How to Start a Restaurant Handout

How to Start a Restaurant

This article was excerpted from our Restaurant start-up guide, available from SmallBizBooks.com.

As increasing numbers of consumers want to dine out or take prepared food home, the number of food-service operations has skyrocketed from 155,000 about 30 years ago to nearly 900,000 today. But there's still room in the market for your food-service business.

Shifting demographics and changing lifestyles are driving the surge in food-service businesses. Busy consumers don't have the time or inclination to cook. They want the flavor of fresh bread without the hassle of baking. They want tasty, nutritious meals without dishes to wash. In fact, the rise in popularity of to-go operations underscores some clear trends in the food-service industry. More and more singles, working parents and elderly people are demanding greater convenience when it comes to buying their meals.

Target Markets

No single food-service operation has universal appeal. This is a fact that many newer entrepreneurs have trouble accepting, but the reality is that you will never capture 100 percent of the market. When you try to please everyone, you end up pleasing no one. So focus on the 5 or 10 percent of the market that you can get, and forget about the rest.

With that said, who is eating at restaurants? Let's look at the main market categories of food-service business customers:

Generation Y. This generation, also tagged the "millennial generation," the "echo" or the "boomlet" generation, includes those born between 1980 and 2000. Generation Y is the most ethnically diverse generation yet and is more than three times the size of generation X. They are a prime target for a food-service business. Members of Generation Y go for fast-food and quick-service items. About 25 percent of their restaurant visits are to burger franchises, follow by pizza restaurants at 12 percent.

Generation X. Generation X is a label applied to those who were born between 1965 and 1977. This group is known for strong family values. While earlier generations strove to do better financially than their parents, Gen Xers are more likely to focus on their relationship with their children. They are concerned with value, and they favor quick-service restaurants and midscale operations that offer all-you-can-eat salad bars and buffets. To appeal to this market group, offer a comfortable atmosphere that focuses on value and ambience.

Baby boomers. Born between 1946 and 1964, baby boomers make up the largest segment of the U.S. population. Prominent in this generation are affluent professionals who can afford to visit upscale restaurants and spend money freely. During the 1980s, they were the main customer group for upscale, trendy restaurants. In the 1990s, many baby boomer were two-income households with children. Today, those on the leading edge of the boomer generation are becoming grandparents, making them a target of restaurants that offer a family-friendly atmosphere and those that provide an upscale, formal dining experience.

Empty nesters. This group consists of people in the age range between the high end of the baby boomers and seniors (people in their early 50s to about age 64). Empty nesters typically have grown children who no longer live at home, and their ranks will continue to increase as the baby boomers grow older and their children leave home. With the most discretionary income and the highest per-capita income of all the generations, this group typically visits upscale restaurants. They are less concerned with price and are more focused on excellent service and outstanding food. Appeal to this group with elegant surroundings and a sophisticated ambience.

Seniors. The senior market covers the large age group of people age 65 and older. Generally, the majority of seniors are on fixed incomes and may not often be able to afford upscale restaurants often, so they tend to visit family-style restaurants that offer good service and reasonable prices. "Younger" seniors are likely to be more active and have more disposable income than "older" seniors, whose health may be declining. Seniors typically appreciate restaurants that offer early-bird specials and senior menus with lower prices and smaller portions, since their appetites are less hearty than those of younger people.

Restaurants are classified into three primary categories: quick-service, midscale and upscale. Quick-service restaurants are also known as fast-food restaurants. These establishments offer limited menus of items that are prepared quickly and sold for a relatively low price. In addition to very casual dining areas, they typically offer drive-thru windows and take-out service.

When people think of fast-food restaurants, they often think of hamburgers and french fries, but establishments in this category also serve chicken, hot dogs, sandwiches, pizza, seafood and ethnic foods.

Midscale restaurants, as the name implies, occupy the middle ground between quick-service and upscale restaurants. They offer full meals but charge prices that customers perceive as providing good value. Midscale restaurants offer a range of limited- and full-service options. In a full-service restaurant, patrons place and receive their orders at their tables; in a limited-service operation, patrons order their food at a counter and then receive their meals at their tables. Many limited-service restaurants offer salad bars and buffets.

Upscale restaurants offer full table service and do not necessarily promote their meals as offering great value; instead, they focus on the quality of their cuisine and the ambience of their facilities. Fine-dining establishments are at the highest end of the upscale restaurant category and charge the highest prices.

Selecting a Food Concept

Restaurant patrons want to be delighted with their dining experience, but they don't necessarily want to be surprised. If you're anticipating a family-style steakhouse (based on the name or the décor of the establishment), but you find yourself in a more formal environment with a bewildering--and pricey--gourmet menu, the surprise may keep you from enjoying the restaurant. Concepts give restaurateurs a way to let patrons know in advance what to expect and also to provide some structure for their operation. Here are some of the more popular restaurant concepts:

•   Seafood. Quick-service seafood restaurants generally offer a limited range of choices, often restricted to fried seafood. Midscale and upscale seafood restaurants offer a wider selection, prepared in ways other than fried, such as baked, broiled and grilled. Seafood can be a risky area on which to focus, as prices are always changing, and many kinds of seafood are seasonal. Also, quality can vary tremendously. When shopping for seafood, make sure the items are fresh and meet your standards of quality. If you are not happy with what a distributor offers, you can be sure your customers won't be, either.

