LA Restaurants Fight to Stay Open After Fires | GianCarlo Pagani | Roozbeh Farahanipour

LA restaurants are not doing well, especially after the fires. Before the fires, we were hearing from people, restauranteurs in LA, that things are not going well. The cost of food went up, the cost of labor went up, and the reservations went down. But after the fires, things got a lot worse. My guest today is Giancarlo Pagani, who's a successful restauranteur from LA who owns multiple restaurants. He's been taking some action on all of this. Today, he's gonna tell us what does it look like on the ground in the restaurant space in LA, where the space is headed. Also, he will tell us what does it take to start a successful restaurant. I'm Siamak Khorrami, welcome to California Insider. Giancarlo, it's great to have you on, welcome. Thank you, thank you for having me. We wanna talk to you about restaurants in LA, and especially after the fires. They are not in a good shape. Can you tell us what's happening? The fires was a shock to the entire restaurant industry. In a sense, it feels like a second pandemic. We were going into what looked like one of the strongest Januaries since COVID, I'd say. I think 2022 was a very strong year, but since then, we were going into a very strong January that was impacted immediately by the fires. And I think like most small businesses in our industry, restaurants, nightclubs have been impacted severely by it. The week of the fires, we shut down the restaurants for a couple of days, just to understand what was happening. And first of all, to make sure everybody was safe. And then also, we didn't wanna be open during what was happening. Shortly after when the evacuations were raised, we reopened the businesses, and with a lot of unknowns and uncertainty, if there would be any diners, but from our perspective, we had to open to give our teams a chance to earn a living. Because if we're shut down, that means there's hundreds of employees that can't work. And while we're going through this experience, I was personally talking to other friends who own restaurants or other small businesses throughout Los Angeles, and we were all in the same boat at that point. And as we started listening to the mayor, the governor, all the city officials talking about recovery, there was a lot of narrative around rebuilding without anything specifically related to supporting small business. And so I took it upon myself to write a petition to Karen Bass and to Gavin Newsom with a very simple request. And the request was to add narrative whenever they can about getting people to go out and support their small businesses, whether that's going to your favorite museum, going to your local coffee shop, going to your favorite restaurant. All of that helps the local economy because a lot of the people that work in our business, especially in the restaurant industry, are people that were directly impacted by the Eaton and Altadena fires and the Palisades fires. So we have people throughout the city that had a devastating incident and then can't work to try to dig out of the hole. And so it took it upon myself that at least if I can get people to support this idea of talking about getting out of the house and going supporting your local business, it would help. Did it create a shock for the community so people didn't come to the restaurants? Absolutely, absolutely. I think it's such a significant incident to happen. And so if you've lost a home, I can imagine you're not thinking about going to any restaurants. Reservations get canceled and plans get canceled in general. Are the restaurants doing okay? Are they back to normal? Some. Mother Wolf, which is in Hollywood, has mostly recovered from January 7th. We just recently, this past week, reopened Monday service and now we're back to seven days. And we're not at 100% of where we were before January, but we're on the path and we have confidence in that business. Another one of my restaurants, MXO, by West Avila on La Cienega in Melrose, is not the same story. We opened in last September with really great reception in Los Angeles. And by December we were, I mean, the business was doing fantastic. And post-fire, it's been a very difficult recovery. We haven't recovered because I think the business was a little bit too new to have such a devastating kind of citywide incident happen. But a lot of the restaurants that have been institutions in LA, you start to see recovery. But at the end of the day, if you go on Open Table or if you go on Resy right now, you can probably get into the hardest restaurant to get into in Los Angeles, whichever one it is. Whereas three, four months ago, to get a primetime reservation on a Thursday, Friday or Saturday night was probably impossible. You wouldn't even try. Check now, you could probably get in. And that just goes to show that there's a lot less diners going out to restaurants and the pool of diners has just shrunk. And the average ones were the ones that didn't have that big of a following or that they were not that hot. They are probably struggling. Yeah, they're struggling. For your petition, the goal is to raise awareness so that people can come out and dine. Has that had an impact? I haven't heard personally Mayor Bass or Gavin Newsom go out publicly and start saying these things. That doesn't mean it hasn't happened, but just I haven't specifically heard it since the petition was filed. Although we did get a lot of support in the process of the petition by City Council member of District 4, Nithya Rahman. She was a big advocate. She signed the petition. She helped connect us to Mayor Bass's office and we had a great meeting with them, I wanna say two weeks ago. And they were actually great at giving me and my team a lot of information that we