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

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.

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.

Every restaurant owner and manager knows that food prices can sneak upward. In fact, in 2008 prices were rising so fast on eggs, grain products and plastics that by the time you could change your menu, it was already outdated. Most of us would have paid dearly for a crystal ball that could forecast the future to stay ahead of the upward spiral.

Fortunately prices have begun to moderate. Many have come down and others fluctuate more frequently than ever before. It is a balancing act to keep reasonable menu pricing that allows a profit margin. Below are a few things that may help with your costs for re-sale items;

• Many major suppliers have a weekly or monthly commodity report that shows trends and predictions for the immediate future. Ask to be placed on the mailing list for these regular communications.
• Key item prices must be watched closely. Do you know what 20 items you spend the most money on? If not, you should! Take that list and create a spreadsheet that lists the items and change your cost weekly or monthly for all 20 items as your invoices come in. At the bottom of the spreadsheet have a total for each week or month. Is that total going up or down? This is a simple, but effective way to view immediate price trends and alarms for your major ingredients.
• If you are in the middle of a menu change, factor in the seasonal and regional price fluctuations of your restaurant’s biggest selling items. If you are steak house you know that beef is going to increase around the holidays and come back down in the early spring. Vegetables cost more (in general) during the winter than in late spring. Restaurant menu pricing is an art, not based on just today, but the life of your menu.
• Crude oil prices affect a major part of your overall costs of doing business. If crude is high, so is the cost of gasoline and diesel fuels that lead to higher delivery costs (surcharges, too!). Delivery costs filter through the entire restaurant industry, since trucking is the major source of product moving. Oil prices also affect the costs associated with plastics and packaging materials.

Projecting costs as you revise your restaurant menu can also be moderated by adjusting portions, garnishes and side dish offerings. Creativity can keep your margins in check between menu adjustments.

Find a system that works for you. It can make the difference between a profit or loss. The other option, doing nothing, won’t work in this economy and perhaps ever again in the future.

Of course, there is always that magic crystal ball that may someday appear on Ebay or Craig’s List - but I am not going to wait on it!!

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.

As most restaurateurs do, I visit new restaurants that move into our operating area.  I am particularly partial to independents who are following their dream. The challenges of opening a new restaurant are great, but I know its rewarding to see a new face walk in the door in the early stages.

In this particular case the new restaurant is facing steep odds. They are serving Cajun style PO Boys and sides in mainly a quick take out format. They are located on a main thoroughfare in a suburban city center. There is some walk by trade. The footprint is small, about 600 square feet. Their overhead should be relatively low.

The food I ordered sampled four different items. The quality was above average. Service was a little slow even though I was the only customer they had right after they opened at 11 AM one morning.

As most restaurant owners do, I silently watched as my food was prepared and viewed the equipment, atmosphere and process to prepare the order. I can’t help myself from assessing the survival chances of this new sub shop. It’s a bad habit, but the mind has a will of its own that can’t be denied.

My assessment is that they will serve a product we typically call “good food”. I am sure the new owners consider this assessment accurate (what new restaurant owner doesn’t?). Unfortunately, they ignored some basic key elements to give themselves a chance to make it in an industry that has an 80 or 90 percent failure rate. Their weaknesses include:

• Parking. They have about ten spaces shared along with a half dozen other tenants along a busy street. Any other parking available to them was a block away or across a four lane busy highway. Remember, this is a carry out operation with only two tables and eight seats.
• Service cycle. My 15-20 minute wait went quickly due to natural instincts wanting to assess everything. However, a second trip would not be so forgiving. Also, how would they fare if there were two or three customers at the same time that morning. People go to carry out locations for speed and convenience. They will have neither if they expect enough volume to grow sales.
• While the restaurant was sparkling clean and new, the ambiance was non-existent. They are trying to present a Cajun theme, but a couple of pictures on the wall doesn’t do the concept justice. There are so many inexpensive options for a fun look using back bayou decor. Waiting for “good food” alone won’t keep the customer occupied.
• Other little factors included a small selection of cold drinks, few retail items off the menu and limited description of the food on the menu.

Can they change and recover from these negative elements? Most are quickly correctable. The one that is impossible to correct without some major construction in the whole area is parking. You can’t overcome a bad location. It makes no difference how good your food is or how quick you serve people. If they can’t get to you, they will go down the street to McDonalds when speed and convenience takes priority over superior food.

I hope I am wrong. Time will tell.

In the

New or old, restaurants generate huge amounts of trash and garbage. There are receptacles in the kitchen, dining areas and usually outside the doors. Each of the different cans usually have plastic liner bags that cover the inside areas. These thin layers hide each restaurant area’s waste that are easily distinguished if opened.

