INSIDE DISH: Egyptian Cafe posts hot profits, fears smoking ban

Welcome back to IBJ’s video feature “Inside Dish: The Business of Running Restaurants.”

Our subject this week is The Egyptian Café & Hooka Bar, a recreation of a typical Egyptian street café by Cairo native Mohey Osman. Arriving in Indiana in 2006 and hoping to start a business, Osman found he had nowhere homey to hang out during the day beyond the relatively sterile Starbucks. He charged ahead with plans for a luxurious lounge that would provide a full menu for lunch, dinner and late-night crowds, plus water pipes called “hookas” that are de rigueur back in the Middle East.

“There wasn’t a place like back home where you could enjoy a sandwich, invite your friend for a game of backgammon or to smoke a hooka and watch TV,” said Osman, 36. “I thought, ‘We need something like that.’”

Growing up in Cairo, Osman worked in his family’s café. When he moved to the U.S. in 1996 to escape military service, he invested in a hooka bar located in the Washington, D.C., area in addition to starting a pizza joint in the same vicinity. When his American-born wife wanted to move to Indianapolis to be closer to family, Osman sold his stakes in the businesses and began eyeing new opportunities.

Crafting a menu based on Lebanese, Egyptian and other Middle Eastern cuisine (plus the occasional bow to Midwestern tastes, such as Philly steaks and cheeseburgers), Osman went about converting a train-car shaped former Sprint store in Broad Ripple into a slice of Cairo. He invested more than $170,000 in the startup, including $65,000 to build out and outfit the kitchen and $35,000 to construct and connect bathrooms to utility lines.

Opening in October 2007, the café began to do blazing business. Osman went from two employees at the start to more than 20 within a year. When an identical space became available next door in 2008, Osman took the lease for that space as well, increasing seating from 42 to 90 people and spending $70,000 on the renovation.

“We needed it,” Osman said. “We lost a lot of business from people who didn’t want to wait outside. It’s hard for me to let them in, because it’s hard for people to enjoy their time in the restaurant when it’s packed.”

The opportunity to smoke hooka pipes is a big draw. The ornate pipes are packed with flavored tobacco, and the smoke is cooled and filtered through water and then passes through a long tube to the smoker’s palate.

Osman estimates that hooka smoking accounts for about 40 percent of his gross sales (food, 50 percent; beer and wine, 10 percent), but close to 70 percent of his customers partake in the social custom. So, his chief fear is that the Legislature will pass a ban on smoking in public places that will eliminate smoking in his establishment, and thus torpedo his bottom line.

“That’s my nightmare,” he said, noting that other states that have passed smoking bans have exempted hooka bars. “Basically my whole business is based on hooka. If they stop me from selling it or serving it, my whole business will collapse.”

The Indiana House of Representatives passed a smoking-ban bill in January peppered with exemptions, such as bars, taverns, casinos and clubs run by fraternal organizations. However, Osman’s restaurant as currently operated does not appear to fall under the exemptions. The bill’s next stop would be a hearing in the Indiana Senate’s public policy committee, although a hearing has not been scheduled. The Senate would need to pass a version of the bill, which then likely would need to be reconciled with the House version, before it could be signed into law.

The business typically posts an impressive profit margin of about 25 percent, according to Osman. Gross sales in 2010 reached $815,000; net income was about $220,000. No wonder, then, that Osman is tentively planning on expanding. He's currently scouting locations downtown.

In the video at top, Osman describes the origins of the cafe and how hooka smoking contributes to the top line. In the video below, Mohey discusses the recent revolution in Egypt, what his family went through during the most chaotic days, and how he thinks the country will settle into democracy.
 

The Egyptian Cafe & Hooka Bar 6265 Carrollton Ave. (317) 255-4400 www.theegyptianindy.com Concept: A restaurant and lounge patterned after Egyptian street cafes, specializing in Middle Eastern food and including hooka pipes for smoking flavored tobacco. Founded: October 2007 Owner: Mohey Osman Start-up costs: $170,000, with a $25,000 line of credit and the rest covered by personal savings. Major expenses included creating two bathrooms and hooking into city sewer and water lines, which ran about $35,000, and $65,000 to build out and outfit the kitchen. An expansion in 2008 to an identical, adjacent retail space ran about $70,000. 2010 gross sales/net income: $815,000/$220,000. Employees: 19 Seating: Approx. 90 Goals: To investigate opening a new location downtown, preferably on or near Monument Circle. Good to know: Patrons must be at least 18 years old, due to law regarding smoking establishments. On weekend nights, the cafe is a major draw for college-age patrons who wants to enjoy the bustling Broad Ripple atmosphere but cannot get into bars.