The Riese Brothers
A True Story of New York
If you’re looking for a true New York story, the Riese story is it. The saga begins in a tiny deli in Harlem in the 1920s, where Murray and Irving Riese, the sons of Samuel and Minnie Riese, recently immigrated Russian Jews, sold Russian delicacies and sundries. By the time the Riese family settled at 5th Avenue and 124th street, the Russian community in Harlem had already started to dwindle. The father, once a furrier in Russia and now a grocer, soon found himself raising a family in extremely tough surroundings. As an already slow business began a steady drop off, the Riese family found itself on home relief — the Jazz Age precursor of welfare.
Not long after the sons were old enough to help out around the store, the shop went out of business during the height of the Great Depression. The older Irving managed to graduate from DeWitt Clinton High School, but Murray dropped out of ninth grade to take on three jobs a week.
A Classic Climb From Poverty
By 1940, the pair managed to pool their resources and bought Paul’s Luncheonette, a run down deli on 40th street between 5th and Madison. They made the $10,000 purchase with just $400 in cash. At Paul’s they worked 18 hour days, six days a week. Irving was 21 years old, and Murray 18.
They poured their lives into the store, delivering sandwiches while repairing the shop and making it presentable. After two years of this, the little establishment caught the eye of a real estate broker, who announced he had a buyer. The pair ended up selling the store for $35,000. More importantly, a lesson was learned. It’s a lot more profitable to sell a store that sells a sandwich than to sell the sandwich itself.
For the next ten years, the pair found themselves buying luncheonettes, coffee shops, Mediterranean restaurants, Italian restaurants, Chinese restaurants — whatever they could find. Once they owned them, they quickly fixed them up and sold them. They learned not to be married to one type of restaurant or food store, or to any one particular location. They had become buyers and sellers instead of sandwich makers.
By the 1950s, they had sold hundreds of restaurants and food shops. The brothers earned a reputation as tenacious lease negotiators and tough landlords — a reputation they would carry with them the rest of their lives. In the 1950s, both Murray and Irving, now married with children, moved to the suburbs, which to them was Flushing, Queens. In 1953, the IRS ruled that for tax purposes, the pair were really broker-dealers, and not restaurateurs. That meant that they would have to hold onto their restaurants for three years to gain advantage of the capital gains laws governing buying and selling — as opposed to six months.
The three year ruling thrust them back into the restaurant business. They set their sites on Times Square, acquiring restaurant properties with long leases — often 50 years or more. They often owned two or three corners of an intersection, monopolizing not only Times Square, but Grand Central Station and Penn Station. In 1961, they acquired Childs — the McDonald’s of its day — and the Riese’s first national chain. Then in 1969 they bought Longchamps, owner of Mark Twain’s Riverboat in the Empire State Building. There was also a Longchamps on the corner of 41st St. and Broadway, near the old Metropolitan Opera House. Many of these properties evolved into new restaurant properties, like Brew Burger, and then into T.G.I. Friday’s — all of which are still owned by Riese.
In 1973, they acquired Schrafft’s — which like Childs was once a proud but tarnished national chain that was losing money. The motivation behind all their acquisitions was the real estate. The Rieses recognized that the Empire State Building, or the space near the Met, had intrinsic value — even though they had become money losers. Just like Paul’s Luncheonette on 40th and Madison.
Then came the real estate boom in the late 1970s. The Riese’s found themselves sitting on hundreds of midtown properties that major corporations wanted to convert to skyscrapers and office space. Irving and Murray made millions selling coffee shops to corporations. They sold one ham and egg shop on 7th and 51st to a major international corporation for $7 million. And the list goes on and on. The lesson was the same: it pays more to sell the sandwich store than to spend a lifetime making sandwiches.
Buying and selling restaurants for more than 50 years also taught the Rieses the value of coupling real estate and restauranting. To this day, The Riese Organization employees some 3,000 people, some of whom work exclusively in real estate, while other work on the restaurant side. The hybrid nature of their company has became the key to their longevity. With their expertise in Manhattan restaurant development, the Rieses know just how much money a restaurant can expect to generate. With their experience, they could accurately predict the return they could expect from a property they were buying, allowing them to make offers for real estate few others could match.