While I cal it “Dumpster Diving”, the issue is really about cutting restaurant costs. There is no better method than seeing what is thrown away. Over the years here is what I have found while performing this miserable task resulting in a shower and subsequent savings:

·         Customer waste that lead to changes of uneaten side dishes and entrees that were half eaten.

·         How about a half pan of mashed potatoes that cooks threw out from the previous evening? We could have made many things from them. Or that half of a red onion the prep guys didn’t need.

·         The celery tops, onion skins, parsley stems, green pepper centers and tomato ends would make an awesome vegetable stock.

·         While you are in the trash digging around, you might as well pick out those cocktail forks you keep replacing, the ramekins and butter knives too.

·         Seafood restaurants need those shrimp shells, fish bones and lobster heads for a soup base.

·         Oh yes, then there is that quart of tuna salad that someone let spoil.

·         What about those half dozen empty Corona bottles in the bottom of the kitchen prep bag of trash? Was someone pilfering beer and, worse yet, drinking while working?

There is no end to discoveries and assumptions that can be made. How well is your kitchen being managed? Are there far too many broken glasses, plates and smallwares? Are you serving far too much side sauces, extra sour cream and salad dressings? Is your bread coming back in it’s original unused condition that indicates customer disatisfaction or over use by the servers?

Now if I can find the rubber gloves, dishwasher’s apron and old tennis shoes ready to be thrown away, I’ll see how well we are running this retaurant and keeping costs down.

A new restaurant operation is like bringing a puppy home from the dog pound. Everybody loves it, but you are the one who is up all night with the crying and yelping, cleaning up the messes until trained, picking up the chewed new pair of shoes and tripping over the ball of fur with every step.

From the outside, the puppy is cute and cuddly - just like a new restaurant. No one sees that you are scrambling to train staff, get the food out of the kitchen perfect, adjusting schedules, paying unforeseen invoices and hoping there is enough cash flow to make at least your break-even point. It’s a nightmare.

The first 30 days of any restaurant operation cannot be evaluated. Sales are driven in many cases by the curious who just visit because you are new. Costs are escalated due to extra staff, over ordering of product and the usual smallwares you need that were not in the plans. Throw the first thirty days out. Don’t try to judge your future based on your first month.

The days that count are the 100 days that follow the opening month. These are the days when reliable and predictable trends begin to develop. The “Big 100″ (100 days following your first month) are the days that can tell you what you need to do and set the tone for further growth and profitable enhancement. Here are some things that should emerge with your analysis;

• You should be able to accurately discover what your exact daily break-even number is.
• You should see a trend of lower operating costs that should be going down due to tweaks you make as you age. Food costs should be concise as compared to sales.
• There should be a clear picture of what your marketing has done and the demographic draw of existing business.
• The Big 100 should have produced the numbers that allow you to go back and compare to your plan. Are there adjustments necessary to the plan or your operation? What were the biggest surprises? What were the biggest disappointments? What new goals do you need to establish? Is your menu where it should be?

The Big 100 is the platform for you next 6 months of planning. What marketing changes do you need to make? What food trends do you want to expand? What internal changes need to be made to reduce costs or waste? Staffing changes? Hours of operations? Does the seating, lighting, decor and customer areas need adjustment? All of these questions and many more become the basis for your new business plan.

After a little more than 60 days of business, it’s time to start looking at tighter cost control. In the initial stages we focused on the food, customer service and marketing. We costed out our menu and knew that projected costs were in line at the time we opened. Since that time we haven’t done much to look at operating costs.

We will look at these areas:

• Scheduling and better management of time in the kitchen and front of the house.
• Food costs as the market continues to fluctuate (up and down) for commodities like meats, eggs, dairy, cheeses and wheat based products.
• Elimination of services, menu items, fixed costs, maintenance, and general administrative costs that may not be needed.

While sales are holding up well, we can focus on the cost to do business as a long term operational basis.

As the new restaurant enters its third month of operations we see that sales during the week are much different than anticipated. Carry out business is less than expected and highly unpredictable. We may do $25 dollars worth of take out sales one day and $200 the next day.

To promote carry out sales we created a program with the following:

• Set a goal to reach 100 business within our area and double our take out business.
• Create a fax order form that has our most popular breakfast and lunch items.
• Put together 100 file folders that have a label on the outside, fax forms and our complete menu inside.
• Assign staff (Manager, servers) to personally distribute the folders during the coming week.

The total cost to implement this program is under $75 (not including labor). The results??? We will report the numbers in a couple of weeks.