Personnel Availability
An owner considering an additional or new operation should ensure that there is a sufficient number of willing workers available. In many locations, this is not a major consideration since there will be many people who are willing to work in restaurants. However, in some parts of the country, restaurant workers are in very short supply.
Site Characteristics
Once you have determined that the area you have selected has enough potential customers to be successful, the first step is to evaluate the proposed site. Site selection cannot be overemphasized. Countless restaurants have failed because of unsuitable locations. Two of the most important aspects of selecting a site are:
a. Visibility. In short, being able to see the restaurant will motivate many potential customers to try it. This is especially important when starting a new operation. A restaurant located in an out-of-the-way location loses a ready source of free advertising in its visibility to pedestrians and motorists passing by.
b. Accessibility. Although visibility is an important aspect of developing public interest in a restaurant, its accessibility will often determine if the customer actually dines there. Although customers may be able to see a restaurant, they may not even try to get there if access appears difficult.
Visibility and accessibility are usually considered together. The following are some factors to consider when evaluating a potential site’s visibility and accessibility.
a. Convenience. This is the measure of the site’s proximity to potential customers. Some of these sources
include:
1. Residential areas.
2. Shopping centers.
3. Educational facilities.
4. Recreational areas.
5. Central business district.
6. Industrial centers.
7. Mass transportation stops.
8. Freeway exits.
b. Traffic Count. This is primarily a measure of visibility that involves measuring the number of pedestrians and cars that pass by the site. The speed of passing cars should also be considered. Unless the restaurant is visible for some distance, cars driving by at speeds greater than 35 to 40 miles per hour may not be able to react in time to actually stop at the restaurant (although this can be overcome by having easy access and strategic placement of advertisements).
In addition to location, the physical design (physical attributes) of the site should also be evaluated. This includes:
a. Physical suitability. The physical layout of the site must be suitable for the envisioned restaurant concept. If another unit of an existing concept is being opened, it is preferable to have the new unit the same size and configuration as the other units. This helps lower the costs of finishing out the space, since many of the design decisions and specifications can be carried over from previous experience.
b. Parking facilities. Adequate parking facilities are an important consideration for almost all restaurants. Unless you are locating a restaurant downtown, adequate parking should be available for both customers and employees.
c. Adequacy of utilities. The ability to obtain electric, gas, water, and waste disposal services is also important.
d. Municipal services. The adequacy of police and fire protection, as well as sanitation services, must be considered. These services have an effect on the restaurant’s ability to attract customers and employees and may also affect the restaurant’s insurance rates.
e. Zoning considerations. Although appropriate zoning is a concern for any business, restaurants may face additional requirements. This is especially true if the restaurant plans to serve liquor.
Once a site for a new restaurant has been selected, the restaurateur must determine how to secure its use. For most new restaurants, this will entail the negotiation and execution of a lease. A commercial real estate lease will probably be the single largest legal and financial commitment that a restaurant will have. Since restaurateurs do not often have the knowledge or the bargaining leverage necessary to ensure that the best possible lease terms are obtained, they usually need good legal and business advice.
The following are some of the more important features of a lease agreement:
a. Term. The length of the lease should be consistent with the plans and objectives of the new restaurant.
b. Flexibility. The following questions may be asked to determine whether the lease provides the restaurateur with the necessary flexibility.
1. What are the renewal provisions?
2. If additional space is not available when needed, and relocation is necessary, can the tenant sublease?
3. If subleasing is allowed, are there any restrictions?
c. Cost. A gross lease excludes taxes, insurance, and repairs while a net lease passes some or all of these expenses to a tenant. If escalation clauses are included in the contract, the lessee should have a through understanding of how increases are calculated. It should also be clear who pays for improvements and what aspects of the cost are negotiable.
d. Tenant common expenses. When space is rented in locations where common areas are shared with other tenants, such as in shopping centers and malls, each tenant is often responsible for a portion of common expenses. These costs can be significant and should be carefully considered.
e. Exposures. Two major exposures that usually can be mitigated to some degree are (1) the risk of bankruptcy or insolvency on the part of the landlord and (2) the risk of rental to undesirable tenants at the same location. Financial condition of the landlord generally can be verified and then a relatively narrow limit on undesirable tenants (e.g., competitors or unsavory businesses) can be negotiated.
The high failure rate experienced by new restaurants means that, in most parts of the country, there are usually a number of vacant restaurants available for lease. Many failed restaurant locations are reopened by new owners who think they can succeed with their own concept. However, all too often, the new operator fails because the negatives of the location can’t be overcome. Available locations, often fully equipped, presents an opportunity to the careful operator. The following are some of the advantages and disadvantages of converting a vacant restaurant into a new one.
Advantages:
• Rent concessions.
In many cases, landlords are willing to offer attractive rates to another restaurant to occupy the empty space.
• Fixtures and equipment.
Often, the proposed site includes a fully equipped kitchen as well as the fixtures in the dining area. At the very least, the site will usually have a useable floor plan in place for food preparation and serving. This can be beneficial because the less work that a new operator has to do to prepare the site, the lower the start-up costs will be.
• Reducing potential competition.
The possibility of rent concessions and the availability of an equipped site may lure potential competitors who might not otherwise have the financial resources to open a restaurant. Therefore, leasing a former restaurant site may improve a restaurateur’s changes of success by keeping out one more competitor.
Disadvantages:
• Suspect location.
The reason that the restaurant site is available may be that the location was so suspect and its chances of success were crippled from the start. Occupying such a site should be done with great caution. The owner choosing to do so should develop a plan of action for overcoming the location problems. Some tactics might include marketing, more visible signs, valet parking, and increased security. A full demographic study should be completed before signing the lease. It has been my experience that visibility and access plays an important role in the chances of success for any restaurant.
• Public memory.
Some restaurants fail because the food or the service is especially bad. In some extreme cases, incidents of food poisoning or health code violations may have caused the operation’s failure. The public tends to remember such incidents and may regard any successor operation with suspicion. A poor public perception may be very difficult, if not impossible to overcome. In order to change public perception you will be required to allocate a considerable amount of funds toward local store marketing.
• Design difficulties.
Sometimes a restaurant fails due to flaws in the restaurant’s design; causing higher than necessary labor costs to cook and serve meals. A restaurant looking to convert an existing site should be carefulnot to inherit someone else’s problems. Also, a restaurant design that is suitable for one concept may not be suitable for another. For example, the preparation areas of an oriental restaurant will have a substantially different layout than those of a steak house. Therefore, it is important that a restaurateur consider how the existing layout can be adapted to the planned concept. I would recommend calling in a design consultant to analyze what layout changes would be necessary.
