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Santorini Restaurant: One Entrepreneur's Start-Up Adventure

Article  in  Journal of Business Studies Quarterly · January 2010

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Nova Southeastern University Samford University
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Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 70-74 ISSN 2152-1034

Case Study

Santorini Restaurant: One Entrepreneur’s Start-Up

Adventure
Nile M. Khanfar, Nova Southeastern University
David Loudon, Samford University
Bahaudin G. Mujtaba, Nova Southeastern University

Abstract
Bashir Hayek, of middle eastern descent from Lebanon, decided to open a
Mediterranean-style restaurant in his hometown of Jackson, Mississippi. This case
provides an overview of his adventure in opening a restaurant along with the operating
challenges. The case provides his initial assessment, the monthly estimated costs, the
actual challenges, and his need for more revenues to make the business a success. While
the names and locations are disguised, all other elements are factual as they happened.
The case explores some of the challenges that entrepreneurs face as they initiate opening
a business, running the day-to-day activities of the business, and surviving the tumultuous
ups and downs of the competitive business world.

Key words: Partnership, business plans, and entrepreneurship.

Introduction

Bashir Hayek, of Lebanese descent, had lived in Jackson, Mississippi for most of the last
thirty years. Mr. Hayek had previously owned several small restaurants. The restaurants he
owned served primarily Mediterranean cuisine along with some American and Italian dishes.
When asked “what happened to all the restaurants you owned?” Mr. Hayek replied, “It was not
my fault; I ran out of money.” In 2000, Mr. Hayek worked as a general manager of a seafood
restaurant chain in south Alabama. As the business got better, top management decided to
franchise the chain restaurant. Due to Mr. Hayek’s public relation skills and very humble
personality, management promoted Mr. Hayek to be responsible for selling franchises and
offered him a lucrative bonus on every franchise deal he completed. In 2004, the chain
restaurant filed for bankruptcy and Mr. Hayek moved back to Jackson with $150,000 in savings
mostly from franchise bonuses.
 Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 70-74

In January 2005, Mr. Hayek, decided to open an upper-middle-class Mediterranean-style

restaurant in Jackson and decided to name it “Santorini.” He believed that the area needed this
type of food because the closest Mediterranean restaurant was about 120 miles away. He always
bragged about the findings of a famous Harvard University research study indicating that
Mediterranean food was the healthiest diet among all other cuisines.
Jackson’s metropolitan area population at the time was estimated at approximately
535,000. Hayek found a vacant, beautiful, relatively new, architectural gem of a building located
on a corner lot fronting on a primary midtown street. The building had been vacant for more
than a year and had formerly been utilized as an upper-class daiquiri bar. The street is a two-
way, four-lane thoroughfare running through the middle of an area of town that is zoned
commercial (office buildings, quick serve restaurants, and casual sit-down dining establishments)
along the street, but is residential a block or two removed from the street.. The traffic was hectic
in the morning; however, but much slower in the evening. The exterior of the building was very
attractive and had a narrow driveway for a pick-up window. The parking lot had 34 parking
spaces. Hayek estimated that the building could house 29 tables. He planned that the majority
would seat up to four persons, but some would seat only two patrons. Hayek calculated that the
monthly fixed costs for the building would be as follows:

Table 1 – Initial Monthly Properly Costs

Lease $5,500
Property Taxes $800
Insurance $600
Utilities $1,500
Total $8,400

In March 2005, Mr. Hayek signed a 10-year triple lease. A triple lease meant that Hayek
would be responsible for yearly property taxes, a $1 million insurance policy, and the lease
obligation. Soon thereafter he started purchasing tables, chairs, and kitchen equipment
(including a $20,000 walk-in freezer). He also remodeled the interior of the building to make it
into a Mediterranean motif. By July, Mr. Hayek had spent approximately $110,000 and still was
not open for business. When his friend, Rafiq Khoury, asked him why? Mr. Hayek replied that
he was looking for a chef that knew how to professionally cook Mediterranean food. He
indicated that it was not easy to find such a person. He drove as far as Baton Rouge, Louisiana
and Birmingham, Alabama looking for someone to fill the role. The cooks who were interested
in relocating to Jackson asked for a share of the business ownership which Mr. Hayek refused to
provide. He finally found a Lebanese woman named Ms. Mansour. She was in the U.S.
temporarily and needed someone to sponsor her for a green card. Mr. Hayek kindly agreed to
sponsor her and pay all of her legal expenses. Meanwhile she told him that if he wanted her to
start immediately, he had to pay her $3,000 in cash every month and also pay $650 monthly rent
for her apartment in Jackson until she received legal work authorization from the U.S.
Immigration Service. Bowing to the pressures of opening the restaurant, Mr. Hayek agreed to
her terms. The chef was hired and by August, 2005 Mr. Hayek completed hiring 22 employees,
as indicated in Table 2.

71 ©JBSQ 2010
© Nile M. Khanfar, David Loudon and Bahaudin G. Mujtaba

Table 2 – Number of Employees

Waiters 14
Kitchen Aids 5
Chef 1
Cooks 2

In September 2005, Mr. Hayek and his wife, Kathy, officially opened Santorini. They
initially spent $1,100 on radio and newspaper ads to promote the seven-day a week schedule of
Santorini. A few weeks later Rafiq saw Hayek and the following conversation took place:

Rafiq: How is the business doing?

Bashir: Not so good. I am losing around ten thousand dollars a month. Yes, it
looks busy when you see the parking full, but I do not have enough people
sitting on tables here.

Rafiq: How is that possible?

