Starting, Owning and Marketing A Restaurant Blog|Starting and Owning a Restaurant - Construction, Planning, Marketing, Opening and Managing a New Restaurant

In a recent article the NPD Group, a statistical research company of restaurant trends, said that total restaurants in the US declined in 2009. In general, the only segments seemingly holding their own were the quick service and fast casual chains. Hardest hit was fine dining and independents in all segments. The stats should not surprise anyone.

It should be easy to figure out that chains have more resources than independents. Many of them are feeding on themselves by selling company owned stores to franchisees and building sales by loss leader promotions at the franchisee’s expense. The arrogance of the fine dining segment, who failed to recognize early in the recession the customer’s reluctance to pay exorbitant prices, have just begun to realize dining habits may have changed for many years to come. Even the celebrity driven, curiously named restaurants of famous chefs like Gordon Ramsay and many other media made restaurant “stars” have shuttered their doors.

While most of the chains will survive, although several smaller ones have filed for bankruptcy, the real disaster is the loss of the independent restaurants across the country. These are places that have seen the proprietors put their heart and soul between the walls of memento filled structures dedicated to serving their guests the best they could. Unfortunately, the guests had to endure the same economic impact as the restaurants that wanted to serve them.

Many people, even wealthy people, have been clutching their bank statements as mutual funds declined, the security of jobs were in question and the financial structure of the country was threatened with total failure. In the main stream, millions of people are out of work and many more are losing their homes to excesses of the past. Eating out has become less of a habit and more of a thoughtful experience mitigated by relative financial condition. Big spenders moved down a notch, the secure middle class went to more fast casual and the unemployed or lower income segment moved quickly to QSR’s.

For independent restaurants, many have closed. Others are digging deep in their pockets to survive and still more are hovering daily between solvency and bankruptcy. The end of the recession is not at hand. There are no quick fixes that will magically transform the world overnight.

There are the exceptions to the gloom and doom word picture. Many restaurants made the adjustments early. The owners, management and chefs came out of the kitchen and recognized their patrons were disappearing. Management listened to concerns of other customers, new and old, who were still visiting, watched their ordering habits change and reacted. Most of these restaurants are doing well and many have grown or “beat the street” meaning doing better than most.

If you are an independent, keep connected to your guests. Listen to the customer and not to media. Forget the “restaurant consultants” who believe coupons, discounts and promotions will solve all your problems. Don’t believe the the remarkable stories about social media and the instant successes - it doesn’t happen that way. If you are struggling and can make it for a few months more financially, here are a few steps that may salvage your dream:

1. If you haven’t done it, make the toughest financial cuts you have ever had to make. That may include the loss of long term employees, reducing salaries, wages and/or hours. Every expenditure should be questioned, no matter how big or how small.
2. Today, not tomorrow, talk to your suppliers. Find out what IS selling. Even more important find out what is NOT selling. The larger purveyors can help you with refreshing new ideas for your restaurant. Use them - most are looking for new business also.
3. Creatively change your menu. Look for value from a customer’s perspective, while maintaining a reasonable margin. If $25 steaks have been turning grey on your line, try the alternative grades and cuts. Let the customer know you are searching for alternative proteins to offer some relief to their pocketbook crunch. Make that menu change today and let the customer know it. In the past, restaurateurs have always focused on higher priced items. Now your focus should be better value items. If you don’t offer them, guests will migrate elsewhere.
4. If you haven’t used inexpensive marketing tools like email marketing, viral marketing, networking, word of mouth campaigns, community involvement and dozens more, start today - all of these take time to produce long term results.

Finally, if you are lost, and feel you can make it with some direction, send me a private note through the comment section of the blog. Tell me your circumstances. All comments are first directed to me before they go public. None will go public that deal with any individual restaurant. That keeps the “consultants”, spam and sellers of products and services from ruining this restaurant blog designed for the independent restaurateur. If nothing else, I will send you a copy of The Restaurant Ebook for free or at least the section titled One Hundred Ways to Market Your Restaurant. All 100 ways cost little or nothing. Maybe all you need is a restaurant cheerleader. I can be that also. One thing I can assure of - I know what you have been dealing with! My three restaurants are in the same economy as yours.

 Note: No identifiable information will ever be published!

It is sad to see independents close their doors. Let’s re-connect with the guest and keep the dreams alive.

As a general statement, social marketing using sites like Facebook, MySpace and Twitter are more time consuming for the return than most independent restaurants can afford. These sites have their dark sides as reported and discussed in previous posts. However, there are niche exceptions.

