Many an aspirant entrepreneur has dreamed of handing in their notice to their employer and opening up a restaurant. How hard can it be, they ask. Everyone needs to eat and food is never out of demand. And did they mention that they love to cook and really, really love to eat?
Sadly, a love of food and cooking does not a successful business venture make, and many a culinary dreamer has been left with a bad taste in their mouth and an empty feeling in their wallet.
Taking on the toughest
The hospitality trade is one of the toughest in the business and opening and running a restaurant is as demanding as it gets. Doing it with the brand power, systems backing and ongoing support of a franchisor is one thing; launching and running an independently-owned restaurant is another thing altogether.
Restaurants are among the most frequently started small businesses but they also have one of the highest failure rates. However, the rewards are plentiful for those who crack it. Just make sure that you’re ready to do your homework, dig deep into your pockets and work harder and longer than you’ve ever done in your life.
Research your market
Dino Fagas, owner of Prosopa Restaurant in Waterkloof Heights in Pretoria, refers to the importance of deciding on a concept and sticking with it. Begin with the end in mind. “You want your restaurant to be the first place a customer thinks of dining at.
That should be your goal,” he says, adding that one should try to appeal to a broad enough market while still retaining points of difference that distinguish your establishment from those of your competitors. Prosopa is a Mediterranean-styled restaurant with a difference. Instead of the usual Greek paraphernalia of blue-and-white tablecloths and profiles of Zorba the Greek adorning the walls, the lighting is muted and the décor is done in warm earthy tones. Among other things, this has helped Fagas to achieve a unique positioning in the market.
Knowing who your competitors are, what they sell, how they price it and who their customers are is vital background information as well. Fagas says: “Make a list of all your competitors, their locations and what is unique about their concept relative to yours.
Try to determine how important they are to your perceived target market. Then familiarise yourself with everything they have to offer by visiting them. Know their pricing, seating capacity and levels of service. Ask around to determine what people’s impressions and experiences are of these establishments.”
In gathering this information part of your goal should be to identify gaps that your competitors have missed and that you can do better, or differently. Aim for greatness and in doing so, do a personal survey of as many successful restaurants as you can. What do they do differently to your competitors and what can you learn from the way they run their operations?
If competitors make up one side of the research coin, customers make up the other. Don’t make the mistake of assuming that you know your market without having conducted any research on it – no matter how informal. Many would-be restauranteurs assume that their clientele share their own tastes in food, décor, wine and ambiance, an approach that is not only arrogant but dangerous.
“You need to know who your ideal customer will be and their demographics – things like age, income, household size, ethnicity and lifestyle,” says Fagas. While it is possible to conduct such research on your own, he warns that doing so properly will take up valuable time and energy, resources that could be better spent on other aspects of the business.
“Rather give it to a professional firm with experience,” he says. While they conduct the formal research, you can get a more general feel for the market by reading the local press and talking to local customers and business people. If you simply don’t have the capital to pay a research company to undertake the task for you, allocate enough of your time to do as thorough a survey as possible.
What’s on the menu?
The concept of your restaurant needs to be carried through, not only to the décor, ambience and service, but most importantly to the food that you serve. While this might sound like stating the obvious, you’d be surprised by how many restauranteurs think it’s sufficient to invest all their capital in swanky décor and then serve sub-standard food that is totally at odds with the experience they are trying to create.
Your starting point, as with most things, should be costing. “All costs – both direct, such as ingredients and indirect, such as labour, utilities and marketing – need to be carefully considered,”says Fagas. You want to offer a broad enough range to appeal to most palates but bear in mind that the longer your menu, the more it is going to cost you to hold stock, so try to pare down unnecessary items.
“Consider presentation and the fact that seasonal produce can cost more at different times of the year,”he continues. “But remember that pricing on a menu is not just about costs.It’s also about knowing your customer and their psychology.
One would obviously expect to pay a little more for an item that is served in a restaurant with white tablecloths than in one where there is no linen, for example,” he says. Finally, consider what the actual menu is going to look like. “It should be easy to read, given the lighting in the restaurant, and easy to understand.
A professionally printed and bound menu gives a much better impression than a ‘home-made’ version but remember that you are probably going to have to reprint it twice a year so choose a style where this can be done relatively inexpensively,” comments Fagas.
Suppliers as partners
“You can have the fanciest set-up with customers queuing at the door but without good reliable suppliers, you will have nothing to serve them,” says Fagas. Suppliers are an integral part of a restaurant’s business and, in addition to proper controls and good staff, are one of the biggest contributing factors to your ability to offer customers consistency and quality.
Establishing constructive relationships with them is therefore crucial. Fagas advises that you make your requirements and terms clear from the outset and that you treat suppliers as you would expect to be treated. “Keep your promises and maintain an open and honest relationship. If you are having cash flow problems, it’s always best to communicate with suppliers that you cannot pay and try to negotiate alternative arrangements.
Make sure you stick to these and never compromise your integrityor reputation,” he says. Supplier prices have a direct effect onyour own prices so it pays to make sure you are getting the best deal from the best supplier. “Drinks usually increase once a year and shopping around for better prices is of no use if you are already buying direct from the agents.
They’ll be giving you the best deal you can get,” says Fagas. However he adds that it’s wise to do a price check on food every month or so.
