Is this the Right Time to Open a Restaurant?
by Susan Davis on 11/12/09 at 7:35 am
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This may be the best time ever
According to many financial analysts, this might be a great time to open a restaurant.
Granted, others might call this advice crazy, since many owners have watched sales plummet and customers disappear, as diners considered cheaper alternatives to eating meals out.
Still, if one is a savvy entrepreneur, the advice may be valid, even in what is touted as the worst economy since the Great Depression. After all, three out of four new ventures fail within the first three years. That’s under ideal conditions.
Learn from Lessons of the Past
The advice is worth considering, though. Studies show that the risks remain the same whether you open a restaurant in good times or bad. And after watching restaurants from fast food joints to upscale eateries reinvent themselves, there are many lessons to learn.
Yes, consumers are cutting back, but they still enjoy eating out and will continue to do so if they feel the prices are fair. They also want high quality food high and expect good service. So keeping consumer preferences in mind, restaurant owner wannabes can consider these facts, culled from research by the New York State Restaurant Association and others:
- Rents have dropped as much as 66 percent in prime locations.
- Some landlords are offering abatements as incentives.
- There is a huge pool of talented chefs and experienced workers willing to work for much less than in the past.
- Many food prices at the wholesale level have come down and/or stabilized.
- Marketers have been successful with gimmicks and techniques to bring diners in and keep them coming back, including the use of social networking sites such as Facebook, Twitter and industry blogs.
- There is private money available, even if traditional bank loans are difficult to get.
These are formidable arguments for opening a restaurant, whether you live in Pittsburgh, Portland, Pasadena or Podunk. According to Entrepreneur.com, the rate of new restaurant openings across the country is the highest it has been in recent memory, with New York City experiencing a 25 percent increase in applications over 2008 in just the first four months of this year.
Simplicity is the New Trend
Perhaps that’s because startup costs have dropped significantly – no longer are owners looking to invest hundreds of thousands of dollars into glitzy and glamorous décors. Restaurateurs are opting for simple and comfortable, with a menu that adheres to that trend. The hottest and fastest growing menu items this year incorporated less expensive ingredients such as ground beef, seasonal produce and flavorful seasonings, meaning that restaurants could charge less per dish but still turn a profit. Unquestionably, today’s customers want value for their dining dollar.
It still behooves the budding restaurateur to heed the warning signs from the past and be mindful that many existing establishments continue to close, even though they’ve tried to keep up with changing trends. In upscale Goochland County, Virginia, just outside of the capital city of Richmond, two restaurants are shutting their doors because of slumping sales.
The Farmhouse (formerly the Foxhead Inn) was a high-end restaurant in a 150-year old farmhouse, serving haute cuisine meals to clientele living on nearby estates and patrons of the two local country clubs. Although the average annual income in the area exceeds $100,000, the economy forced even these affluent diners to cut back. The Farmhouse owners opted to shut down, rather than take on a partner or pour their own money into the operation.
Another casualty was the Edible Garden, one of the first area restaurants catering to earth-conscious locavores. After five years of serving meals made with ingredients from local farms, the popular eatery closed its doors. Citing the economy, the owners reluctantly decided to shut down, rather than revamp its menu or make changes to its “eat local” philosophy. “We came out with a mission to bring awareness to local food to Richmond and the community, and we felt like we had done that,” said owner Molly Harris, in an interview with Richmond BizSense. “Then other restaurants picked up on the theme, supporting local farmers. That really was our goal.”
Although the timing may be right for new restaurateurs to enter the market, it is still a chancy proposition. Do your research and proceed with caution.
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