didn't know was available in regards to how to get support if your business was impacted. Whether it's a way to deal with the SBA or whether there was websites for additional information, but a lot of that we used not just for our business, but we passed the information along to our team members who needed support. There's an event site to your business as well and that has been impacted, right? Can you tell us about events in LA? Yeah, so I think the biggest impact to my business was from events. In January with the Grammys, that's one of our strongest periods of the year for events and this year with the fires happening in early January, all of the Grammy business was canceled. And then the next big period of time in Hollywood is the Oscars and the Oscars still went on and it definitely recovered significantly from the Grammys, but a lot of that business was still lost. And when those events get canceled, can you tell us how it works? How does it impact? From a venue owner perspective, it's not just that we lose the revenue or the event, these events have a small micro-economy around them, whether it's food service providers, production and lighting companies, cleaning companies, outsourced staffing companies, there's all these different layers to producing an event that now people that work in those departments or those companies lose opportunity. And so all of that has gone. All of that. The event gets canceled. Correct, all that goes away when one events get canceled. And you hope that if it's not related to a specific kind of citywide event like the Grammys or the Oscars that they may rebook in the future to kind of recover that, but it just depends on what the purpose of the event was. How long do you think for it to come back? Do you think the event business is coming back? Is it coming back already? Slowly coming back. It's certainly not where it was at this time last year. I truthfully think it's gonna be another year before we're really recovered. Our sponsor today is Shen Yun. There's been some negative press on Shen Yun recently. Shen Yun's mission is to revive ancient and traditional Chinese culture. Shen Yun performance started by a group of Falun Gong practitioners in New York. Falun Gong is a spiritual and religious group which believes in living by truth, compassion and tolerance, putting others first. The Chinese Communist Party, CCP, has been persecuting it since July of 1999 in China. Since Shen Yun started, CCP has been targeting it in the U.S. and across the globe by playing different kinds of schemes to cancel the shows or impact the performance. The current negative reporting originated from some Chinese social media accounts. And we know that CCP has given a new directive to go after Shen Yun and Falun Gong in the U.S. by turning the public opinion against them. If you hear something negative on Shen Yun, make sure to do your own research and your own due diligence. Despite all of CCP's campaigns against Shen Yun, the show has managed to grow significantly across the world. I highly recommend you go see it. I've been going to it for the last 14 years as they change the performances every year. They're coming back to California. Make sure you go see it. We decided to talk to more restauranteurs from LA and we sit down with also Luzbe Farhanipour who is not only a restauranteur, but also he's the president of West LA Chamber. While Luzbe shares the same sentiment as Giancarlo and sees similar problems on the ground, he has doubt that LA government and California government will be able to solve this issue for restauranteurs. You have a few restaurants in LA. We want to hear from you how the restaurants are doing, especially after the fires. The restaurant in LA, the reality is, myself and many of the restaurant, we are doing better during the COVID than now. Now is way more tougher time and everything day by day, supply chain shortages, inflation, we are struggling. Doesn't matter which part, but every single part we are struggling. Every day, a lot of the clientele, especially I am in West side, we are very close to Pacific Palisade. We lost many of our own clientele. They lost their homes. Many of our employee, they have a struggle to come from the Glendale area. So that's in general, we are directly get affected. Yeah, the people, they don't feel the security of the life anymore. They are scared. They are not feel comfortable. Another example, the crime is skyrocketing in LA. California is leading, but LA is top of the list. And at least in one thing, we are leading everybody in California on the crime. Last year, 2024, three times, I had a break-in at my restaurant. One day morning, when I got a call with the alarm company, I went to the restaurant, LAPD was there. They are working on the police report. They gave me the police report. And after a few days, I got a call from the city. I received the notice for the false alarm. They gave me a ticket. I was a victim. They vulgarized my restaurant. They took the item from my restaurant. And I started arguing with them. I said, I'm not gonna pay. This is not a false alarm. I have a police report in my hand. And at the end, that was a silence for a while. Yesterday, I received a letter from the lawyer. They got hired by the city of LA, demanding money for the false alarm. I can send you the copy of the letter. You can have it. I don't mind. You know me. That's the inflation. First group of the people, they get hurt, frontline. That's us, restaurateurs. When we buy the case of egg, $165, $68, and we wanna serve the breakfast, and the people come, still, we didn't change the prices. The people complain about the prices. And when we see our neighbors, Denny's, they have a surcharge on the eggs. We are not even have a surcharge on the eggs. The people