Finding the right location
You’ll no doubt have heard that location is everything but what does this mean exactly and what makes for a good location. In selecting a location for your restaurant, Fagas again points to the importance of knowing your target market.
There is no point in establishing an upmarket restaurant in a neighbourhood that can’t afford to frequent it, no matter how‘ aspirational’ you believe your market to be. Be realistic and select a location that is affordable enough not to push your menu prices sky high.
Foot traffic is another important consideration but you need specifics in this regard. “You not only need to know what the peak traffic times are but more importantly what drives the traffic. Is there a high volume of traffic because people work in the area, quickly pop in to shop in the centre or because they live there,” he says.
Just because there are a lot of people around during the day does not mean you will have a good dinner trade if those people only work in the centre and leave to go home in the evenings. Such a location would be better suited to a lunchtime restaurant. A good location should also be easy to access, highly visible and offer plenty of safe parking to patrons.
Dealing with landlords
Landlords are part and parcel of almost every location, unless you have enough capital to purchase your own building (not always the best idea even if you do have the money). So like it or not, your choice of location is also partly a choice of landlord. Fagas cautions would-be restauranteurs not to sign anything without understanding the future implications. “Make sure you have a good attorney who specialises in leases to advise you. Rather walk away from a lease you are not comfortable with than think you can ‘fix’ it later. Look for alternative premises,” he advises.
Leases are always negotiable, as he points out, so do some background research on comparable rental rates in the area and negotiate with the landlord. “You may want to negotiate some sort of exclusivity to prevent anyone else from opening a similar operation in the same centre,” he says, adding that some landlords in new buildings contribute a portion towards a new store’s start-up costs and others offer a grace period while you get set up.
However, don’t expect to be offered such things. You get what you ask for so don’t lose out by not raising these important issues. It’s also very important to ensure that your lease has a renewal option. Exercise it timeously or you could find yourself out on the street when your lease is up.
But most importantly, as Fagas points out, “Never ever allow your relationship with your landlord to deteriorate. He has nothing to lose by your being upset and he has time on his side. You stand to gain nothing!”Aside from your monthly rental, there are other ‘hidden’ costs that you should be aware of. These include contributions to the landlord’s marketing fund and operating costs.
“If there is a turnover clause in your lease this will also affect your payments. Such things are usually worked out as a percentage of your rented space and you can expect them to increase annually. In addition, your landlord can impose penalties on you for failure to present turnover certificates or for not abiding by the set operating times in a centre, for example,” says Fagas.
Investments and expenses
At the end of the day, no lease can be signed and no menu served unless you have the requisite capital to open and run the restaurant. Working out how much money this will require is extremely difficult, especially in the case of an independently-owned restaurant. In determining approximate set-up costs, Fagas advises: “Take the average building costs per square metre in the area and multiply this by the square metres in your space. Then add the cost of designing the restaurant if you’re getting a professional to do this, as well as your equipment, fixtures, fittings and furnishings.”
But this is just the beginning. Hidden costs include liquor licence fees, a trade licence, a certificate of acceptability from the health department and a gas licence. To this, add working capital. “You need to have sufficient cash flow to pay suppliers and other financial commitments on time.
It’s very difficult to put a figure to this but factors that influence it include fluctuations in turnover, maintaining unnecessarily high levels of stock and poor accounting practices,” he says. Your margins will also help you to determine how much working capital you need and what you can expect your profit to be. “Food can have anywhere between a 30% to 40% cost and alcohol around 15% to 20%.
Beer can have a 25% to 30% cost and wine 35% to 40% but this varies widely.” He adds that you can expect to recoup your costs within two years, depending on how extravagant set-up was.
Common challenges in the restaurant trade
Whether you’re a franchised operation or an independently owned outfit, you will probably be unable to avoid some challenges in your business as a restauranteur. Dino Fagas, owner of Prosopa Restaurant, offers some insight into how to deal with the following common challenges:
1. Seasons and weather
Rain, cold weather and other elements havea marked effect on business. If you have an outside section, you need to make sure that it is covered to protect against rain, and that it can be closed off and easily heated to protect against cold. Making sure it is comfortable for your patrons and that it blends in with the design and ambience of the restaurant is also important.
2. Quiet nights
Depending on the style of the restaurant, one can institute a night of lower pricing across the menu, or you can offer good deals to draw customers. Of course it would not be appropriate to have a “buy one get one free” evening in a fine dining establishment, so finding what suits your establishment is vital. An alternative could be having themed nights where you can explore different aspects of food and drink, such as a wine tasting or an olive oil sampling evening.
You need to find the most effective means of reaching as many of the people in your target market as possible and to have a continuous and lasting effect on them. Remember that you are only as good as the last memory someone has of you. Continuous effort is therefore needed.
I believe in taking a firm but fair approach to staff with an open door policy. One should always treat staff with respect, and keep continuous and clear lines of open communication with them.
Remember that training is of vital importance to maintaining a good relationship with your staff. This in turn creates an atmosphere where they are happy and content at work, because they feel that something is being done for their personal improvement. I have always welcomed unions because theycan act just as much in favour of the employer as for the employees. Unions will soon realise if employees have unfair or unrealistic expectations, and that you as the employer are doing things by the book.