Restaurant Business Plan
Opening a new restaurant is always a tricky proposition for a small business owner. Whether it is a full-size buffet restaurant in the busiest section of town or an intimate bistro by the lake, new restaurant owners hope that their establishment will attract and hold a solid base of repeat customers. Many restaurants do in fact thrive, while others find themselves struggling to keep their doors open a year after their debut.
Historically, if there is a dip in the general economy, the restaurant industry is usually affected far less that the overall economy. To some degree this is because of people's perception that food, regardless whether it is from the grocery or a restaurant is a fundamental necessity of life and spend accordingly.
The term restaurant can encompass everything from your local pizzeria to haute cuisine. Essentially, restaurants serve and prepare food for the public. As our own cooking skills have declined, a new generation has become more and more dependent on someone else doing the cooking. No doubt you have eaten out yourself and have your own ideas about what makes a good restaurant, whether it is the food or the atmosphere. You may even think that the likes of Delia Smith have dream jobs. But you shouldn’t think that that makes you qualified to set up a restaurant.
Firstly, test your commitment to the trade. As long as you are prepared to run a business rather than merely indulge a hobby, you may be on to something. Too many people think like this, a possible reason for the high rate of failures. Then consider the competition. If there’s a whole street of French restaurants, then another French restaurant may be something that the public could live without. But if there’s nothing serving Mexican food, then there could be an opening.
Marketing skills are absolutely critical. You need to check out the location and the competition. What’s your catchment area? You can’t charge a premium when you first open. You need to know what will make people want to come and spend their money with you. With local research you can see what is popular whether it be Mexican, Thai, Japanese, whatever. Just how critical marketing is, is documented by the fact that in the late 2000s, approximately 97% of restaurants went bust within the first two years.
Restaurants nowadays tend to make most money targeting fun-seeking as well as sophisticated diners looking for good food in a fascinating atmosphere. You can earn excellent gross margins on your food and beverages in your restaurant by providing innovative settings, a wonderful menu, and an experienced restaurateur. By serving great, simple dishes in a modern stylish environment your restaurant could be the talk of the town or city. You will be able to attract critical acclaim, both locally and nationally, and with a frequent mix of famous faces, professionals and shoppers adding to an electric atmosphere, your restaurant and bar could be the ideal setting for any occasion.
Eclectic dishes, all of which can be freshly prepared and made on the premises by the restaurant's chefs will attract a wider customer base. By offering different types of foods on the menu you can appeal to all people, selecting wines and cocktails from around the world provide the perfect accompaniment to any dish.
Throughout the world the restaurant industry has produced year after year of consecutive real sales growth. Key factors behind this extended growth in restaurant sales include rising population, increasing real disposable income per capita, trend towards busier lifestyles, rise in spending on entertainment, and improved availability of good-quality dining options.
Over the last few years, the rapid growth of fast-casual chains has provided consumers a suitable source of flavorful food at reasonable prices, which offers a tempting alternative to cooking at home. On the other hand, the full-service restaurant industry continues to have a positive long-term outlook overall, supported in part by favorable demographic changes and consumer eating habits, a strong supply and demand balance, and superior restaurant services.
What qualities do all successful restaurants have in common that keep them thriving while others close up around them? Here are five considerations when opening a new restaurant in your area.
Location, location, location. Not just limited to real estate, this maxim applies to restaurants as well. You may have the best food, the best staff and the best prices, but if you are not located in a convenient area for potential customers, you will be out of business in a year. A new restauranteur's first instinct may be to lease the abandoned property of a former restaurant. This may work, if the traffic is heavy and the location is acceptable, but will work against you if the former restaurant went out of business for lack of customers. Research the history of any property you are considering for your new restaurant. You are not necessarily limited to buildings designed specifically for restaurant use. If the building codes allow it, consider putting in a restaurant near the court system or other high-traffic areas. You may have to do some heavy renovations at first, but the client base should make up for the initial investment. New restaurants stand a better chance of survival if you go to where the people are, instead of waiting for the people to come to you.
Advertise like you have never advertised before. A new restaurant is usually a highly-anticipated event in many smaller cities. Heighten this anticipation by promoting the restaurant even while you're still working on construction. Make sure you hang a banner announcing the arrival of a new and exciting restaurant. Generate positive word of mouth advertising through radio spots and print media. By the time you are ready to open the doors, you should have a crowd of hungry customers waiting. Restaurants typically enjoy a 'honeymoon' period where business is booming and new customers are pouring in. What you want to do is keep enough of those customers coming back for more. Within reason, promote your best dishes with 'two for one' deals or other heavy discounts. You want this first wave of customers to recommend your food to others who take a more conservative approach to choosing a restaurant. They will be your customer base once the honeymoon is over.