cannot afford it. We need to create a menu, a special menu for early bird, for the daily special, breakfast special, to make sure understand the people, because we are the people dealing with the people in needs. The people, the seniors, the other people, they facing and facing our restaurant staff before anybody else. They are not seeing the mayor or city council members every day, but seeing our servers, the people who's serving their food, they're seeing the chef cooking their meals, and they are not dealing with the prices. Now, there is a petition that's going around to help the restaurants, to have people come out, the governor and the mayor, to come and tell the residents to go out and eat out. What are your thoughts on this? Do you think the leadership of the state and city, they have any reputation and the people are gonna listen to them? If the people listen to them, when the governor banned the restaurants during the COVID, and nobody allowed to be on the restaurants, and he was on the French laundry, do you think he has any reputation to ask the people to go or not to go to the restaurant? Or when the county of LA, she, like you, a former supervisor, banned the restaurants, outdoor restaurant, the same night she went to her own favorite restaurant, dine outside, the people are gonna care? Or when the city burning, the mayor is overseas, why do you think the mayor, if he ask the people to go out and support the restaurant, the people are gonna go and support it? I'm not fanning to asking anything from government. I feel like the people needs to think about their own, and they need to elect the people. At least on the business side, they have some business experience. They know how to run the business. They cut the paycheck. They struggle with the paycheck. They struggle with the labor. They had all of the challenges, the daily basis we have. Can I pay the payroll? Or I need to pay the rent? Or I need to buy the food for inventory tomorrow? Or pay my own mortgage? Or my tuition, my kids? So when they don't have these kind of things, when they shut down the country and the state for two years, and they get their own salary every month, and the other people, they didn't receive the money, so I don't know why we should ask them to help us for any reason. I'm not fan of the asking the government to helping the people. I think the people should helping each other and be smart and supporting their small businesses. I remember when I came to this country 25 years ago, 26 years ago, I came as a political refugee. Legally I came, I build up my life here, starting working even with my law degree background, and I was a publisher in my previous life. When I came here, I start working and bossing the table at other restaurant. I build up my restaurant business, and I become kind of the American dream. I can call it American dream. But I hope I'm not the last generation of the American dream. I hope this dream, an American dream, continue for the future, and the people can come and achieve and become successful people. The people, they are not comfortable, including myself. When I wanna go outside with my family, we wanna take a vacation, I don't remember when was the last time I took the vacation with my family. Now, what do you think will happen to the restaurants in LA? Do you think there will be a lot of shutdowns in the next couple of years, in the next year? I hope not. I hope the people try to find a way to survive. I hope they can find and modify the model of the businesses. They can survive. But 2025, for sure, is a survival mood. That's the best thing we can say. It's not the year the people can be expanding. The year the people needs to be survive until next year. I feel like, hopefully, we're gonna have better future 2026. And 2026, anyway, that's a big year for us. That's an election year for the California. Roozbeh Farhanipour with West LA Chamber. It was great to have you on California Insider. So, in terms of the restaurant space, even before the fires, we've been hearing from restaurant owners that it's a very tough time. And the bookings in LA went down by 10%, according to Open Table Booking, last year, in 2024. That's numbers that you got from Open Table? Yeah, yeah. That's the numbers I got. Do you guys see that in the restaurant space? I know you're one of the top performing restaurants, but do you hear that in the community? Absolutely. The narrative with restaurants is that it's one of the most difficult businesses to be in. And part of that is you've got rising costs of flavor, rising costs of all the products that we serve, so all of our cost of goods sold, whether it's the produce company, or the meat company, or the dairy company, all those costs continue to increase. And there's a price sensitivity for how much you can charge for any single dish. And so there's a certain threshold. Elasticity. Yeah, there's a certain elasticity threshold to where our costs will keep rising, but we can't increase the price. A guest will only pay so much for a certain item. And so what we have to do is focus on the overall guest experience to justify any price increases, whether that's additional service steps, or building restaurants with more beautiful design, but all those things kind of play into our pricing strategy. And did the inflation, the price of food going up, impact you guys significantly? Absolutely. Your profit margins are already, what we like to say, razor thin. You've got a lot of moving parts to manage daily in order to kind of meet a bare minimum expectation of profitability. If the price of goods is too high that you start cutting the quality of the goods, it's gonna impact the overall business. So there's so many sensitivities in our business that make it very difficult to manage. And we