Recently I was asked to help a bar owner who felt his advertising and entertainment costs were bringing in sales, but the bottom line was suffering as entertainers demanded more money and media costs continue to rise. His venue was a popular spot in a major metropolitan area with a capacity of about 300 people. His success was evident with waiting throngs of people on Friday, Saturday and Sunday nights.

The owner was hesitant to raise prices during this economic storm, but wanted to find a way to cut costs. Social marketing using multiple sites like Facebook and others is a perfect application. By building a presence and followers, he can ween himself away from costly print media. Patrons can find out who the bands and entertainers will be on any given day - at little cost to the owner. The bonus is that he has immediate response to the type and popularity of any band or DJ he may want to feature.

To build a presence on social marketing sites was the owner’s next challenge. He could hire a marketing company to do the work for him, but the cost may equal his adverting costs he is trying to reduce. The owner’s lack of Internet savvy precluded him from becoming an immediate leader for the marketing effort. The solution - pay one or more staff members to become the bar’s emissary online. Most of his staff was in an age group equal to his client base and he was surprised to find out that several spent a lot of time on the top sites he wanted to target.

Recognizing that the transition from print media to digital would take some time, the owner created a six month plan to build his following. The goal is to eliminate 80% of print media costs (about $1300 per week) and employ staff members to create the “buzz” he needed to get started (about $200 per week). The added benefit was also his ability to hire entertainers that were popular.

The plan will work. The case is an exceptional use for an over hyped marketing tool.

As 2009 comes to an end, 2010 begins with hope and positive signs for the restaurant industry. The economy appears to show some trends that indicate the recession is loosening it’s grip. While stocks have recovered to levels of a year ago, they still show some volatility. Retail sales, consumer spending and the housing market each have some growth signals beginning to appear. The real recovery for restaurants will begin when unemployment begins to drop and disposable income is again available for restaurant visits.

While the industry hopes to crawl out of the doldrums late in 2010, restaurateurs cannot afford to wait or rely on shimmering signs of hope. The business has changed and will continue to face challenges for the year to come. That caveat begins our list of resolutions for restaurants in the new year;

• Resolve to not rely on a potential recovery to improve your sales, service and marketing. What if we have a “double-dip” recession?
• Resolve to face the new year with a solid marketing plan the fits your restaurant and demographics.
• Resolve to learn more about your guests and their eating habits that may have permanently changed for the foreseeable future.
• Resolve not to listen to “quick-fix” consultants who tout the imaginary overnight sales boost from mobile marketing, social Internet marketing and other time eating market magic that doesn’t fit the average restaurant.
• Resolve to keep butts in seats by good old customer communications through face to face contact, local network marketing and customer loyalty programs with time versus results rewards.
• Resolve to avoid big discounts that may bring short term returns, but harm your brand forever. Rely on value, creativity and resourcefulness to offer better values to guests.
• Resolve not to be drawn into the loss-leading habits of the big chains who are feeding on their assets and franchisees to keep sales and earnings positive for shareholders.
• Finally, resolve not to ruin your life by feeding a dead restaurant until your family, your friends and customers have long ago abandoned the dream. Live to fight another day, maybe a new dream down the road.

2009 will be remembered as the year that changed the restaurant industry and dining consumer perhaps forever, but at least for the decade to come. Change with the times and build your business with what exists today, not what was in the past or hopeful predictions of the future.

As the new year begins and a new decade is born, the question about the costs to start a restaurant will survive and be repeated another million times in the next ten years. In hundreds of emails, countless meetings and numerous uninformed writers querying me, I know I’ll hear it. And yet, it’s difficult to explain to the questioner why it’s the wrong question to be asking.

Obviously, each restaurant is different. The size, type, location, demographic and owner choices cannot be factored in a brief encounter. What can be determined are the things that cause financial pain and hardship for most restaurants who’s new owners don’t ask the important question -  ”What are the costs to start a restaurant that I won’t be able calculate without experience?” That is the question. It is easy to calculate and add up equipment costs, food inventory, salaries and fixed costs, but what about the things you didn’t think of?

