FIND SOME MONEY WITH GRIT, GOALS, AND GUTS
RESTAURANT CONSULTANTS OF AMERICA™
Find Some Money with Grit, Goals, and Guts
People say it takes money to make money. I say it takes money to buy forks, fire insurance, and cheese. Money is the blood of any business, and in the restaurant business lack of money can destroy your options and cause you to make bad decisions. Many poor decisions in the restaurant business come from being undercapitalized. Lack of money might tempt you to …
• Select the cheaper of two sites.
• Skip legal and regulatory steps.
• Buy lower quality products.
Plenty of other poor decisions are made in the restaurant world every day because of undercapitalization.
Investors are always looking for good ideas, but getting money for a business venture can be challenging. To be successful, you need grit, goals, and guts.
Grit is what keeps you asking for capital even when you have been rejected 37 times in a row like I was the first 37 times I asked for a business loan. Goals become more clearly defined when you write your business and financing plans because, without such planning, you can kiss virtually every capital resource good-bye. Guts are the intestinal fortitude to trust in your idea, your plan, and yourself.
Restaurant Industry Challenges
Lions, and tigers, and bears, oh my! Well, maybe not, but even if you don’t stray off of the yellow brick road (your business plan), there are plenty of challenges in the restaurant business.
Restaurant Turnover
About 11 million people work in the restaurant industry in the United States, which makes the industry the second largest employer in the country behind the federal government. As you’ll learn when you start your restaurant, these folks have a tendency to change jobs.
Turnover in the restaurant business has become a disease of astronomical proportions. Industry turnover averages run in excess of 200 percent for hourly employees and exceed 100 percent for salaried management. To put these numbers into perspective, if you have a projected staff level of 35 employees and a projected turnover of 200 percent, you will need to hire 70 employees in the next year to stay at 35. In this example, the average tenure of one of your restaurant employees is six months.
In addition, the shortage of qualified applicants is growing. Turnover has affected every segment of the industry and continues to be a driving force behind rising compensation levels, poor operations, and profit erosion.
Minimum Wage Laws
Minimum wage laws always affect the restaurant business. Where state and federal minimum wage levels are not the same, the higher of the two wage rates prevails. States such as Alaska, California, Connecticut, Delaware, Hawaii, Illinois, Oregon, Maine, Massachusetts, New York, Rhode Island, Washington, and Vermont all have minimum wages that are above the federal guidelines, and cities such as San Francisco, are providing city-mandated living wage rates that increase the minimum allowable wage inside that city's limits even more. An increase of 50¢ in minimum wage can cost the average restaurant tens of thousands of dollars in lost profitability in a given year. This loss results in either a decrease in profits or an increase in menu prices to make up for the shortfall.
Restaurant Legal Issues
The restaurant industry has become a legal minefield. Without the proper protection and knowledge, any restaurant owner can be destroyed both professionally and personally.
Restaurant Site Selection
Site selection changed forever in the early 1990s. Back then, the economy was strong, the restaurant industry was booming, cash was easy to get, and growth was running wild. Companies like Boston Market came along and scooped up sites at alarming rates and unbelievably high prices and forever changed the restaurant site selection landscape. Today, because of those past poor decisions when companies did not care about paying 30–100 percent more for a site than it was worth, finding a quality site at a fair price is much more challenging.
Whether you are planning to serve alcohol also needs to become part of the process for selecting your site. State and local governments may take your location into account when issuing your liquor license depending on the type of establishment you are planning to open. Make sure to investigate how these permits are issued and the application process before deciding on your restaurant’s site. Talking to insurance companies, lawyers, property owners and local-zoning commissions will help you determine the costs—legally and monetarily—of serving alcohol at the site you are considering.
Restaurant Saturation
Saturation of any one market or specialty threatens the industry. The marketplace became inundated with restaurants that were poorly planned and restaurateurs who were inexperienced. In some parts of the country, the restaurant business became oversaturated and same-store sales started to decline.
Food for Thought
Does McDonald’s serve high-quality products? This is not a trick question. The answer is absolutely, undeniably, yes! McDonald’s purchases the best products money can buy and has the corner on many of the beef and potato markets because of the volume of purchases it secures. Product quality is a segment-oriented thing.
More Food for Thought
The restaurant industry has grown at record levels for 10 straight years. In 1999, 844,000 restaurants were operating in the United States. Sales projections for 2001 are forecast to exceed $399 billion. Yes, people like to eat out, and they will spend money to do so.
If You Are Great, You Will Succeed
In a sense, however, the state of the restaurant industry is the same as it has always been. Change is always in the air, but the business is still serving food and catering to the American love of quality.
American restaurant owners know what customers expect. They do not expect a New York strip steak or a kung pao chicken dinner from McDonald’s, so McDonald’s doesn’t try to deliver that. Customers want all-beef hamburgers, and McDonald’s gives the customers what they want. Its success is tough to argue with. A customer who orders a filet mignon at a Morton’s Famous Steakhouse wants a top of the line piece of meat and is willing to pay for it.
Regardless of your restaurant’s menu, category, or concept, if you are competing near the top of your segment with great products and services, you will always have a chance. Customers will frequent the restaurant that delivers the best products and services at the right price in a given market area. If Bill’s restaurant is all that’s available, that’s the place people will spend their money. If they have two or three choices, they will spend their money at the place providing the best food and service at the fairest price. The restaurant business is a fun, competitive environment—if you’re great.
The marketplace has plenty of room for new and innovative concepts as well. Our society has shown great interest in making a dining experience like a short vacation. If you have new products or services to bring to the market, you may very well find consumers who will buy. If you bring old products and services to the market, but deliver them in a new way, you may find a niche in today’s competitive restaurant environment as well.
Although the restaurant business is difficult, new people are always stepping into the industry wanting to compete. Some want to compete with the big boys, some want to compete with the mom-and-pop places, some want to compete with new concepts, and some want to compete by improving on what has always been done, but they come in busloads ready to compete. The question that you must answer for yourself is, do you have what it takes to stand out from the crowd and succeed?
The Least You Need to Know
• New restaurant concepts continue to blossom.
• Eighty percent of new restaurants fail in three to five years.
• Success comes with having the necessary knowledge, a good plan, the ability to execute well, and an ample supply of money.