Never price yourself out of existence. Pricing your food can be a challenging process from start to finish. You must take into account any number of fixed or variable costs, including actual cost of the food, salaries, and advertising. You'll want to adjust for a healthy but reasonable profit on each dish, while keeping the prices low enough for the customer. This is a delicate balancing act to pull off, but you must remain proactive during the first few months after opening. If the customers seem to be avoiding your higher-ticket items altogether, you may have to lower prices in response. If your customers seem to be ordering one or two items in mass quantities, you may have priced them too low.
Get a feel for the going rate on certain standard items and charge accordingly. You'll still be closing your doors in a year if you continue to sell food at a loss, despite the number of customers who are taking advantage of your generosity.
Seek out and keep quality employees. From kitchen managers to dishwashers, maintain the best staff you can afford. Customers react much more positively if the staff is friendly and professional. In fact, customers can often sense tension among the staff even before management does, so it pays to keep interdepartmental relations cordial and professional. Any restaurant that runs continuous classified ads for new employees becomes suspect in a potential customer's mind. Whatever the current wage for restaurant employees happens to be, be willing to pay it. If customers seem to prefer a certain cook or an especially good hostess, do everything you can to keep them happy and satisfied with their jobs. Disgruntled employees will lead the way when it comes to negative word of mouth, so make every effort to retain key employees early.
Find the right theme and stick with it. You certainly don't want to open the fifth Mexican restaurant on the block or the twelth Italian bistro. You'll want to find a theme for your restaurant that is exciting and innovating, or at least different than the competition. Basically, a good restaurant environment seduces the customer into ordering higher-ticket specialty foods and also encourages return visits. But you must keep 'gimmicks' to a minimum if you want long-term success. Decorate the walls with theme-related items, such as antiques or movie posters. Select uniforms that match the theme and decor of the restaurant. Background music is essential, and offers you a chance to emphasize the theme even more. Find your strongest connection to the overall theme and exploit it in advertising. Are you more authentic than other ethnic restaurants? Are you more child-friendly than the other family restaurants? Do you have more entertainment than the other 'fun food' establishments? Instead of trying to promote your new restaurant as all things to everyone, concentrate on what makes you special- work on building a niche market of customers who prefer your style of food consistently.
Restaurant franchises are the ideal way for you to own your own exciting business. The restaurant industry is a fast paced and exciting service industry. Additionally, restaurants are pleasant environments to work. People come to restaurants to enjoy good food, and share time with their friends and family over a meal. If you want to operate a successful restaurant, consider your options with restaurant franchises.
There are numerous reasons why people choose to invest in a franchise instead of opening their own business from scratch. Often, people lack the proper experience for the field they are interested in. Just because you lack job history in a certain field does not mean you can never own a business in that market. There is a lot to learn in the operation and management of any new business. However, if you buy a franchise, the head of your franchise chain will establish much of your procedures and protocols.
The restaurant business can be very lucrative, or it can conversely be harsh. Instead of risking your time and money on a restaurant that may or may not succeed, consider restaurant franchises instead. Franchises are individual units of a larger chain, which are for sale to individuals. Instead of the restaurant being owned and operated corporately or privately, individuals can purchase and operate their own locations.
Restaurant franchises are chains that are built on the success of the original units. This means you will be given tremendous advice and guidance to help you operate your restaurant. This will in turn alleviate much of the pressures and stress inherent in opening a new business. Enjoy the possibilities for your own success in the restaurant field with a franchise operation.
The main market categories of food-service-business customers:
Generation X. Young adults who were born between 1975 and 1987 may have lower incomes than the typical baby boomer, but they definitely have a desire to eat out. In fact, young adults eat a greater percentage of their dinners out than any other age group. They enjoy Mexican food, pizza, hamburgers, Asian food and sandwiches. Gen X consumers appear to prefer casual, convenient establishments to formal, upscale restaurants.
Baby Boomers. Born between 1956 and 1974, baby boomers make up the largest segment of the population. Prominent in this generation are affluent professionals who can afford to visit upscale restaurants and spend money freely. A decade ago, value was not the main goal for baby boomers who dined out, but as they have children and expand their families, value may become a greater concern. To appeal to this market, restaurants may want to offer a family-friendly atmosphere or, as a different option, an upscale, formal atmosphere where boomers can visit or entertain without the children.
Empty Nesters. This group consists of people in the age range between baby boomers and seniors (people in their early 50s to about age 64). They typically have grown children who no longer live at home, and their ranks will continue to increase as the baby boomers grow older and their children leave home. With the most discretionary income and the highest per-capita income of all the generations, this group typically visits upscale restaurants. They're less concerned with value and are more focused on excellent service and outstanding food. Appeal to this group with elegant surroundings and a sophisticated ambience.