Below is just a partial list of costs generally forgotten or not factored into those starting restaurant budgets;

• Deposits - While these may not be carried on your financial statement as a cost (or expense), they are a cash outlay that be in many thousands of dollars. There are lease security deposits, utility deposits, bank deposits for starting cash and even possible retainer deposits for professionals like attorneys and accountants. Collectively, these could total $5000 to well over $10,000.
• Licenses - The cost to start a restaurant has grown significantly in the last few years as local, state and federal agencies have turned licenses into a method of taxation. Examples include licenses for occupancy (from $200 to $1000), cafe permits for operating on sidewalks or streets, liquor license fees for inspections, forms and filing fees, franchise fees for registering your business, fees for state and identification numbers and fees for federal filings and tax ID numbers. These fees can total thousands of dollars depending on your location.
• Professional Fees - No one should start a business today without competent advice from both an attorney and an accountant. While their fees can total as much as $250 per hour, they can save you tens of thousands of dollars in taxes and problems as your business grows.
• Impact Fees - Many communities now charge start-up “impact Fees” that are supposed to be the cost of your usage of community services such as gas lines, water lines, streets and infrastructure built by the local government. In the last restaurant we opened, I had a $10,000 surprise during construction!
• Cash Flow Requirements - Of all the cash needs, this one can put you out of business in a hurry. Without getting into a whole accounting class on cash flow, let it suffice to state that a profitable restaurant can go bankrupt profitably (with negative cash flow) just as easy as a slow to develop restaurant can run out of cash. If you do not have the cash to survive for six months in a worst case scenario you and your accountant calculate, don’t open a new restaurant until you can.

These are the things that are commonly missed on restaurant business plans. These items can turn a great concept into locked doors very quickly. Food and service are still the biggest factors in buiding your restaurant, but cash needs can bring you to your knees no matter how great the food is.

The independent restaurateur has been at the point of a big economic shotgun for almost a year and a half. One wrong move and the deadly blast of pellets pummels the body and soul of the restaurant. Food costs, labor costs, lower consumer spending, increased industry regulation and changing guest eating habits have faced the independent restaurants across the country.

While there are signs of an improving economy, restaurants cannot plan on the consumer returning to pre-recession habits for a long time to come. Many diners have changed their eating habits and others continue to face an uncertain jobless recovery that will keep restaurants at the tail end of the recessionary curve.

What should the independent be doing? Here is a list that may help your planning for 2010:

• Don’t wait for the economy to rebound and bring customers crashing to your doors. Long term marketing efforts shouldn’t be ignored, but short term results need to be your focus.
• If you are struggling now, it isn’t going to get better tomorrow by doing the same old thing. Change is difficult, but failure is worse. You may have to do things you have never done. Coupons, discounting and lower prices may be the difference between saving jobs and generating enough cash flow to pay bills. Most “experts” think discounting may hurt your brand, but not as much as closed doors.
• Stop any impulse you have to listen to restaurant marketing gurus who have the answer to sales results overnight. It ain’t gonna happen. Mobile marketing, social marketing and other tools are aguably useful over a long period of time, but for the average restaurant they don’t deserve the long hours and cost to implement when the battle for survival is imminent.
• You must become mentally in tune with your guests. Who are they? Where are they? What do they want? How have they changed? What drives them to your door or your competitor’s door? Will they increase their restaurant visits if you …..? You finish the line!
• Even if you could afford the cost of big newspaper and TV advertising, don’t be so sure it will produce for you. Consumers are turning to the Internet for news and entertainment. Newspaper sales are declining. TV audiences are declining. Grass roots, personal marketing may be the least costly and most productive form of getting your message out.

There are no quick fixes, but there are ways to build your business the way it has been done for decades. Provide a consistent product at a value to the guest. Get that message out and capture new guests one at a time.

If you are starting a restaurant now, there are big potholes in a long road. In a “normal” year like 2007, there were about 72,000 restaurants that opened and 60,000 that closed. While statistics for subsequent periods are difficult to produce, everyone agrees that there are more closings than openings. In fact, bankruptcy records may give some idea of the numbers. There were 43,500 business bankruptcies in 2008. Through June of 2009, there have been over 30,000 cases filed already.

Is it all doom and gloom? Absolutely not. If you are paying your bills, seeing some head count growth year over year and finding ways to keep costs going down, you can easily survive with a smart reaction to ongoing economic woes. Even a few new restaurants will make the grade if they have done their homework, planned properly and have sufficient resources to withstand any planning mistakes.

2010 will be just as challenging as 2009, but at least we know what to expect and how to react to the recession imposed environment.

One of the most difficult tasks as a restaurant owner is to keep managers and senior staff focused on problems and potential problems. Many supervisory personnel tend to treat the reporting of inadequate service, inconsistent food or other problems like a shooting gallery at the state fair. As the problem balloon is raised, shoot it down by looking at the source of the report (the balloon), rather than the message inside.

