Why Good Restaurants Go Under Morgan's Owners Look Back On Their Mistakes

Posted: February 22, 1987

You may remember Morgan's. Many food-loving Philadelphians do.

Morgan's was part of this city's restaurant renaissance. Born in 1974 to restaurant impresario Jay Guben, Morgan's was adopted at age 2 by fledgling restaurateurs Alphonse and Anita Pignataro. He was a schoolteacher and Peace Corps volunteer turned chef; she left her job as a secretary to become the first student enrolled in the Restaurant School (also a Guben creation).

It was the era of small storefront restaurants in Philadelphia, and the couple created their own version of "a country inn in Center City." Morgan's was a labor of love.

"We made it what we wanted and kept the integrity of the food. Making a lot of money was never the motivating factor," says Alphonse Pignataro. "If Anita and I weren't working partners in the business, I don't think we could have made it as long as we did."

The end came just shy of 10 years later, in August 1985.

You might call this a requiem for a restaurant.

In fact, you might call this a requiem for two restaurants, for six months after Morgan's closed, a second Pignataro restaurant, Morgan's Bistro in Ardmore, which had opened in March 1984, also shut down.

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"Morgan's food was always very well respected. The interesting thing to me is that after the fact, people feel so nostalgic about it," muses Alphonse Pignataro, now director of the Center City Proprietors Association and far enough removed from his two restaurant closings - Center City tearful, Ardmore frustrating - to provide some insights.

He is addressing the perplexing question of how even a good and seemingly successful restaurant can fail.

"The closing of Morgan's on 24th Street (at Sansom)was much cleaner than the closing of Morgan's Bistro in Ardmore," he recalls. "The Bistro was an ugly situation that I don't care to talk about still."

At 24th Street, he says, "we made the decision, sold the place and paid off our debts. It became apparent emotionally, physically and economically that we couldn't continue with both places, and the potential at that moment seemed a lot greater for the business in Ardmore.

"If we had our druthers, I guess we would rather have stayed in business."

He recalled that a flattering write-up on Morgan's appeared in Gourmet magazine shortly before the end. "It was unfortunate that we weren't able to bask in the sunlight."

Morgan's is not the only good Philadelphia restaurant to go under. Since its passing, we have seen the doors close at Frankie Bradley's, Dave Shore's, Wildflowers, Arthur's, Le Champignon, Locust Street Oyster House (formerly Dockside Fish Company), City Bites, El Metate, Don Quijote and the Rusty Scupper, among others.

The problems that converged to bring about Morgan's demise are not atypical. In the best of times, the life span of dining establishments is about as predictable as stock prices. Restaurants open and close as quickly as Broadway plays. It's a tough business. And by and large, the public goes with the flow, moving on to the next trendy spot without a backward glance. Philadelphians, like people who live in other urban dining meccas, are known for jumping on the latest restaurant bandwagon, then deserting that restaurant a few months later.

Indeed, the remarkable thing about Morgan's is that it survived for so long - and left behind such fond memories.

The independent restaurant business is one of the most volatile businesses around - maybe the most, says Ron Gorodesky, senior consultant in Philadelphia with the national accounting firm of Laventhol and Horwath.

"We estimate that between eight and nine of every 10 restaurants that open are closed, sold or change hands within two years," says Gorodesky, who deals primarily with restaurants in Pennsylvania and South Jersey. "It's a tough thing to pin down, but that is based on what we hear in the industry."

Chicago-based market analyst John C. Melaniphy, a consultant to the restaurant industry, has much the same view. "For every one that makes it, there are probably a thousand that fall by the wayside," he says. "That may be extreme, but restaurants do have the highest attrition rate of any business in the United States. It is amazing the number of people who go into the food business with little knowledge and little capital."

He cites inexperience, undercapitalization, a bad concept, bad location and bad management as the principal factors leading to restaurant failures.

"We do know that the industry as a whole is prospering and growing," says Jeffrey Prince, spokesman for the National Restaurant Association (NRA). "But you just can't generalize."

Even the NRA figure of 4 to 5 percent average net profit, he says, is not reliable because of the considerable variation among restaurants. The amount of money lost by restaurants, says Melaniphy, is phenomenal.

"A lot of restaurants are doomed almost from day one because of unexpectedly high costs going in," Gorodesky explained, adding that the low profit margin also makes restaurants more sensitive to interest rates.

"In 1977, we had a nice year," Anita Pignataro recalls. "Then the recession came, and soon our loan, which was 3 percent above prime, shot up

from around 12 percent to 22 percent. That really was the beginning of our end. Being new to business, we got very nervous about (paying) our purveyors, and instead of waiting it out like everybody else did, we went and renewed our loan."

That, the Pignataros now agree, was a big mistake. Even at a slightly better rate (2 percent over prime), the added loan commitment put them in a $90,000 hole - and they couldn't get out of it.

