Investing in the Restaurant Business? Here’s what you need to keep in mind:
Three out of ten new restaurants opened in India fail within one year of inception. This is a hard fact. Running a restaurant is a serious business and many investors don’t realize the fact that behind the lipstick and the glamour hides a hard and cruel world. More often than not, the effort and money put up by them is wasted because they are not geared up, operationally or mentally, to bear the brunt of the vagaries of running a restaurant.
Here are some of the reasons why many food businesses fail and how a consultant can help you:
1. No Experience of Food and Beverage Business
Recently, I have noticed many inquiries for consultancy coming to me from people who do not have any background in running food businesses. Although it is laudable that more and more people are looking to invest in F&B, the reasons for this interest scare me.
People from Jewellery, Real Estate, and even IT backgrounds come to me with the thought in mind that running a restaurant would lead to name and fame besides a deluge of cash coming in. Hell – you rake in the money in restaurants dude! People pay the upfront man! And look at the fact that you become well known, people keep calling you for reservations and even celebrities drop in.
More often than not, I have simple advice for them – Don’t do it!
When you come face to face with the issues in the restaurant, you realize that it is more blood, sweat and tears than glamour. The money flows in and flows out and you would be lucky to retain even 20 percent of your revenue for yourself.
A good consultant will point out the pitfalls in the business and prepare the investor to face the issues that inevitably crop up in the food business. A proper forecast, study of the competition, rational budgeting and assisting with the correct vendors are some of the ways the consultant will be able to bring value to a prospective investor. At least, the investor would be able to take an informed decision.
2. Poor Infrastructure Planning
Most first time promoters do not realize that the heart of the restaurant ie the kitchen, the storage and the services, are as important as the décor and the seating area. They tend to forget that customers will come back not for the look but for the food and service. Where does good food come from? A properly equipped, spacious and well ventilated kitchen. Where does good service come from? The people who make the food and serve it. If the staff are unhappy because they do not have proper facilities, how would you expect the food and the service to be good?
It is quite laughable that promoters put in a kitchen and stores almost as an afterthought. They do not like to spend money on essentials like a good exhaust system, adequate storage, staff locker facilities and a proper procurement system. Consultants are able to explain the necessity for these so that the restaurant can run smoothly and the staff can give their best.
3. Poor choice of Cuisine and Production staff
The biggest dilemma faced by most first time entrepreneurs is – which type of food should be served in the restaurant? I have many young entrepreneurs coming to me saying that they have seen something in Bangkok or Dubai or London that they want to bring to India and present to the public. “Its WOW…they have never seen something like this before!” is a common refrain.
As a consultant, a part of my job is to encourage creative thinking but also point out the dangers of unleashing something in India that has potential to nosedive. We have to remember that we are culturally very different from western countries. What may work there may not always work here.
Another important aspect is the translation of what is seen by the potential investors in other countries to what is possible to be made in India. You have to have the right Chef to prepare the food that you want replicated. Otherwise, simply don’t do it! You will kill the business even before you have started it.
4. Keep Well-Meaning Friends and Family out of Decisions:
This sounds harsh, but what your family, a handful of friends and you may like, need not necessarily mean that the general public will like it. This is one of the biggest follies committed by new investors. I run a mile when I see that the Wife, Mom, Dad or Girlfriend is involved in tasting the food and choosing the items to be included in the menu. I have seen perfectly good chefs beat their heads against the wall when they are told that the pasta they served during trial should have had some red chilli powder in it. “My home cook does that, you see, and it’s so delicious!”
The choice of cuisine depends a lot on the demography of the target customers and the availability of a good production team, besides the correct ingredients and the equipment. But the thumb rule is – serve what the public wants, not what your family wants.
5. Get the concept right:
Solid thought and research has to go into the concept – both of the theme of the restaurant and the cuisine to be served. Don’t try to implement a bit of everything that you have seen in other restaurants in India and abroad, especially in the food. You will confuse your customers thoroughly. Remember, confused customers don’t come back! Your décor should not be jarring, nor very simple. There has to be something in the looks that your customers can Instagram or talk about. It is the same with the food. The menu must have signature dishes that can be a talking point for the customers and your marketing person. Above all, ensure that your furniture is comfortable, your air-conditioning proper and your crockery efficient.
6. Poor management of resources and financial flow
This is probably the biggest cause of failure among first time entrepreneurs. They are not aware of the control points of the business. It is not always about buying at the lowest prices and negotiating the best deals. It is also about smart management of resources and keeping a good reputation in the market. The first thing that promoters do when faced with a financial crunch is to delay payments of vendors and staff. This is the most asinine thing to do!
The ingredients that you require for the food and the people who prepare and serve it must be given top priority. Instead of cutting down on essentials, it is always preferable to control unnecessary expenses that eat up the fund flow. This is where a good consultant guides the promoters to ensure that the control systems are set up properly and corrective action is taken well before disaster can strike.
It may seem stupid to hire a consultant when you feel that you or your chef or your manager can do the job of opening your restaurant. This is a mistake because operations personnel have limited exposure to the technical aspects of engineering, finance and control points. It is an oft repeated saying that a good infrastructure can be costly but a bad one can be even costlier.
A good consultant will save you a lot of money and pain in the long run. Look at it as an investment and not a burden. A healthy food business will give you the joy of blending your passion and earn money at the same time – a dream which only a few can achieve.
About the Author Jaideep Gupta