Starting a Restaurant

Industry notes

The restaurant industry is:

• Showing signs of growth, especially as tourism increases. The take-out sector is also growing, fuelled by a demand for convenience by time-strapped patrons.
• Demanding. Expect long days, often 10-15 hours per day. You must excel in many areas such as food preparation and service, management, marketing, meeting people, purchasing, inventory control and personnel administration.
• Competitive -- 50 to 80% of restaurants fail within the first three years.
• Governed by federal, provincial, and municipal laws. Understand ALL regulations before making any decisions, especially before purchasing or leasing a building.

Types of restaurants

Depending on your experience, finances, location and customers, decide on the type of restaurant:

Traditional
Cater to a variety of customers. Must excel in service, food preparation and inventory control due to lengthy menus.  Popular in tourist areas, but declining in general.

Ethnic
Highlight food from a particular country or region. Must offer personal service with excellent cuisine.

Specialty
Offer one food type, or a variety of a certain dish. Best in urban areas. Owners should have lots of restaurant experience.

Coffee Shop
Offer a wide variety of quick, pre-prepared dishes. Heavy traffic flow is needed for high customer turnover.

Fast Food
Normally franchise operations offering limited menu. Attractive to beginning operators. Usually requires relatively low capital investment.

Cafeteria
Offer simple, pre-cooked hot dishes and cold plates. Large transient population is needed. Controlling labour costs can be difficult.

Self-Serve
Small operations offering take-out or eat-in. Location, efficiency and good food are critical. Easiest type of restaurant for the beginner due to low initial capital outlays and minimal payroll requirements.

Location

Choosing a location may be your single most important decision. Do your research. Look at population trends and the business climate. Check statistics on traffic counts, community characteristics, and demographics. Consider six key factors: regulations, costs, accessibility, parking, the neighbourhood and the competition.

Layout and design

Aim for a practical, useful layout, while setting the mood. Make sure you have:

• Seating/waiting areas, serving room, cashier area, rest rooms, bar (optional).
• One or more areas from which you can view the entire restaurant.
• Good lighting, signs and obstacle-free traffic flow.
• A variety of seating arrangements: 50% of customers come in pairs; 30% come alone or in groups of three; and 20% in groups of four or more.
• Adequate room. The suggested square footage requirements per chair are: 10-20 sq. ft in traditional restaurants, 10-12 in cafeterias, 7-17 in coffee shops.

A kitchen that allows efficient and effective food preparation and interaction between staff, safety in movement, dry and cold storage, dish washing, an area for staff's personal items, convenient delivery zone, ease of cleaning and maintenance, and proper ventilation and lighting.

Human resources  

Your commitment and investment in human resource development will be a key component of your overall marketing plan. Standards, training and certification programs are available for a number of tourism-related occupations (such as restaurants) through the Manitoba Tourism Education Council (204) 957-7437. Refer to the Human Resources Document  for more information.

Advertising

Word-of-mouth advertising and good public relations are often the best ways of promoting a restaurant. Depending on your market and its size, also consider flyers (such as in tourist areas), newspapers (especially for holiday promotions), radio, TV and the Yellow Pages.

Calculating seating capacity

To determine the maximum potential of your restaurant and break-even point

1. Determine desired profit. Convert to percentage of sales to get sales required.
2. Determine number of operating days. Divide number of days into sales to get average daily sales.
3. Estimate volume percentages for meal periods (breakfast, lunch, dinner).
4. Multiply figures in step 3 by average sales per day to get dollar volume per period.
5. Determine average check per meal period.
6. Divide dollar volumes in step 4 by average check for the number of patrons per period.
7. Estimate a) average seat occupation per meal period and b) time per meal period.
8. Divide time per period by average occupation to get seat turnover per period.
9. Divide possible seat turnover into number of patrons to get number of seats required per period.
10. Take the largest seating requirement in step 9 and add a 20% safety margin for the seating capacity.

Preparing menus and pricing

Plan your menu carefully. Know what items your customers prefer and how they like them prepared. Provide variety while maintaining stable cost averages. Menu prices are a combination of food costs and what is needed to meet expenses and realize a profit. Generally the price of an item is approximately three times the food costs, depending on restaurant type, operating expenses and competitors' prices. To establish pricing:

• Estimate your sales. Counter-balance higher cost items tagged with lower mark-up with higher mark-ups on lower cost items.
• Maintain a desired overall food cost percentage, usually 33-40% of gross sales, and a normal margin of profit.
• Balance items ranging in popularity. Monitor high demand items which can determine your success.

Controlling inventory and costs

In the restaurant business, you must have procedures for controlling inventory and costs. Ask people in the industry for information about procedures for:

• Purchasing. Develop specifications on food brand names, size, quantity, grade/ weight, delivery time/place, emergency deliveries, availability and policies for substitutes or damaged goods. Bid from multiple resources. Obtain the best product for the lowest price. Use a Purchasing and Receiving Form.
• Receiving. Check all deliveries against the Purchasing and Receiving Form. Make sure specifications are met. Careful recording will show short shipments, price variations and weight differences.
• Budgeting and projecting. Establish a cash budget and maintain cash flow projections on a continual basis.
• Calculating monthly food costs. Determine the actual cost of food consumed and the actual cost of food sold. This is a combination of opening inventories, purchases, adjustments and closing inventories. This ratio should remain relatively constant.
• Calculating beverage costs. Record all bottle deliveries and purchases.
• Preparing food. Make sure staff understand portion sizes (photograph entrees or give written instructions) and set up a recipe reference file to list dishes, portions and supplies needed.
• Storing food for dry goods (between 10-21  C), frozen goods (-18  C or less) and refrigerated goods.

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

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