are hearing some menus, some portions are shaking. Does that happen? I imagine that's certainly happening at most restaurants, or at some restaurants, I should say. It's not happening at ours. I think part of, I think that your value proposition for your menu item is very important. So whatever you're charging, people have to feel like they got their value. And a lot of people like to get into the restaurant space, right? People wanna get in, and it's a tough business. Sure, and I mean, don't quote me on specific numbers because I'm just gonna repeat what I hear, but there's a narrative that nine out of 10 restaurants will close in their first year, statistically. And I believe the reason that is so high is, one, there's an incredibly high volume of restaurants opening every year, and two, I think the majority of those new restaurants that are opening are opened by people that have no experience in the business. To open a successful restaurant, there's no specific formula that works for every restaurant. One, you need to have a concept that you believe will resonate in the market and have differentiation from what else is in the market. I think, two, especially in LA, you need to have a great chef with a great story, and people in LA love that specifically. I think you need to have really great sourcing capabilities of where you buy your products from, whether that's local farms or the right meat purveyor. But I think, especially in Los Angeles, the quality of the products you're serving is very important compared to other markets. Location is always an important factor. However, you can't really explain why some restaurants in what you'd call a bad location thrive and some restaurants in a great location don't survive. So sometimes there's an alchemy that exists that's just unexplainable with certain restaurants. And I think you need to be well-capitalized. I think one of the biggest challenges with new restaurants is people think that, one, people don't budget for working capital, and a seasoned restaurant investor is always going to have a healthy working capital balance going into a restaurant to cover costs for the first, at a minimum, three months, but probably up to a year to get through your stabilization period. And so I think a lot of these restaurants go in underfunded. They think, okay, it's gonna cost me, just random number, $100,000 to open the doors. Sure, it's gonna cost you $100,000 to open the doors, but restaurants aren't profitable on day one, so you need to account for those shortfalls for the first several months. And I think that's where a lot of people get shocked is they think, okay, well, if I just put this $100,000 in, then I'm good. And the reality is they didn't think long-term, and so this is the first one that's closed their doors because the second they're short payroll and they don't have the liquidity to do a capital contribution, well, then their business shuts down. The business is flooded with restaurants opened by people with no experience, and sometimes they're very successful, but I think the majority, unfortunately, are not. Is there a lot of details involved in managing a restaurant? Does it take a lot of day-to-day details? Absolutely. It's like theater. If you're the producer of a Broadway show, you've gotta be there every single day to make sure all those moving parts and all those fine details are executed daily, and it's unforgiving, and you're only as good as your last service, in a sense. So it takes a lot of oversight and day-to-day management from operations, from culinary, from marketing, all the components of the business. And not to mention, it's a business that's heavily predicated, your success is heavily predicated on people, so you have human error, so you're managing human error. Danny Meyer wrote a great book about this, but one of the analogies is running a restaurant is like herding kittens, and it's like the second one kitten runs away, you bring it back, the next one runs away, you gotta bring it back, then the first one runs away again, and you're just doing that all day long, and it never ends. It's just herding kittens for the eternity of your restaurant. It's a funny analogy, but it's what it feels like. How do you keep a restaurant successful for a long time? Because I understand, a lot of places, they open and they're very successful for a year or two, and then they die off, in a sense. Is that true? I think like any service business, your commitment to the guest experience and your commitment to the employee experience is really important. So if you have a strong company culture to where your employees love coming to work three years, five years, 10 years later, that's gonna translate to guest experience, because at the end of the day, in a service business, our service is providing food and hospitality, and if we're not executing slowly over time, our business will start to fade. And so we have to constantly be committing ourselves to keeping a very strong restaurant culture to where when guests come to the restaurant, they feel as if it's got the same energy it had from day one. So they feel the same experience as the... Yes. Now you've filed this petition, and you've got some support, 2,000 plus, over 2,000 people have signed it, and they wanna make sure the restaurants are good. In your opinion, what should LA do to help you guys out? The simplest thing that I think Karen Bass and Governor Newsom can do is just start changing, or amplifying the narrative of getting people to go out and support their small businesses. I think that's gonna be very impactful. When 9-11 happened, Mayor Giuliani was very clearly telling the people of New York that we have to get back to normalcy, like go to the movies, go to have dinner, do all these things that you