It’s common to hear a server and manager having discussions that go like this;

Example One

Server to Manager: “Mrs. Smith at table 22 says the soup is too salty.”

Manager to Server: “She complains about everything. I had to comp a tuna sandwich last week.”

Two things happen here. Mrs. Smith gets ignored. The complaint is disregarded and the server is discouraged from reporting future complaints from regular guests. The only issue really - is the soup too salty or not? Mrs. Smith may be a frequent customer who knows when the soup is properly prepared. She may be a habitual complainer, who still visits everyday, but she cannot be treated like a fairy tale creation who cried wolf too often.

Example Two

Owner/General Manager to Supervisor/Manager: “There is a note in the operations log that Joe was late again. It also says that Joe clocked in and immediately ordered his shift meal before checking with his supervisor.”

Manager Response to Owner: “That note was written by Nancy. Nancy was having problems keeping up with her own tables to be worried about someone else. Conflicts like Joe and Nancy keep creating issues.”

The conversation turns to Nancy when the real problem is a matter of fact. It is a simple matter to determine if Joe did clock in late and if he went on to eat a shift meal during a busy service time before taking tables.

If Nancy is a problem, then deal with that as a separate issue, but reporting a lag in customer service is part of her responsibility if she cares about the restaurant and guests. No one really likes to hear a complaint, but it’s part of the business. How quick you respond and reinforcing the necessity to keep communication lines open between guests and management and management and servers is imperative to improving the dining experience at your restaurant.

A “shoot the messenger” management style can extend beyond the customer service arena. A manager who doesn’t listen to kitchen staff may be in for some costly future maintenance problems. A troublesome complainer in the kitchen cannot be ignored when reporting an issue with a piece of equipment. Employees who complain about workloads at various times of the day can’t be ignored if there is a real scheduling problem that affects service.

Managers have many responsibilities, but none are more important than solving problems. The solution can’t be taking aim on the person who points out the problem.

The majority of money invested in the stock market looks at the long term rather than overnight profits. Yes, there are day traders that try to bet on trends that impact some stocks on a short term basis. They get in and out quickly, but the big investors, mutual funds, pension funds, institutional investors and most wealth accumulators look at years and months rather than days or weeks.

Restaurant marketing is an investment that can return short term returns and long term results. You have to choose what motivators you use according to the results you want to achieve. There are extremes that are common in both short and long term investments. For instance, if you look at Denny’s breakfast giveaway program in the first part of this year, they gave away their food and had lines around their operations waiting for a free meal. Traffic was driven to their stores, but long term results haven’t stopped their same store sales from declining.

On the other extreme,  long term marketing programs take months and/or years to effectively get results. An example of a long term strategy may be email marketing. As your email list grows, so do the customer responses to simple programs. If you offer a birthday dinner as a motivator, your guest will bring in his birthday party of four or more people to celebrate, but the real return takes constant list building that creates loyalty to your brand.

Somewhere in between the long growth approach and the quick freebie schemes are marketing programs like community involvement, direct mail, special events and social marketing through Internet sites.

When developing your marketing plan for a new restaurant, you should try to look at all the options, but remember there is a price to pay in real dollars and time to implement many strategies. Restaurateurs generally wear so many management and time eating hats that time becomes as precious as any other asset.

In the case of our new restaurant, we can see our long term strategies just now beginning to pay big rewards as the industry has struggled in this recession. Couponing and discounting has had a very low priority for us. Building quality and customer service along with guest loyalty has been our restaurant marketing program from our January opening. We are on target to meet our goal of $650,000 in sales by year end.

A welcome reward was received on Wednesday this week when we were informed we were chosen as runner-up for the Best Breakfast in Tampa Bay in a local reader’s poll. The magazine has an annual Best of the Bay for all different types of restaurants and entertainment venues. First place went to a chain competitor called First Watch which operates in about 11 states with numerous locations in the area.

While the competition had the usual nominees like IHOP, Denny’s and other big guys, we were most pleased that we had made an impact by being ranked over many local independents that have a great product and long history.

If there is a message here, it shows that in our 9 month operating history, you can compete and make an impact. The second lesson is that email marketing helped us achieve this award. It is a powerful tool to communicate with your guests. In our case, we merely made our email subscribers aware of our nomination and asked them to vote for us. We didn’t really believe that we could beat out all the chains in such a broad market, but we did!