Bashir: I do not have enough parking spaces in the parking lot. Sometimes, three
or four people drive up in different cars to meet for lunch; so the three
people end up sitting in one table and their cars occupy three parking
spaces. There are many times when people cannot find a parking space at
lunch although I have many empty tables.

Rafiq: What about dinner time?

Bashir: Dinner time is when I am supposed to get busy and sell many items but we
are not busy. We are mostly busy during lunch.

Rafiq: Do you think that your prices are high?

Bashir: No; I checked the prices in all the restaurants that attract the caliber of our
customers and found out that our prices were compatible to theirs.

Rafiq: Since you have a larger crowd at lunch, then you might want to think
about informing your luncheon customers about dinner specials?
Bashir: That is a good idea.

Rafiq: What are your best selling items?

Bashir: Shish kabob, Gyros, and tabouleh salad.

Rafiq: You need to start thinking about utilizing your drive-through window.
Bashir: It is hard to sell Mediterranean food from a drive through window. This
type of food takes time to make.

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 Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 70-74

Rafiq: You can sell only easy-to-make stuff like Gyros, sandwiches and Kabobs.
Also you need to try to cater to the business community around your
restaurant. See if you can make food and deliver it. You cannot just sit
and wait for a miracle.
Bashir: I have to find a partner to invest at least $150,000 because I am running
out of money.

Mr. Hayek was described by most as a very sweet and nice person. He often did not
charge his friends for food when they came in for lunch or dinner. He was also very lenient on
employees. They generally did what they wanted. Cooks might come to the restaurant drunk
and sometimes not even show up to work, forcing Hayek to either shut down Santorini for a day
or two until the cook sobered up and came back to work. Hayek was so nice to his employees
that he sometimes would pick them up from their homes to bring them to work. When someone
asked him why he did not hire the right people to work for him, he told them that good people
cost money and he could not afford them.
In December 2005, Mr. Hayek found a partner named Ralph Vincent to invest $150,000
in Santorini in exchange for 49% of the business. Mr. Vincent was a prominent businessman in
Jackson, but with no restaurant experience. The first thing Vincent did was to increase menu
prices by 30%, followed by eliminating the advertising budget, reducing the number of
waitresses. In addition, the restaurant’s working hours were reduced. Vincent began bringing
his family and friends everyday to eat at the restaurant, but did not pay a bill or sign a ticket. Mr.
Hayek soon realized that Santorini was nothing but a tax write-off to his partner.
In spite of the measures Mr. Vincent implemented to reduce losses and try to bring the
restaurant to profitability, the restaurant continued to lose $6,000 – $8,000 a month. Service was
declining due to reducing servers’ hours. There were not enough servers to assist customers
adequately. Major food suppliers stopped selling on credit to Santorini because Mr. Hayek was
often two months behind in payments. In spite of these mounting problems, Hayek would often
leave the restaurant during business hours to go to the gambling boats in Vicksburg, Mississippi
to play the slot machines.
Mr. Hayek thought about bringing a belly dancer from out of town to dance on the
weekends. He believed that it would be a new experience in Jackson, and expected sales from
the various alcoholic beverages to increase. He believed that alcoholic beverages had high profit
margins and that was what he needed at this point.
Mr. Hayek soon contracted a belly dancer to dance at Santorini on the weekends. He
agreed to pay her $1,500 to dance for eight hours total, split between Friday and Saturday
evenings, in addition to providing for her travel and lodging expenses. He advertised in the
paper and on the radio. The results were a good turnout but not enough to be profitable.
After a year and a half of losses, in June 2007, Mr. Vincent decided to break the
partnership with Mr. Hayek. By that time Mr. Vincent had lost all of his investment. When the
split occurred, Hayek was forced to change the name of the restaurant because Vincent claimed
that he owned the rights to the name Santorini. As a result, Hayek left the Santorini sign outside
the restaurant, but all menus now had the new name Hayek had chosen, Aegean.
The pressure further mounted on Mr. Hayek as his chef, Ms. Mansour, was getting fed up
with him not paying her on time and sometimes being a month late. Food inventory in the
freezers such as lamb meat, fish, and chicken were very low because suppliers stopped delivering
food on credit. Subsequently, the chef quit her job on October 2007.

73 ©JBSQ 2010
 © Nile M. Khanfar, David Loudon and Bahaudin G. Mujtaba

Mr. Hayek decided that his only option was to start learning how to cook. A
complication was that only the assistant cook kept coming to work, usually drunk and at times
did not even show up. Mr. Hayek and his wife reduced business days from seven days a week to
five days. They worked 16 hours a day, mainly preparing and cooking in the kitchen. They also
reduced the number of waitresses to three. However, even that was not enough to make the
business profitable. Many customers complained about inconsistency in the taste of the food and
poor service. Due to being over-worked and exhausted, Mr. Hayek at times did not show up to
work but would leave a note on the front door that Santorini was closed for a day or two. In the
summer of 2008, Mr. Hayek suffered multiple strokes due to the financial pressures of not being
able to even meet the restaurant’s monthly lease. In September 2008, Hayek closed Santorini
and filed for bankruptcy.

Discussion Questions

1. What do you think of the business plans of Mr. Hayek? Did he do everything possible to
effectively assess and project the success of this restaurant?

2. What are some things that went wrong in the operation of this business?

3. What could have made this entrepreneurial adventure more successful?

4. Should Mr. Hayek have tried to learn how to cook before the chef quit?

5. Can something such as not having sufficient parking space be a major problem for the
success of a restaurant? If so, what are some alternatives to this problem in big metropolitan
cities? Discuss your thoughts.

6. In August 2008, if you were Mr. Hayek, what would you do?

7. Why didn’t the partnership process work for this restaurant? Discuss and offer suggestions
for effective partnerships in the restaurant business.

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