normally did to quickly rebuild New York. And we're in the same situation in a sense, where there's this devastating fires that happened, and people are scared and nervous, and there's a lot of narrative about rebuilding, but people also need a little bit of a nudge to say, hey, it's okay to go out, it's okay to go to your favorite restaurant, it's okay, it'll make you happy, but it's also good for the local economy and the small businesses. And so I think that's really what we're looking for, is we're just looking for the narrative to nudge people to get out of the house, if they can, if it's within their means at this point. And you guys actually, you decided to feed the firefighters when the fire broke, can you tell us about that? Yeah, absolutely. So I think anytime there's something that happens where there's a call for support, hospitality workers are one of the first industries that always rise to the occasion. So the day we closed our restaurants after the fires on the 7th, the majority of our team came into work on their own as volunteers to help prepare meals for first responders and families in need. And it's like a beautiful thing, it's like they're the ones who are always stepping up to help out. And so the petition is my way of trying to get them support so that people can support them now. But we supported World Central Kitchen and first responders in all the restaurants. So they volunteered their time, you probably came up with the food and the kitchen, right? Yes, we utilize our space, we use a lot of the product that we had already purchased before the fires happened. And then a lot of our suppliers also rose to the occasion and donated supplies for sandwiches or whatever we were serving. When you talk about hospitality, you have this passion in your face. Where does that come from? So I'm second generation restaurateur, my father came from Argentina in the 70s and worked his way up the restaurant industry. In the late 80s and early 90s, he was the maitre d' at the Beverly Wilshire Hotel, which is a very prestigious job and he was the consummate maitre d'. And my mother was a bookkeeper at a restaurant. And so I grew up literally in the restaurant. So when I left school, I went to the restaurants. On the weekends, you were at the restaurants and so I literally grew up. And when my father opened his restaurant in West Hollywood, Pagani Restaurant in the late 90s, after school, I'd go wash dishes just to get experience, not paid, but when I get in trouble, you're going to wash dishes. And so I just grew up around the environment and then like most teenagers, when you turn 15 or 16 and your parents really want to get you to go out and get a job, my job was opening a restaurant. And I just happened to get a job as a busboy at Michael Mena's Fine Dining Restaurant that he was opening. And so I got to be part of a restaurant opening and part of the training and part of the setup at a very young age and I just loved it. And you have 400 employees and from what it seems like you're passionate about them, you want to make sure they do well. How did you get, where did you get their net from? I'd say somewhere 70 to 80% of the success of our business is based off the people that work for you, if not more. And so if you're in a business that's so heavily predicated on the people that work for you, how could you not want to work in an environment that you just love being around them? You have to be a people person to be in this business. You have to love the employees that work for you because it's hard work and you're all in it together. But at the end of the day, if you just don't naturally love being around happy people and making people feel good, you're in the wrong business. Hospitality is about making people have great experiences and great memories. And that's not just for our guests, it's for our staff too. So if that's not the culture, then I'm in the wrong business. And in terms of the restaurant space in LA, do you have any thoughts for the upcoming years? Do you think it's gonna get better or do you think it will take a while? I think it's gonna take through the end of this year to really recover from the fires. And so our outlook on this year is just to release, just to kind of stabilize. But what was gonna be one of the strongest years we've had since 2021, 22, now we're in kind of just hold on mode to keep the businesses alive. And now if people don't come out, do you think some of the restaurants might shut down as a result of? We've already seen, either LA always post the closure list. I think we're gonna see a lot of that in the next six months. I think the recovery from the fires has been a lot slower than people expected. And I think we're just starting to see the impact of the closures. Do you think it's all related to fires or do you think this was building up before the fires? It's difficult to say, because as I had mentioned, January was gonna be the strongest January we've had in years. So it was coming back after COVID. It looked like it was coming back and then we just got devastated by the fires. Giancarlo Pagani, Managing Partner at Mother Wolf and MXO, it was great to have you on California Insider. Thank you very much for having me. Excellent, we hope that everything will come back. Thank you, me too. What are your thoughts on the restaurants not doing well in LA? I think one of the things that all of us could do is go out and support the small businesses in the community, especially when there is a disaster like what we had in LA. Now, let us know what your thoughts are. You can always reach out to me at siamak.californiansider.com or comment. Remember, we always read all of your comments and emails. We'll see you next time. And I'm Siamak Khorrami and this is California Insider.