Seniors. The senior market covers the large age group of people 65 and older. Generally, the majority of seniors are on fixed incomes and may not be able to afford upscale restaurants often; they tend to visit family-style restaurants that offer good service and reasonable prices. Seniors typically appreciate restaurants that offer early-bird specials and senior menus with lower prices and smaller portions, since their appetites are less hearty than those of younger people.
Understanding Take-Out Customers
Research conducted by the National Restaurant Association is a strong indicator of the popularity of off-premises consumption of restaurant food. Of respondents to a National Restaurant Association survey, 21 percent who use off-premises restaurant service purchase one or more such meals a day; 26 percent purchase off-premises meals every other day; 22 percent purchase meals for off-premises consumption about twice a week; and 31 percent make purchases for off-premises consumption less than once a week.
Fast-food restaurants capture the largest share of off-premises dining occasions (52 percent) and dollars (41 percent). Carryout restaurants capture 10 percent of off-premises dining patronage and 15 percent of sales. Full-service restaurants account for six percent of off-premises dining patronage and 11 percent of sales.
What motivates consumers to buy prepared food to consume elsewhere? They're in a hurry and want easy access, fast service and reasonable prices. Another reason is that they're just too tired to shop for and prepare food themselves.
Restaurant patrons want to be delighted with their dining experience, but not necessarily surprised. If you're anticipating a family-style steakhouse but you find yourself in a more formal environment with a bewildering gourmet menu, the surprise alone may keep you from enjoying the restaurant. Concepts give restaurant owners a way to let patrons know in advance what to expect and also provide some structure for their operation. Some of the more popular restaurant concepts include seafood, steakhouses, family-style restaurants, casual dining restaurants and ethnic restaurants.
Some restaurant owners believe you must determine your concept and market before choosing a location. For example, you may want to start an Italian restaurant, so you research the market for this type of cuisine, and then, based on what you find out, choose a general area and then a precise location for the restaurant. Others believe that finding the location is the most important task and place secondary emphasis on concept and market. For example, an entrepreneur may find a great building in a downtown business district, decide that it's perfect for a restaurant, and then determine the best concept for the location.
When it comes to restaurants, it doesn't really matter whether you research your market or your location first; what's critical is that you take the time to research both thoroughly.
Your mission should be to concentrate on customer satisfaction and quality food that is always fresh and specially selected. You should not judge a customer on class or dress. You should want the restaurant and bar to be a place people can enjoy a good meal and meet new friends.
By putting your thoughts down on paper, you give each question the attention it deserves. For example, when you write your Restaurant Business Plan, you define your customers and your strategy for reaching out to them; you also analyze your competition in the Restaurant Business Plan and how your offerings compare to theirs. You will uncover market opportunities to seize and threats to buffer yourself against and you establish a set of goals and objectives — along with your action plan for achieving success.
And when you’re done, you have it a complete Restaurant Business Plan for quick, easy, and frequent reference.
What really impresses investors, clients, employees, and anyone else who may read your Restaurant Business Plan is clear, straightforward, and to-the-point thinking. Don’t go overboard in the cutting room or leave anything important out of your Restaurant Business Plan purely for the sake of keeping it brief, but do condense every section down to its most important points. Even comprehensive Restaurant Business Plans usually fit on 20 to 30 pages, plus appendixes.
Your time frame represents how far out into the future you want to plan. You want your Restaurant to grow successfully for years and years into the future, but that doesn’t mean your current Restaurant Business Plan goes all the way to forever. Each Restaurant Business Plan covers a unique planning period. Some are designed to get a Restaurant to a defined sales level, a funding objective, or the achievement of some other growth goal. A good Restaurant Business Plan covers a time frame that has a realistic start and finish, with a number of measurable checkpoints in between.
How far out should your planning horizon go? Your answer depends on the kind of Restaurant you are and the pace at which your niche is moving. Some Restaurants have only six months to prove themselves. At the other end of the spectrum, Restaurants that have substantial investment are in for the long haul with business plans that look at five- or ten-year horizons. Typical Restaurant Business Plans, however, tend to use one-year, three-year, or five-year benchmarks.
One way of looking at any Restaurant is that it is a gamble. You open or expand a Restaurant and gamble your and the bank’s or investor’s money. If you’re right, you make a profit and pay back the loans and everyone’s happy, but, if your estimate is wrong, you and the bank or investors can lose money and experience the discomfort that comes from failure. (Of course, a bank probably is protected because it has title to the collateral you put up to get the loan.
Writing a Restaurant Business Plan helps beat the odds. Most new, small Restaurants do not last very long. And, most small Restaurants do not have a Restaurant Business Plan. Is that only a coincidence, or is there a connection between these two seemingly unconnected facts? My suggestion is this: Let someone else prove the connection wrong. Why not be prudent and improve your odds by writing a Restaurant Business Plan?
