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BUYING A RESTAURANT BECAUSE YOU CAN COOK!

Feb 19, 2013
Article #191
Author: Mel Jones

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At some time or another, nearly everyone has this dream of taking their great recipes and opening a restaurant or food business.  And there are plenty of examples of people like Debbie Fields who baked-up Mrs. Fields Cookies, or Famous Amos (AKA Wally Amos) who made a fortune manufacturing and marketing his cookies into grocery stores, or Fred Deluca who in 1965 borrowed a $1,000 and opened a sub shop in Connecticut that eventually became Subway. 

All of these people had a passion for what they made, and they made the best the market offered. And many of them weren't successful on their first or even second try. Fred DeLuca didn't get it right until his third store.  Mrs. Fields was ridiculed by many who didn't think a cookie business would succeed. Wally Amos would send home-baked chocolate chip cookies to celebrities to entice them to meet with him and maybe sign a deal to be represented by the William Morris Agency.  But instead Marvin Gaye and Helen Reddy lent him $25,000 to start his cookie company on a Hollywood corner, and the rest is history.

Each of these great entrepreneurs had several things in common...they started small and they had a great product that the public "eat-up."

So the lesson here is “keep it simple,” “start small” and “have the best.”

This means keep your menu small and simple using your best products, making products that are easy and easily repeated for consistency.

Another link between these great entrepreneurs is they all had passion for their product. But passion alone won't make you a success in this business. This author knows that some of the worse restaurant operators are chefs, who tend to be very passionate about their food. They are so obsessed with the art they lose focus on the fact the need to make money.  Don’t lose your focus, because if you can’t make a living, then you’ll be out of business in no time.

Here are some more helpful hints that can help you be a success:

1. As I’ve said before, you have to have a great product, unlike anything on the market. Just being good isn't usually good enough. Select just a few of your great dishes and build your business around those items. That’s not to say you can have other items as well; rather it is to say that they should be the centerpieces. People tend to gravitate to a food business where they know that they’ll get the same product every time. The chances of creating a great product every time is reduced by the number of products you make. So keep it simple.  Although I find Starbucks coffee to be awful, it is consistently awful, and they have set the expectations for their customers and meet it every time.

2. This may seem self-fulfilling to you, but the reality is you need a great broker to help you find a space where you can prepare and serve your culinary art. That would also be known a getting a lease. Leases are very complex and if put together wrong, it could ruin your life...and I'm not kidding. So get a broker who knows leases and by all means.  Commercial brokers tend to represent the landlord’s best interest.  So seek legal advise from an attorney who knows retail leases.

3. Have plenty of capital (aka money) in the bank.  Be smart about how you spend your money. All too often I hear stories about someone buying a restaurant only to discover they have to spend $15,000 fixing equipment in the restaurant because they failed to property inspect the equipment...ouch! Again, get a good broker to help you through the process to make sure you know what you should be doing during the escrow.  Don't start spending on large improvements. Remember, people come mainly because they want a great experience, which means great food and great service.  Spending $20,000 on flooring probably isn’t the smartest move or completely remodeling is equally not a good move. Preserve your capital until you can prove yourself in this business.

So build your brand and then spend money making the restaurant gorgeous after you’re successful. But by all means, make sure your store is clean, clean, clean!

Keep this in mind, "hole-in-the-wall" places became successful because they focus on making the best product and with the best service.

4. Define your "first impression" image. What I mean is when a customer first walks into your store, who are you?  Are you a high energy place with exciting service, great smells, edgy music and happy people or are you a quiet place for people to come relax and enjoy a great meal.  Train your servers well along with your order takers to play the roles of your first impression strategy.  The restaurant business is not a “build-it and they will come” business.

Uniforms for your employees are a must, and clean ones the only option. Tattoos, obsessive piercings, strange hair colors probably aren't the best idea for the public to be greeted by, unless or course you're in San Francisco or similar metro areas. So give people a great first impression and they'll come back. 

5. Watch your numbers. If you are making your best product at a cost of 50%, then either your portions are too large, your ingredients are too expensive or even your price is too low. You ought to be targeting a cost of less than 30% for your product.  So if the ingredients cost you $3 to make the product, you ought to be selling it for $10 or more. If you're not, then you need to rethink what you're doing.  Labor is also a factor. Each concept will have different labor percentage, but generally a good restaurant business will have labor in the 25-28% range. 

6. Get a great lease. This is the area where most restaurant owners go wrong, terribly wrong. Landlords are out to get as much for a space as possible without any concern about the economics of the deal.  Before you sign on the dotted line ask your self one question "how much monthly sales do I need in order to make a fair profit?" In other words, if the rent is $4,000 a month (that includes CAM/NNN) then how much do you need to sell to make a profit and can the store sustain such sales.  In other word, if your restaurant is 1,000 Sq. Ft. and the rent is $10,000 a month, you need to know if that space can make you the revenue or sale you need to make money.

The rule-of-thumb states that the rent should be in the 5-8% range of sale.  So here is the simple math: if you want your rent to be 6% of sale and the rent is $4,000, then the monthly sales need to be about $67,000.  You need to determine if this is doable. More often than not, the answer is no. 

7, Have a good marketing and advertising plan that's sensible, but as I say, you can have the best marketing and advertising plan ever, but if your product is awful, and first impression is terrible, you may as well take your money and use it to light-up a cigar...you'll at least enjoy the cigar.  Work with a professional marketing person in this space, and don’t be cheap about it, and don’t try to do it yourself. A good marketing plan can be the difference between success and failure.

8. Location is critical, but I think it is also a bit over rated. It took Subway 3 times before they found the right location, yet they somehow survived through two other locations and were able to expand. Think about it, a AAA location’s rent will be at least double a B location’s rent.  Say the rent for a AAA location is $10,000 a month and for the B location it is $4,000 a month.  If one takes the $6,000 difference and plows it into marketing and advertising for a year or two, and then tapers it back when a following has been created, then there is an additional $60,000+ a year savings in rent.

Take In-N-Out Burger. I happen to grow up where In-N-Out was started and I went to store number 4 on Lankershim Blvd. in North Hollywood CA. and ordered two double-doubles after my track and field workouts. That location might qualify as a C location – middle of a block, hard to get to from traffic coming the opposite direction, small lot, etc. – yet after nearly 50 years, it is still cranking!  In-N-Out often places their stores in B location – middle of the block, not that easy to get to – and they can do that because they have developed a brand that everyone wants. Now speaking of In-N-Out, this is another example of a brand doing one thing and doing it great!  A family of four can get a great meal for $20! The restaurant first impression is clean, well dressed young adults with clean uniforms greet you, they smile and laugh as they work hard. And the food is great!

I could go on and on, but if you’ve gotten this far in the article, thank you for putting up with my grammatical errors, typos and boring stories. All the best to your restaurant venture.  

 

                                                                                                                                                                                                                                                       

We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions. 

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions. 

 

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