•   Steakhouses. Steakhouses are part of the midscale and upscale markets. Midscale steakhouses are typically family-oriented and offer a casual environment with meals perceived as good values. In terms of décor, comfort is emphasized and Western themes are popular. Upscale steakhouses offer a more formal atmosphere and may serve larger cuts of meat that are of better quality than those served in midscale restaurants. Upscale establishments also charge higher prices, and their décor may be similar to that of other fine-dining establishments, offering guests more privacy and focusing more on adult patrons than on families.

•   Family-style restaurants. As the name implies, these establishments are geared toward families. Since they charge reasonable prices, they also appeal to seniors. They offer speedy service that falls somewhere between that of quick-service places and full-service restaurants. Their menus offer a variety of selections to appeal to the interests of a broad range of customers, from children to seniors. Family-style restaurant prices may be higher than those at fast-food restaurants, but these establishments provide table service to compensate. The décor of family-style restaurants is generally comfortable, with muted tones, unremarkable artwork, and plenty of booths and wide chairs. Booster seats and highchairs for children are readily available.

•   Casual-dining restaurants. These establishments appeal to a wide audience, ranging from members of Generation Y to Generation X to baby boomers with families to seniors, and they provide a variety of food items, from appetizers and salads to main dishes and desserts. Casual-dining restaurants offer comfortable atmospheres with midrange prices. Many center on a theme that's incorporated into their menus and décor.

•   Ethnic restaurants. Ethnic restaurants enjoy a significant share of the U.S. restaurant market. They range from quick-service places with limited selections to upscale eateries with a wide variety of menu items. Their menus typically include Americanized versions of ethnic dishes, as well as more authentic food. The three most popular kinds of ethnic restaurants are Italian, Chinese and Mexican. Other popular ethnic restaurant types include Indian, Thai, Caribbean, English, French, German, Japanese, Korean, Mediterranean and Vietnamese. An even wider variety of ethnic restaurants can thrive in areas with a culturally diverse population, such as large metropolitan areas.

•   Pizzeria. You have two primary choices when entering starting a pizzeria. One is a to-go restaurant in a modest facility with a specialized menu highlighted by pizza and beer, limited seating and a self-service atmosphere. The other is a full-service pizza restaurant with a menu that features not only a variety of pizzas, beer and wine, but also Italian entrees like spaghetti, ravioli and lasagna, side dishes such as salads (or even a salad bar), and a few desserts. The foundation of a pizzeria is, of course, the pizza. If you don't know how to make a good pizza, hire a good pizza cook who does. Invest in top-quality ingredients and preparation methods, and make every pizza as if you're going to eat it yourself. Do that, and your customers will keep coming back for more.

•   Sandwich Shop/Delicatessen. One reason sandwich shops are so successful is that they enjoy high profit margins. Sandwich shops and delicatessens can also change their menus quickly and easily to adapt to current tastes. For example, with the growing interest in health and nutrition in the United States, sandwich shops and delicatessens have started offering more low-fat, healthy ingredients in their sandwiches, salads and other menu items. In addition, many sandwich shops and delis have been able to keep up with workers who eat at their workplaces by adding delivery and catering to their sit-down and take-out operations. Sandwich shops and delicatessens can be differentiated by the foods they serve. Most sandwich shops serve only sandwiches, possibly with some side dishes or desserts. A delicatessen usually offers a more extensive menu, including sandwiches, prepared meats, smoked fish, cheeses, salads, relishes and various hot entrees.

•   Coffeehouse. With more than 400 billion cups consumed every year, coffee is the world's most popular beverage. But beyond the beverage itself, people frequent coffeehouses and espresso bars for a variety of reasons: to meet with friends, for a quick lunch and a drink to perk up the afternoon, or simply to start off each morning with a great cup of coffee to start off each morning. Most successful coffeehouses have heavy foot traffic and high-volume sales. The majority will serve up to 500 customers per day and manage up to five customer turnovers during the lunch hour, despite having limited floor space and modest seating capacity. Profit margins for coffee and espresso drinks are extremely high--after all, you're dealing with a product that's more than 95 percent water. At the same time, your average ticket amount is around $3, so you need volume to reach and maintain profitability. Besides specialty roasted coffee by the cup, most coffeehouses also have espresso-based drinks (cappuccinos, lattes, etc.), assorted teas, bottled water and fruit juices, along with an inviting assortment of baked goods, a selection of desserts, and coffee beans by the pound.

•      Bakery. With the emergence of strip malls and competition from supermarkets that have in-store bakeries, "bread-only" retail bakeries have almost disappeared from the United States. Bakeries today offer cakes, scones, bagels and coffee drinks, and sometimes even offer full dining menus, including sandwiches, hot entrees, beer and wine. Consumers love fresh bakery goods, but the market is extremely competitive. As you develop your particular bakery concept, you'll need to find a way to differentiate yourself from other bakeries in town.