"By the time we sold," says Anita Pignataro, "interest rates were back closer to 12 percent, but that wasn't enough to get us out of the mess we were in."

The restaurant had never run very profitably, the couple concede, chiefly

because of its relatively remote location on 24th Street. There was no residential neighborhood, no concentration of businesses, no regular foot traffic. Parking was a problem.

"In Philadelphia, people want to drive their car right into the restaurant and get out," Alphonse Pignataro quips.

The lack of evening activity in Center City was compounded by ever more restaurant choices in the neighborhoods and suburbs.

"People don't come into the city at night if they can help it," says Anita Pignataro. That was why opening the larger Morgan's Bistro in Ardmore's Suburban Square seemed like a good idea.

"They sought us out," she says. "They said they wanted us out there - even after Alphonse told them we didn't have the money."

"We expected the mall to be more of a draw," her husband continues.

Neither expected that most of the mall would begin closing in the evenings.

Entering the '80s, the tide of small boutique restaurants turned. Restaurants were becoming theater. With the opening of places like DiLullo's, Apropos and Marabella, restaurants were suddenly the place to see and be seen.

"By 1984, the restaurant picture was changing in the city," says Anita Pignataro. "Places like the Four Seasons, Harry's and Morton's opened. Le Bec-Fin started doing a prix fixe lunch. New places were bigger and more plush. People wanted to go to either very expensive or very inexpensive restaurants. And the moderate-priced places in between, like Morgan's, started to feel the pinch.

"As more places opened, the people that used to come a couple of times a week, we'd see maybe every other week. The lunch crowd was being spread thinner. I don't think we could have held on there, anyway," she says.

The Atlantic City casinos also had an impact on Philadelphia's restaurants, siphoning off business and creating greater demand - and higher prices - for foodstuffs.

"Even after business fell off," Anita Pignataro recalls, "we still had corporations that wanted a place for meetings, but our upstairs room only held 18 comfortably, and groups were often 20 or 25. If only we had had two more feet of space up there, it could have made all the difference. Downstairs was great for cheaters, with all the booths, but not for meetings."

That left just two options: renovate or find a new location.

"We never felt that given the business we were generating that it would warrant changing the physical plant," says Alphonse Pignataro. The two already had invested most of their early earnings and their off hours in renovating the old building, putting in new plumbing and wiring.

Now, says Anita Pignataro, "it's like they've come full circle. Small neighborhood restaurants are coming back. I look at the New South Cafe and at London. If they can keep the prices down, they may make it."

In retrospect, she sees the double demand on the couple's time as another problem. While her husband ran the kitchen at the Bistro, she managed things at 24th Street.

"I always felt that Anita's presence in the restaurant was almost more important than the food," says Alphonse Pignataro, adding that the way people are treated often determines whether they come back. His wife was always that up-front person, remembering customers' names and what they ate, drank and even wore on their last visit.

"One of the big mistakes was my not going to the Bistro from the (start)," she says. "We thought because it was a bigger restaurant ( 80 seats versus 35 in town), people wouldn't care as much about not having that personal touch. We had three managers out there with hefty salaries. I went out in August full time when Morgan's closed, and that's when things started to turn around. The sad part about it was that when we closed in Ardmore, the restaurant was just starting to move into the black. But by then, our

financial situation had grown exponentially, and it was too late to pull ourselves out."

There were financial pressures from all sides, she says, even as they reached the turnaround point with the restaurant. "We needed lower rent; we got behind on taxes and everything else."

An additional $75,000 to $100,000 in capital, they agree, was needed.

"But we were strongly committed to owning and running it ourselves," says Alphonse Pignataro. "We never looked for outside investors. That was the mistake we made when we opened the Bistro. We should have taken in investors. Instead we took a bath. Ardmore was the classic case of undercapitalization."

''The best situation, for us, would have been for Suburban Square to own the space and for us to have a contract as restaurant managers," says his wife.

On Wednesday afternoon, Feb. 17, 1986, six months to the day after closing Morgan's, the Pignataros announced that there would be no dinner that evening at Morgan's Bistro. The Ardmore restaurant was out of business.

Anita Pignataro recalls ruefully: "The day we closed, that Wednesday lunch, we were so busy."

What have the Pignataros learned from the experience?

"Our problems mostly had to do with us just being green," Anita Pignataro says. "First, we would never do it again with our own money, only with investors. And I don't know that we would do it in Philadelphia with the situation as it is here now, not until the Convention Center is built, anyway."

Says her husband: "My feeling is that if you find a restaurant you really love, you have to become a patron of that restaurant. It's just like a cultural institution, it needs your financial support."

As for Morgan's, the good memories remain.

"Actually, we loved the experience," he says. "It was a very happy period in our lives, despite the pressures. I'm not bitter about any of it. In fact, I'm probably stupid enough to do it again."

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