Many Restaurant owners spend countless hours handling emergencies, simply because they have not learned how to plan ahead. Your Restaurant Business Plan helps you anticipate problems and solve them before they become disasters.
Writing A Restaurant Business Plan
Writing A Restaurant Business Plan
A written Restaurant Business Plan gives you a clear course toward the future and makes your decision making easier. Some problems and opportunities may represent a change of direction worth following, while others may be distractions that referring to your Restaurant Business Plan will enable you to avoid. The black and white of your written Restaurant Business Plan will help you face facts if things don’t work out as expected. For example, if you planned to be making a living three months after start-up, and six months later you’re going into the hole at the rate of $100 per day, your Restaurant Business Plan should help you see what changes are necessary. It is all too easy to delude yourself into keeping a Restaurant going that will never meet its goals if you approach things with a “just another month or two and I’ll be there” attitude, rather than comparing your results to your goals.
Topics you must address in your Restaurant Business Plan are:
- Vision Statement
- Mission Statement
- Strategic Goals
The Market Analysis section should illustrate your knowledge about the particular niche your Restaurant is in. It should also present general highlights and conclusions of any marketing research data you have collected. However, the specific details of your marketing research studies should be moved to the appendix section of your Restaurant Business Plan.
This section should include: an industry description and outlook; target market information; market test results; lead times; and an evaluation of your competition.
Restaurant Business Plan
Restaurant Business Plan
The overview section should include:
- a description of your primary industry;
- the current size of the industry as well as its historic growth rate;
- trends and characteristics related to the industry as a whole (ie. what life cycle stage is the sector in? what is its projected growth rate, etc.);
- as well as the major customer groups within the Restaurant sector.
Your target market is simply the market (or group of customers) that you want to target (or focus on and sell to). When you are defining your target market, it is important to narrow it to a manageable size. Many Restaurants make the mistake of trying to be everything to everybody. Often times, this philosophy leads to failure.
In this section, you should gather information which identifies the:
Distinguishing characteristics of the major / primary market you are targeting. This section might include information about the critical needs of your potential customers, the degree to which those needs are (or are not) currently being met, and the demographics of the group. It would also include the geographic location of your target market, the identification of the major decision-makers, and any seasonal or cyclical trends which may impact the industry or your Restaurant.
Size of the primary target market. Here, you would need to know the number of potential customers in your primary market, the number of annual purchases they make of products or services similar to your own, the geographic area they reside in, and the forecasted market growth for this group.
The extent to which you feel you will be able to gain market share and the reasons why. In this research, you would determine the market share percentage and number of customers you expect to obtain in a defined geographic area. You would also outline the logic you used to develop these estimates. Your pricing and gross margin targets. Here, you would define the levels of your pricing, your gross margin levels, and any discount structures that you plan to set up for your business such as volume/bulk discounts or prompt payment discounts.
Resources for finding information related to your target market. These resources might include directories, trade association publications, and / or government documents.
Media you will use to reach your target audience. These might include publications, radio or television broadcasts, or any other type of credible source that may have influence with your target market.
Purchasing cycle of your potential customers. Here, you will need to identify the needs of your target market, do research to find the solutions to their needs, evaluate the solutions you come up with, and, finally, identify who actually has the authority to choose the final solution.
Trends and potential changes which may impact your primary target market.
Key characteristics of your secondary markets. Just like with your primary target market, here you would again want to identify the needs, demographics, and the significant trends which will influence your secondary markets in the future.
The Restaurant Business Plan provides a great deal of information to the reader because it examines specific support requirements. It contains, at minimum, information in ten categories:
- Staffing Levels. What are your short-term and long-term
staffing requirements? What kinds of skills will be needed
at each level, now and in the future?
- Information Requirements. What is the volume and quality of your information?
- Technology. Do you have the most effective technology to
do the job? Is technology just around the corner that will
put your competition in the advantage? What is the cost of staying up-to-date with technology?
- Tools and Equipment. What supporting systems do you and your staff need to get all the tasks completed?
- Intellectual Capital. How smart are your people? How smart
will they have to be in the future? What do they have to
be smart about? How are you using the intellectual capital database that now exists?
- Time. What critical milestones exist in your Restaurant Business Plan? Where are the important decision points in the Restaurant Business Plan? What can you do to use your time more wisely?
- Relationships. What networks need to be developed? Can strategic alliances and strategic partnerships help your Restaurant Business Plan?
- Image. What is your image in the public perception? What
should it be? How will you develop this perception or
change a negative one?
- Facilities. Can you estimate the facilities requirements? Is
the need for physical space increasing or decreasing?
What effect has e-business had on your industry?
- Financial. Have you considered the budget constraints for short-term requirements? What are the long-term capital investment requirements? Do the financial numbers make good business sense?
Great Restaurants do not happen by chance.
They were planned that way.
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