The co-owners of upscale Italian coffeehouse Caffe Primo in West Hollywood have a lot on their plate.
Their recipe, a mix of casual Italian fare served in a European-style restaurant, has proved alluring to a celebrity clientele ranging from Tina Turner and Rashida Jones to Oprah Winfrey and Daniel Craig. That popularity has emboldened Charlton Lui and Tony Riviera, principals of Primo Hospitality Group Inc., to embark on an ambitious expansion plan.
The pair, who also operate a Caffe Primo in downtown Los Angeles, said they have the backing lined up to open 50 Caffe Primos across California over the next three to five years.
Although industry observers say that quickly expanding a restaurant chain is especially tricky, the two seem undaunted.
“Los Angeles is one of the most difficult markets to crack into,” said Lui. “We found really great success with our two current restaurants and our customers seem to have a great passion for what we do.”
Their Century City company has signed leases for six sites across Los Angeles, and they said four will open by December. Immediate plans call for additional locations in West Hollywood and downtown as well as new outposts in Santa Monica, Anaheim, Santa Barbara and San Diego.
Lui admitted that Primo’s plan is aggressive, but said the restaurant’s advantage is its menu.
“One of the things that works for us is we’re really focused on the different day parts,” he said. “We do breakfast, lunch, dinner and late night. That is a lot of flexibility in how we set up our business and having the flexibility of generating revenue throughout the day.”
Paul Hibler, co-founder of casual pizza chain Pitfire Artisan Pizza and restaurant incubator American Gonzo Food Corp. in Venice, said expanding rapidly opens restaurateurs to a number of potential setbacks.
“The biggest challenge is the people and culture and trying to replicate it that fast,” he said. “It’s all about the people that you’re able to attract.”
Scaling a business rapidly puts added pressure on management to control quality across functions, from food to service. The more units a chain opens, the greater the opportunity to dilute what it does best.
Jerry Prendergast, a restaurant consultant with West L.A.’s Prendergast & Associates, also expressed skepticism at Primo’s expansion plan.
He said a company needs to have a strong infrastructure to be able to expand quickly. Even big operations such as Cheesecake Factory, which has its own real estate division, are often hesitant to take on rapid expansions.
For example, Prendergast had a client who wanted Huntington Beach-based restaurant Lazy Dog Café to open in its Hawaii property.
“We made them a deal that was hard to walk away from, but they walked away from it,” he said. “They said we can’t manage that yet, we don’t have the infrastructure set up. They’ve been in business for eight years, but they’re smart enough to know you don’t go too far, too fast or you just destroy everything.”
Swing, miss
Lui and Riviera have been partners for more than a decade, and not always in restaurants. Before forming Primo in 2004, the pair made an aborted run at forming a professional baseball league in Canada. The Canadian Baseball League, formed in 2002 and headed by Hall of Famer Fergie Jenkins, operated for one season before folding in 2004.
Lui said the foray into baseball was a fun venture and a departure from his work in the tech world, which included time at Microsoft Corp. He still lives in Redmond, Wash., Microsoft’s hometown, but said he visits his L.A. restaurants several times a month.
Riviera, a restaurateur, owned several restaurants in Seattle before moving to Los Angeles to launch Primo.
The planned expansion isn’t the first for the hospitality company. It announced the development of a new restaurant and gourmet market concept, Primo Cucina, in 2008, which was scheduled to open in downtown L.A.’s Arts District the following year. The restaurant never opened, leading to a dispute between Primo and Kor Group, developers of the Barker Block loft building that was to house the restaurant. A ruling in Los Angeles Superior Court last month came down in favor of the developer, and Primo was ordered to pay about $600,000 in damages.
The partners opened two more restaurants in West Hollywood in 2009: Primo Bistro, in the Ramada Plaza hotel, and casual steakhouse Tonys. Primo Bistro closed after a year. Lui and Riviera shuttered Tonys after less than a year but reopened it as a Mexican restaurant called El Borracho Cantina. That effort closed in 2010.
Luigi Osteria, another casual Italian restaurant opened by Primo, opened in downtown in 2012. It, too, closed the next year.
Lui said that at the time of the earlier expansion efforts Primo was getting approached by several developers to open in multiple locations, and the pair felt that it was a chance to try new restaurant concepts.
The two Caffe Primos have fared better. The first opened in 2007 at Sunset Plaza in West Hollywood; the second at Pershing Square in 2010. Lui said the West Hollywood location generates about $2.5 million in annual revenue.
“I think the lesson for us, in the early stages, is it’s definitely better to focus on the one brand and build it out first,” he said.
Lee Shapiro, executive vice president of Beverly Hills real estate services firm Kennedy Wilson Inc., helped broker three deals for Primo and is negotiating more.
Lui and Riviera’s willingness to take on properties of varying sizes, he said, has helped them secure high-traffic areas.
“Some restaurants have a certain square footage and it looks the same every time you walk in,” Shapiro said. “They’ve leased spaces ranging from 2,500 square feet in Santa Monica and one at 6,500 in downtown. That huge range of size allows that tenant to be nimble and take the best locations (rather than) having to have a minimum size and missing out on spaces.”
Lessons learned
To prepare for the opening of as many as 50 Caffe Primos, Lui said the company is in the process of beefing up its management team; hiring staff; and outsourcing functions such as HR and employee benefits programs.
Primo has also invested in its training program. Lui said the company has a separate training budget to ensure it doesn’t cut corners so staff members are well trained before opening.
He declined to say what the anticipated startup costs for the expansion would be or who was bankrolling the expansion, but he said the company has funding from several investors who have committed to opening 20 stores and subsequently a total of 50 over the next three to five years at an estimated total cost of between $50 million and $100 million.
If all goes well, he said, each location could generate about $2 million in annual revenue.
That’s an aggressive number, said Prendergast. He said the $2.5 million in annual revenue Lui said the West Hollywood restaurant generates breaks down to about $7,500 in sales each day.
“If you had a $10-per-person check average, figure that out. I’ve got 750 customers walking through the door,” he said. “Let’s say his busy time is 10 hours – that’s 75 customers an hour. That’s a 45-second transaction time.”
Lui, for one, is undaunted. He said the company is keeping its focus on California for now, but eventually hopes to open Caffe Primos across the country and even internationally.
“We are geared up to be a national company, a global company,” he said. “So, we do need to make sure that we can run this from afar.”