World Famous Chef Gets Scare

You might have seen him on TV hollering at every single person cooking he sees. Mr. Gordon Ramsay, a world class chef who’s been on television shows such as Hell’s Kitchen and Kitchen Nightmares, is now in a world of trouble on his own.

Four of Mr. Ramsay's high-profile restaurants in Los Angeles, New York, Paris, and Prague were bleeding cash fast. In other words they were losing the cash they needed in order to operate or even invest. He breached terms on £10.5 million, or $15.7 million, in loans with the Royal Bank of Scotland. Auditors recommended his company, Gordon Ramsay Holdings Ltd., file for bankruptcy protection.

Maybe all he needed were auditors to come and holler at him. Now, Mr. Ramsay is being forced to restructure. "I've learned a lot from a chef's point of view in terms of business," he recently stated in an interview with the Wall Street Journal. "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."

High-end restaurateurs are in loads of trouble these days. Diners are eating out less often and spending less when they do, particularly on wine and spirits, where the fattest profit margins are. That is a problem, because normally with cash issues you would want to keep the items with the biggest profit margins and cut the rest out. That may not be feasible. Also corporate hospitality, which can account for as much as a third of a luxury restaurant's business, has fallen sharply. Another problem particularly for Mr. Ramsay was that he handled other food and beverage business in the hotel where each restaurant was housed, including room service. That meant his labor costs were much higher.

Mr. Ramsay has renegotiated the terms of the loan with the bank and has looked for more cost reductions. To save on his labor costs, he closed two London restaurants during slow times of the week. Mr. Ramsay says he encouraged his chefs to choose more ingredients that are still excellent, but less costly. Hopefully Mr. Ramsay can succeed in making his menu more accessible for purchase. If he can successfully keep the big profit margin items on the menu, that is if people are willing to purchase them, he will be in good shape.

That isn’t Ramsay’s only problem however. The global extent of Mr. Ramsay's empire leaves him particularly exposed. Unlike some of his chef buddies, he owned many of his restaurants outright, rather than relying on licensing agreements where he earned fees for the use of his name. That approach gave him more control, and more profit in good times, but also more risk when the economy went south. The 42-year-old chef has exited Prague and handed back ownership of the kitchens in Los Angeles and Paris to the hotels they are housed in, though he still supplies the chefs and menus. Now Mr. Ramsay receives fees for licensing the Ramsay name, provides key personnel and advises on menus. "I was slightly naive to think that the ownership model could work anywhere in the world," said Mr. Ramsay in the Wall Street Journal. "Now somebody else takes the risk."