Alerts For A New Restaurant Venture

Vikram Cotah

Restaurant business is the most “romanticized” start up for many entrepreneurs. Most of them are fooled by the simplicity of the business on the face of it. Cook fancy food, serve, collect cash and put it in the bank.  Meet celebrities, entertain friends and get covered by media. Sounds exciting but the statistics clearly show that 90% of the restaurants fail in the first year of operation.  With only a one in ten chance of success, would you start a restaurant?

I get asked many times by friends and family, children of my associates and sometimes clients on tips on opening restaurant ventures, since I have been in the industry for a couple of decades and have opened several award winning and financially successful concept restaurants and operated them for GRT Hotels. 

I decided to put down some of the fundamentals I have learnt by operating several types of restaurants in varied locations. These are many steps you can take to increase your chances for success. 

·     Start by asking if you want to be an active or passive investor.

Most first time restaurant investors are lifestyle investors who like the “romance” of owning a restaurant. You cannot invest in a restaurant unless you are going to roll up your sleeves and work the shifts yourself or you have a seasoned successful restaurateur who has been through the basics of food and beverage business and is willing to partner you. Generally, a successful restaurant is with the “Active Investor” who has great passion for food and people.

·     Secure start -up funding 

You’ll need three pools of money:

1.    The first pool is for one-time costs like interiors of the restaurant, furniture, kitchen equipment, billing software etc. 

2.    The second pool is to cover the restaurant expenses (costs of operation) for at least six months

3.    The third pool is to cover your personal bills for at least six months, as you will be engaged with this business full time.

·     Location, Location, Location 

It is no doubt that the location is a critical success factor in restaurant business. To those starting out in the restaurant business, location might appear to be one of the most important ingredients to success. While location is important, it can also work against you. Choosing a location that is very popular for restaurants means the rent will likely be higher and the competition stiffer. You should select your location based upon the type of restaurant you wish to run and price the menu accordingly. Ensure that there is adequate parking as most of the times people might not take the trouble to park elsewhere and come to the restaurant

·     Look at Occupancy Costs

Review how much money it takes to rent and maintain a space including advance payments on rentals, monthly rentals, insurance, common area maintenance and taxes. The industry standard says this should be no more than 8 -12 percent of expected sales depending on the location.

·     Costs of Operation

After you total your startup costs, you must add in operating costs. These include your daily, weekly and monthly expenditures, such as payroll, insurance, utilities, entertainment and ongoing costs of goods sold. You have to be prepared for 6 months buffer of these costs

·     Consider cost of licenses, legal and “incidentals”

In our country, the costs of licenses and the cost of obtaining the licenses is dependent on the city and the area. There are a lot of hidden costs, which a novice may not be able to imagine before opening a restaurant. These costs can again be one time start ups costs and also recurring costs.

·      Have a solid business plan in place

Your business plan should include market research, a comprehensive look at your competitors, and information on your target audience, an outline of your marketing plan, and a solid financial and budgeting projection. 

·     Spending too much money to open is big mistake many operators and investors make

The biggest mistake which lead to failures often spending too much money on the interiors and equipment of the restaurant. It is important to have nice functional interiors, which make a statement for your concept and should match the type of the restaurant you are making and the menu prices. For example you don’t need fancy crockery and cutlery and plush furniture for a fast casual restaurant. 

·      Test your menu

It is advisable to test your menu in the locality you are planning the restaurant. Often what you think will sell is not the choice of the customers. You can get insights if you are able to sample with the customers who will pay for the food. Don’t do this exercise with friends and family, as you may not get the right opinion. 

·     Marketing

You must market your restaurant or bar and bring people in the door to earn money. This will probably be an ongoing process, and it affects your ROI. But, for pre-opening you have to provide marketing funds as part of your start up costs. High visibility and word of mouth are the least expensive of all marketing efforts

·      Hiring THE RIGHT TEAM is critical 

Ensure you invest in a good team with capabilities. They should not only be talented but committed to you during the ups and downs of the business cycles. Restaurant success depends on teams and how they are able to take care of the clients.

·      Plan to lose money for the first six months

Restaurants aren’t profitable overnight. It takes time to market your new place, attract a crowd, and get people to come back for more. Some say you shouldn’t plan on making money for at least the first six months.

·     Ensure you source the best vendors

Have contracts and deals for site supply and payments with the vendors including supply on credit terms etc. Don’t compromise on ingredient quality and the final taste and quality for recipe starts from the basic ingredients. Having said that it is important to ensure you have a through market knowledge and you are paying the correct process for the ingredients. Shelf life of food is a critical factor and needs planning and forecasting of business. 

·      Hire a Great Chef and know your concept

The first step to a successful restaurant is to hire a great chef and ensure that you have a strong concept and are differentiated among the competition among you. Your concept should be also familiar with the target audience for them to walk into your restaurant

·     Get a memorable name & logo

An important aspect to stand out is to have a unique name and logo. Spend some money and go to a good creative agency to develop a name and a logo for your restaurant, which makes you stand out. Do your research with other restaurants in your vicinity to ensure you get something unique. 

·      Ensure a unique menu card 

Your menu card is your first line-marketing tool. The menu establishes the personality and the niche for your restaurant. Spend some money and engage a creative agency to design your menu according to your concept

·      Build a dedicated website 

Today, you have to be discoverable online as most of the searches happen on smart phones on Internet. Build an attractive website which is search engine optimized and give clear directions and details of your restaurant.

·      Use social media

Social media is indispensible channel for restaurants today. Unless you use the power of social media in promoting and engaging the audience your restaurant will be lost in the crowd. Social media offers great opportunities to talk to your guests and ensure you are top of mind recall.