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Restaurant Growth, you have one shot at it:
What makes most restaurant expansions fail?

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To understand this you must examine how a successful first unit did well:

  1. Developed staff that works well together and is appreciated by the patrons.
  2. Location – the most mysterious piece of the puzzle.
    1. Visibility, reasonable rent, neighbors that compliment your efforts and a land owner that is helpful\understanding
    2. Even large corporations with research departments often get the location wrong.
      1. Common reasons:
        1. Not the sunny side of the street.
        2. A little too far removed from where the action is.
        3. Insufficient parking.
        4. Competition within the same proximity.
        5. The ambiance in the space is not right for whatever reason
          1. Dining Room lay out
          2. Ceiling height
          3. Etc.
  3. Found the right menu mix of product that ensures margins and is loved by clientele.
  4. Found the right marketing mix.

Methods of Expansion:

Some restaurateurs build second and third units designed around new business partners with capital or a talented chef with promise. These units make no effort to be similar to the first but instead to stand on their own. Obviously the new business partner participates in the new location, but it is also common here to have the chef participate in the restaurant to help ensure its success (“gives the skin in the game”).

This method tends to have a greater success rate then the same concept next single unit but has its limitations as to the number of quality chefs or partners that warrant the investment.

This article is about the restaurateur that believes in a single concept and wants to carry it out as many units as they possibly can: lending itself to franchise or other similar opportunities.

Generally proving your restaurant concept is reproducible is approached by one of two methods:

  1. Next single unit
  2. The central kitchen multiple unit method

Even with the best planning a properly capitalized next single unit has a higher failure rate than the central kitchen multiple unit method. Choosing a location is an educated guess at best and when it fails belief in your concept is damaged making a continued effort becomes more difficult. In fact after a second unit failure there is a long wait time to recoup the capital and confidence to try again.

Next single unit method is more often chosen due to failure by the restaurateur to put together a comprehensive business plan, lack of confidence to raise sufficient capital required, and failing to understand how sale of equity related to the day to day operations of the business.

In both approaches the way a second or more units will be successful is to spend time designing the first unit, or central kitchen to act as a multi-unit operation by:

  1. Spend time creating training manuals, standardized recipes and standard operating procedures.
  2. The first restaurant must be designed to run without a central character. The patrons must visit the establishment for the entire experience, not to see one person and service and food quality must remain the same regardless who is present.
  3. Ensure consistency, the cornerstone of a multi-unit operation.

Central kitchen multiple unit method provides:

  1. Economies of scale – more units the greater chance of successful units. – but be clear up to 50 percent of the first units can fail, units in theory become more efficient when kitchen is centralized and common costs are cut, central call center, more skilled kitchen staff at the central kitchen required less trained staff at locations.
  2. Less expensive build outs of units; less space is needed, less equipment etc.
  3. Decreased labor cost and employees can be interchanged between locations.
  4. Decreased food cost, purchasing becomes easier and pricing decreases because of quantity discounts.
  5. Standardized production – A central kitchen allows the executive chef to oversee all receiving and preps

The customers should not notice a change in the restaurant. It is important to refrain from attempting to fill the new location with customers from the original location. The idea of a second location is to create a new customer base not to thin out the existing one. If a customer enjoys the original location, why attempt to change their habits. The average customer will not increase the amount of times they visit your locations, they will merely split their time between the two.

To do list in working toward the central kitchen multiple unit approach:

  1. Work toward an analysis of first unit
    1. What can be eliminated if a central kitchen is utilized?
    2. Weigh sales by product – what are the top 5 sellers?
    3. Create training manuals
    4. Standardized recipes
    5. Standardize operating procedures
  2. Understand what the current marketing mix that is
  3. Customer contentment surveys obtained.
    1. What are the highlights of the restaurant
    2. Perceived weakness of the current location
    3. What would they like to see in addition to current offering
  4. Find a team to help build a business plan and raise capital.

Be confident – Clarity on the offering will come with time and well before you obligate yourself and your team to anything. Feel your way and it will either make perfect sense or not at all.

Perry D’Alessio
Managing Partner
D’Alessio, Tocci & Pell LLP

Jimmy Sanz
Pepe’s restaurant group

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