In 1988, at the peak of the real estate boom, the organization bought the Gilbert/Robinson company, owners of the Houlihan’s chain. The acquisition brought the total number of restaurants in the Riese empire up to 500. By that time the company was generating more than $300 million in sales, and was serving more than 100,000 diners every day.
In the 1980s, at the urging of Murray’s son Dennis, the pair started opening franchises in their Manhattan properties. The tough landlords quickly became known as tough franchise operators. They defended their tough reputations in the franchise market by explaining that the rules placed on them by franchisors did not apply to the Manhattan market, which was an entirely different market from the suburban family market pursued by most national chains. They talked about the franchise relationship in David and Goliath terms — with the national franchisors being Goliath. The way they looked at it, The Riese Organization stood up to the short-sighted national chains, who didn’t have the foresight to understand the value of innovative but untested Riese concepts like food courts, which soon proved to be a key franchise marketing technique. Generally, they got away with their tenacious stance, since franchisors were eager to break into Manhattan, but had little experience in doing it. Rules were bent, fees were renegotiated, franchise agreements were pushed to the limit — and the Rieses acquired their reputation along with their restaurants.
On To The Hall Of Fame
Earlier last year, the Riese brothers were inducted into the National Restaurant Hall of Fame. The innovation cited at the ceremony was the Riese brother’s 1980s concept of food courts A food court is where one property is occupied by several different restaurants, each sharing the seating and services with the others. The first retail food courts, which have become popular across the country, were started by the Rieses in Manhattan in the 1980s. The first food court was at what is now the Viacom building at 1515 Broadway. By sharing the maintenance costs, the individual restaurants save money, and therefore can typically turn a profit sooner than stand-alone operations. The Riese’s also pioneered the use of a single kitchen for several franchises in a food court.
The concept of dual-branding, which means placing ostensibly competitive brand-name franchises — like Pizza Hut, Dunkin’ Donuts and Kentucky Fried Chicken — under one roof in a single food court, kept The Riese Organization growing through the 1980s. In Manhattan, the Rieses built food courts as stand-alone retail units, giving customers several familiar franchises to choose from. Riese-style food courts would become the model copied by many restaurant chains in cities and malls around the world.
The stand-alone food court concept took shape after a dispute with Roy Rogers, which in the early 1980s was owned by the Marriott chain. Marriott threatened to take the Rieses to court in 1982 when they discovered the Rieses were reserving space for Häagen Dazs and Godfather’s Pizza in a property slotted for a Times Square Roy Rogers franchise. Similar suits took place when the Rieses began advertising different franchises on the same bill. The Marriott law suit was settled before any actual court battle, and food courts began popping up — one with nine franchises under one roof — all through Times Square, Penn Station and Grand Central Station. Ironically, many year’s later, Marriott has itself become a leader in what is now known as multi-branding.
By the time the brothers died in the 1990s, they had owned more than 1000 restaurants between them. Murray’s son Dennis came back to the company in 1991 after his Uncle Irving passed away at age 70. Murray himself died four years later.
Dennis had been with the company twice before, once as Chief Operating Officer in 1981 at the age of 31, and quickly became president and CEO during his third stint. In the late 1980s, Dennis had left the organization to start his own restaurant investment business. In 1986, he acquired the original T.G.I. Friday’s on 63rd and 1st, and eventually added Little Caesars, Chili’s, Chi-Chi’s and several other properties to his portfolio. Groomed to lead the company, he became majority owner in 1993.
A baby-boomer, Dennis recognized the power of brand-name recognition, and brought the concept of franchising to the organization in the 1980s. The brothers had the real estate, and Dennis convinced them to bring franchises in to fill them. The new concept was a godsend. In the seven years Dennis was with the organization from 1981 through 1987, The Riese Organization quadrupled sales and quintupled profits — and began gaining a national reputation and a lot of press coverage. Amazingly, the company had come to its position of prominence without advertising, and without the support of the restaurant or real estate industry.
Today, the story is still a New York story, although Riese has certainly entertained offers to build restaurants from countless entrepreneurs around the world. Manhattan is a unique environment for both real estate and restaurants, one that takes a lifetime — and two generations — to master. And there’s plenty more to accomplish — right here in the neighborhood. As Dennis Riese will tell you, they’ve come a long way from Paul’s Luncheonette at 40th and Madison — but really it’s been just around the corner and back.