If you are starting a restaurant now or next week or next year, start your email list now. Restaurant marketing is a challenge that is rarely planned on a long term basis, but here is an opportunity for your marketing to begin now. If you are a seasoned veteran of the business and struggling through this economy, how is your email restaurant marketing plan working? Don’t have one - begin it today.

A friend and colleague who opened a new restaurant about 6 months before we did called to chat about a contractor who used us as a reference. As we discussed the year and the new restaurants, he was clear that his results weren’t what he expected. The conversation evolved to marketing programs that have and haven’t worked. My commitment to email restaurant marketing was discussed, but he was questioning the value.

At the time of my phone communication, I didn’t have any firm numbers in front of me and could only voice my general feeling about his objections which included:

1. The fact that you cannot know that everyone gets the email.
2. The time and effort to collect the email addresses.
3. The returns seemed small.

It is true that an email marketing program may take a little planning and effort to get started, but so does any other worthwhile restaurant marketing tool. In terms of cost, the email services we have researched can cost from $35 per month up to $100 per month depending on the level of your participation and the services you desire. There are significant differences between the online companies offering restaurant specific programs. 

Here are the numbers and benefits based on some actual results in our 15 months of utilizing this long term strategy.

• Benefit One -If you have 2000 names on your email list, you can expect about 700 people to open your email that you can positively identify. Many other people may open the email up, but the numbers of verifiable opens are about 35%. What other form of marketing can you prove that 700 people saw your message for under $100 per month?
• Benefit Two - In our case, we offer a free appetizer with any entree when they join the email club. We follow that up during the year with a free dinner on their birthday. Again using the assumption of a database of 2000 names, we get about 30 people per month who use the appetizer gift and about 50 people per month who use the birthday gift each month. The real benefit is that each of the people who redeem their gifts are in a party that averages 3 people per redemption. That means there are 240 people per month guaranteed coming into your restaurant every month - all for under $100 in actual costs. (Keep in mind your list is constantly growing.)
• Benefit Three -In the operation that uses this program, the average check is $19.50 per person. That means in any given month we are sure to get $4600 worth of business before the month can even begin.
• Benefit Four- At any given time we can send an email to boost the sales for a day, week or month. Email is a great way to introduce a new menu, new item or promote a holiday or special eevent. An email takes anywhere from ten minutes to two hours to produce depending on what message you are sending (holiday reminder, newsletter, menu introduction, etc.). You know 700 people are going to read your email if you have 2000 names on your list.

In terms of numbers, if you grow your list to 4000 people, the monthly hard measured returns would be $9200 before the month started. Again, this result is from a monthly investment of under $100. How about 6000 names, now you have $13,800 in sales before you do anything else for the month (that’s $165,600 annually!) - again, for less than $100 per month.

Email restaurant marketing is a valuable tool if used properly and judiciously.

If you are starting a new restaurant or looking for a sure bet - place it on this numbers game. Get started now, nothing happens without a beginning.

Florida is a unique market. There are tourist seasons, weather issues, part-time residents and a constant fluctuation of peaks and valleys that naturally occur. While challenging, the predictability over a period of time allows adjustments to marketing plans. Other markets have their quirks, but I can’t think of any with so many bumps and potholes in the sales trend charts.

After August 15th annually, the Florida consumer seems to hide in a cool cave and the travelers seem to stay home to get the kids back to school and avoid Florida’s heat and sometimes stormy weather. Operating a restaurant, new or established, in this environment means planning ahead of the downturn. Procrastination leads to predictable results - bad numbers!

Several weeks ago we had a Managers meeting for all three restaurants. The predictable August downturn was discussed. Actions for for cutting costs and marketing were emphasized and guidelines were established. Subsequent plans went into each individual restaurant with varying results.

In the case of a new restaurant you have no history to balance the summertime influence on sales. We thought the peaks and valleys would be a little flatter with a demographic less reliant on tourism. That assumption coupled with procrastination on getting a plan implemented for this seasonal sales drop shows up fast as business drops about 25% almost (predictably) overnight. The managers are left with empty seats and scrambling attempts to get their much put off marketing into action.

Unfortunately, lack of consistent (almost daily) marketing forethought causes the obvious delay in results. Plans that were well thought out and creatively designed are worthless if not implemented when needed. In simple terms, a sales boost needed specifically in the last two weeks of August and whole month of September cannot be started in the middle of August. Marketing takes time and patience. Nothing happens overnight unless you are offering free food like some of the struggling chains.

We made a mistake in this new venue of waiting too long to start implementing a plan. Now we must wait for results and suffer the consequences. A miscue management won’t make again.