip coupons, and mind the extras. We need to watch the bottom line, but we'd also rather forego a little extra in the meal in order to be able to leave a generous tip - then the staff remember you and you can afford a nice dining experience even without having to spend a lot overall.

And most of all, most places have a range of prices -- we can often choose to eat "above" our budget if we watch the prices and stick with lower priced menu items.

Anyway, I just wanted you to know that fast food is not your only option!

Like this comment
Posted by Mr. BBQ
a resident of Community Center
on Dec 21, 2008 at 7:51 pm

We very seldom eat out, but when we do we eat at places that offer two for one meals! We use a card called passport unlimited, a very upscale entertainment guide type card with no limitations on the number of times you can use it! Puts money in your pocket, best kept secret in Palo Alto.

Your Welcome!

Like this comment
Posted by MXY
a resident of Downtown North
on Dec 22, 2008 at 1:35 pm

To be up front about this not my real name, but I am a restauranteur with a highly successful place in downtown Palo Alto; and I'll disclose with everyone the things I knew before I went in; and what I've learned subsequently.

Before: to have all you cards in your favor

1. Build a "highly distinctive" experience. Don't copy anyone else.
2. Build an "experience", not just a product. There are few places that can get away with this if they are the only ones in the segment; but there's always someone behind you willing to go the full nine yards.
3. Have plenty of capital at hand. You project takes more than what you expect; and then the extra capital is essential for the infinite number of things that can go wrong.
4. Write a detailed business plan. This shows yourself that you understand everything about your business, and what you don’t know. Most restaurant owners don't understand their own business.
5. Accounting is incredibly important. Do it every month.

1. Palo Alto demographics are sophisticated eaters. Not enough cater to the real 'foodies' with money.

2. The asking rents in downtown Palo Alto are astronomical. We have very high traffic and low rent, and our profit margins are thin. So go figure for any of the restaurants that are not busy all the time. I don't know how they do it.

3. Most people that go into the restaurant business are unsophisticated themselves, both on the food end (the core product) and on running a complicated business (they usually come from other industries eg computers, and the needed skill sets are usually very different eg FoodNetwork x Disney).

4. I've also learned that the majority (less the high end places) are usually offering very low quality ingredients. Ingredients that you should not be eating everyday or ever. I speak of stuff with a lot preservatives, salt, fructose corn syrup. It’s an uphill battle to keep only clean ingredients, because everyone does it, and these things make ingredients last longer. The high end places use very good ingredients but they don't think twice about adding twice what you would at home, because that is what makes their stuff so good.

Conclusion: eating out should only be a one or two time per week affair. And it's about time people got back to the kitchen, so they understand what 'real' food is.

5. No real Americans are good at or want to work in the kitchens in restaurants. It's a really tough job. When we started, that's how we functioned and our turnover was incredibly high. Restaurants don't have a choice but to hire immigrants.

My feeling is that lots of change is going to happen in the restaurant industry all over. Its important that consumers vote with their money. Don't think twice about not going to a place that is not interesting, not clean, not courteous, doesn't obey laws, treats employees badly, doesn't have a good reputation, and mostly importantly not delicious. Ask about the ingredients in your food. You have the right to know. And support places that are trying to do the right thing, whatever that might mean to you.

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