Anyone that works in the restaurant, service, and hospitality industry knows that it’s not a “get rich quick” type of career. It takes time, hard work, and dedication to be successful. Even still, a study by Ohio State University reveals that nearly 60% of restaurants close or change ownership within the first year and 80% fail within the first 5 years.
That’s why opening (and maintaining) a successful restaurant is not an easy task. It requires proof of concept, a dedicated staff, proper marketing, and strong financial understanding. Moreover, with the average restaurant profit margins falling between 3-5%, it’s vital to set your business up for success from the beginning by having a strategic plan with room for unanticipated events.
So, whether you’re an entrepreneur looking for a new endeavor, a chef looking to break out on your own, or just curious about what goes into opening a restaurant, we’ve laid out a few things you need to consider.
Target Market
Determine who will be eating at your restaurant. Is it the millennial generation that goes out for Insta worthy eats, families focused on quick, kid friendly meals, or empty nesters with more disposable income to spend on upscale bites? You can’t cater to everyone so focus solely on the type of customer you want to reach and forget the rest.
Restaurant Style
The restaurant style involves the type of service, experience, and price point you want to provide. It typically ranges from fast food to to midscale, to fine dining.
Quick Service/Fast Food – Low price; Limited menu options; Casual and Convenient; Good for families, teens, millennials, and people who either travel for work or work in industries with limited break times so they need something convenient & on-the-go.
Midscale – Affordable; Sit-down style service with a variety of menu options. Good for families, millennials, and individuals with some disposable income.
Upscale – Higher price point. Focus is on the quality of cuisine and ingredients. Good for individuals with more disposable income like empty nesters, seniors, business men & women, and special occasions.
Concept
Based on your target market and the experience you want to create, identify the theme/plan for the venue. Some examples would be a breakfast/brunch spot, a steakhouse, a coffeehouse, a pizzeria, a bakery, a sports bar & grill, a BBQ joint, etc.
Location
Location can make or break a restaurant. Find out where your target customer lives, works, and goes out. Look into the restaurant competition in those areas. Are there any existing venues that offer something similar or are there opportunities for your business to provide something not yet available? Would your venue/service “fit in” with the location — for example, you wouldn’t necessarily open up a fine dining restaurant next to a freeway surrounded by fast-food restaurants. Chances are you’d probably want to be situated in more of a high foot-traffic, aesthetically pleasing location.
With location, you’ll also want to consider things like ease of parking, local activities or events, and nearby attractions — how accessible is it to potential customers. Some “prime” locations could mean higher costs and rent, but it could also lead to higher anticipated sales volume so you’ll want to plan out how location plays a role in your restaurant’s success.
Business Plan
Developing a strategic, thorough, and research oriented Business Plan is imperative when opening a new restaurant. Some things you’ll want to include are a detailed description of your concept, information about your target customer, menu items and pricing, financial expenses + forecasts, and employee hiring + training + and retention plans. Including a competitive analysis and some market research is also recommended.
Licenses/Permits
Licenses and permits can take weeks to months to be approved so it’s important to start filing paperwork as soon as you’re ready. Some common licenses you may need include: a liquor license, sign permits, workers compensation, and a music license.
Menu Development
When designing a menu, it’s important to keep the concept, experience, quality of ingredients, trends, and pricing in mind. The menu should be appealing to the target customer so if it’s a family style restaurant, there should be kid friendly, affordable options. If it’s an upscale venue, the ingredients should be of higher quality, potentially sourced locally and in season, and price points may be higher. Also, think about what makes your menu unique, limit the number of menu options, and keep the descriptions simple for customers to understand.
Financing
How much money you need to start a restaurant depends on a variety of factors including how much equipment you already have, inventory costs, marketing, operating costs, etc. It’s important to estimate how much money you’ll need to not only open the restaurant but to maintain the restaurant until you start generating profits. We recommend allotting some finances towards unforeseen circumstances such as faulty equipment or construction costs.
Staffing
One of the biggest challenges in the restaurant industry is hiring and maintaining top talent. First, write a detailed job description to help attract the right candidates for the position. Then use a hiring solution like Industry to post jobs. Best part about Industry is that you can see an applicant’s profile, learn about their experience & check out their personality before they ever walk in the door so you can hire right the first time. When it comes time to train staff, have a plan in place for initial and ongoing training. Ongoing education adds to the company culture and builds loyalty with team members.
Marketing
When starting a restaurant, it’s important to have a marketing plan outlined to help get the word out about your new venue. This may involve having a PR plan to work with local publications, radio talk shows, or sports leagues. Or it may mean developing a social presence and strategy to build engagement & awareness with potential customers online. Some other strategies include advertising, leveraging contests, or creating customer loyalty programs through apps like fivestars. Remember, word of mouth marketing is one of the best methods of advertising so focus on creating an amazing experience at your restaurant so people naturally want to share that with others.
Bottom line: Opening a restaurant takes planning, time, money, and passion. But, for those willing to work hard and stay humble, it can be extremely rewarding.