Ray Camillo – Founder & CEO, Blue Orbit Restaurant Consulting
Restaurants are fun, sexy, thrilling and everybody wants one. So much so that opinions about how hard it is to open and run one are everywhere with nary a fact checker to contest them. I’d like to step up and be that fact checker. I’m going a bit off-the-cuff, but my cuff is pretty legit considering we’ve opened, operated, fixed and grown so many restaurants that our opinions serve as the facts. However, I won’t be offended if you call this an opinion piece – this isn’t the New York Times.
Here are the 14 most common misconceptions about opening a restaurant that I’ve found through my experience:
- 90% of All Restaurants Fail within the First Year – FALSE. According to Forbes, only 17% of restaurants close in the first year. Big difference. The article also finds that real estate and real estate brokerage offices fail 21% of the time within the first year and landscapers and automotive repair shops fail 19% of the time during the first year. Insurance agencies and insurance brokerages have the same failure rate as restaurants. What gives restaurants a bad rap, in my opinion, is that anyone can open a restaurant. We help a lot of career changers who have always dreamed about opening a restaurant. For every aspiring restaurateur we help there are probably a few dozen that don’t seek professional help. Instead they seek advice from friends that worked in the business but perhaps never quite achieved the level that is capable of creating a functioning business and bringing it to market. Being able to cook a recipe does not qualify one to create a recipe any more than being a restaurant manager qualifies one to develop a successful restaurant concept. Those entrepreneurs often struggle mightily and learn the hard way, spending significantly more than they budgeted and significantly more than they needed to. I was at a conference on Boston last year where Mario Batali recited to a room of over 5,000 a fact-based piece of lore: “The number one reason restaurants fail is because they’re under-capitalized.” I let out a yelp that made the audience chuckle. Pay a professional to help you figure out how much you need to borrow FIRST…then write a business plan to help you go get that money from a bank or investors. That’s the safest and sanest way to start.
- Opening a Restaurant Requires Years of Experience in the Restaurant Business – FALSE. Restaurant operations should be taken seriously and can be complex to manage considering they are both production facilities and retail facilities under one roof. Just because someone worked in a restaurant doesn’t qualify them to open one. A better indicator of success is an open mind, demonstrated business savvy and a willingness to roll up one’s sleeves to understand the relationships between labor, cost of goods and sales. It’s also vital to have a good sense for what people want and how people decide what they want. Much can be gleaned from books, like Why We Buy by Paco Underhill, 22 Immutable Laws of Branding by Al and Laura Ries, and Why She Buys by Bridgett Brennan. Another good book is Restaurant Success by the Numbers by Roger Fields. I’m not suggesting that you can read a couple of books and be all set – no. You should definitely hire someone qualified to help you create the operating model and concept. Once it has been created and launched, your role will be to inspect and maintain the systems your consultant installed, and you stand a good chance of being wildly successful.
- I Need to Hire a Chef to Create My Recipes and Run My Kitchen – FALSE. You need a great operator…someone who will follow a play book that someone else writes, to the letter, without deviation, without going off the island. That individual is usually not as creative as a chef. but they’re wired to be consistent and sticklers for following the rules. Outsource your creative needs to a creative consulting chef who is paired with a business consultant who can engineer a menu for profit, throughput, ingredient cross use, station load, equipment support, and efficiency. Creative chefs are expensive, they get bored easily and they generally (speaking from experience) don’t like to document and cost recipes. Some even use their lack of documentation to secure their jobs (“…Fire me and your menu will never be the same!”). Dixon Ticonderoga Company knows how much their pencils cost to make…and so they know how much to charge to get the profit they want. How can a restaurant be successful if it doesn’t know how much its products cost? The answer is “with luck” or “intuition” …but for my money, I’d bet on solid numbers and menu engineering vs. overpaying for a chef who won’t mind the store as tightly as I need them to.
- It’s More Expensive to Cook from Scratch Using Real Ingredients – FALSE (usually). Maintaining food cost is vital and it usually represents 22% to 35% of all of the restaurants costs. It’s a balancing act between labor and product costs. Raw ingredients almost always cost less than pre-packaged, pre-cooked, ready to serve or heat and serve items, however, you’ll spend less on labor to open the package and nuke the item or boil it in the bag. Similarly, you’ll spend more on skilled labor to turn raw vegetables and meat into products for sale. Generally speaking the combination of higher paid wages and low cost fresh ingredients wins the day for a couple of reasons: 1) the food will taste better (provided the recipe is right) and 2) you’ll pay only marginally more per hour for qualified labor that can do it right. The added benefit is your becoming the employer of choice in your community because you pay better. Where people go wrong is they try to cook from scratch with low skill labor….so the food is simply not good.
- Great Service Trumps Great Food – FALSE (usually). Our motto is “the food must be the hero.” With so many restaurant concepts tinkering with fast casual / quick serve / pay-first models, service is more about cleanliness and delivering expectations. For full service restaurants, a rude server has a good chance of making a Yelp review, but we find that even the most vocal customers will return to a restaurant if the food is fantastic…even if the service remains surly or incompetent. They may frequent the restaurant less but they will return. Serving bad food (bad tasting, bad smelling, inconsistent, low quality, etc.) is the kiss of death for a restaurant whereas a restaurant perpetually in a category of “service could be better” is just annoying.
- Opening a Small Restaurant Will Increase My Chances of Success – FALSE. If you regard the kitchen as the engine, a restaurant’s engine can only get so small before it is uninhabitable or incapable of producing any food at all. That “smallest engine” can usually support about 75 seats…which translates to about 2,300 square feet. That’s most municipalities. Some exceptions certainly exist in big cities with premium prices for real estate or where walk-up / take out business dominates. But for a fast casual or sit-down restaurant, going smaller than 2,300 square feet means that your engine is strong enough to support 75 seats but you’re seating far fewer. You’re shooting yourself in the foot. We find the sweet spot for profitability to be around 3,500 to 6,000 square feet. There are a lot of variables to consider but moderate sized restaurants tend to throw off more cash and keep the owner from becoming an employee than the smaller restaurant which was opened on the “smaller is safer” premise.
- It’s Better to Hire Experienced Servers so You can Cut Down on Training Cost – FALSE. You want to hi