Preface

Assume that ‘would be’ restauranteurs intend to build a quaint intimate sixty seat bistro in a large community on a highly travelled, big box restaurant laden boulevard where young couples and daters could spend $15.00 to $20.00 per person. It would have a fireplace, mood lighting, and wine by the glass, not to mention great desserts. Young couples can sit and talk for hours, and enjoy the atmosphere. Although this concept sounds like a nice idea and possibly workable in the right setting, it would be a failure before it gets off the ground.

If it were a nice idea, ‘why would it fail’ is a fair question to ask. The reasons are obvious to a knowledgeable lender or hospitality professional. The ‘numbers’ simply do not work. The cost of the land and building, or lease, signage, parking, utilities, and space allocation would bring the concept fruition costs to nearly two million dollars. A sixty-seat facility utilizing at least 16 square feet of space for customers would need 960 square feet of dining area and over 300 square feet of kitchen space alone. What about the other elements storage, dishwashing, and so forth? You would also be paying prime rates just to house those other elements. In the end, the dining area will not support the fixed and variable costs the operation will incur – that is why you see so many ‘big box’ restaurants in this location. This location requires high volume traffic. If you move ahead and adjust the concept to seat five times the number of people to deal with the cost structure of the location, maybe you have a chance at success - but not really. Including more people in the dining area would require a larger kitchen and so on, and the ambience you intend to create would not exist. You would also not be able it increase pricing if necessary because your target market cannot afford to pay those higher prices on a weekly or monthly basis. This is how good ideas lead to failure in our industry – it is all in the ‘numbers’ – location, space, customer selection, menu and pricing, and the culmination of these elements and more into value.

This text does not cover every conceivable technical detail of developing a foodservice concept – no text does that. What it does provide is a comprehensive and understandable view of this activity as well as how to think effectively about the necessary considerations leading to successful concept development and profitability. Although the primary focus of the text is to provide the foundation of hospitality restaurant or pastry design, its structure also serves as a comprehensive ‘reference guide’ to the concept development functions within the hospitality industry. This structure is particularly evident in the logical sequence of the chapters in the order concept development would proceed. Each chapter includes example of effective use of the material presentations.

Generally, individuals with entrepreneurial dreams and industry knowledge venture forth to create and establish their own restaurant vision. Most have good experience in either front or back of the house, and many of these would be restauranteurs work their way up the ladder in one or another of these operational areas. They secure an investor or lender. However, the failure rate for new restaurants has historically been north of ninety percent in ‘five years’ time. While this may sound puzzling, there are specific reasons for such a high failure rate, which do not relate to the overall strength of the foodservice industry. As the preceding example illustrates, you have to develop the right concept for the right people in the right city and location, all of the ‘numbers’ have to work, and appropriate analyses must be in place to make necessary adjustments to the operation as the need arises. In sum, you need to provide customers with what they want, at a price that indicates value to them and a profit for you – oh, plus quite a few other details. To do this you need a build a strong business model – this book will help you do just that by walking you through the necessary elements you need to explore, consider, and present for success. To help focus your thoughts, an example model of each topic as a place to begin ends each chapter.

Lenders often ask ’why do you want to be here?’ or, ‘why do you feel this city is a good fit for your business?’ These are good questions - it is very important for you to know ‘why’ you want to be there. These questions typically receive little consideration. ‘It is my home town’, ‘I enjoy living here’ are not good reasons that lead to success although one, or the other response is normal. Thinking about where you want to locate your restaurant is the single most important initial decision you will have to make. Follow the thought progression here. Your source of revenue will come from your customers. Knowing ‘where’ and ‘how’ they make ‘their’ money is vital to ‘your’ revenue. If the revenue of your customers is not stable, how stable will your operation be? It is amazing how often new and up-and-coming restauranteurs ignore this.

This book moves the reader through eleven chapters, which provide a logical path from developing the concept to success operation of a new restaurant. Part one: evaluating the marketplace comprises chapter one through six concerning the city, who lives there, what competitive forces exist, the market segments that would enjoy a particular concept, and how one positions themselves in a marketplace. Chapter 1 strongly considers cities from the perspective of ‘marketplace’ for new restaurant endeavors. It provides insight on how cities are shaped, and provides specific ways to evaluate a city before entry. The chapter also takes a look ‘smart growth’ coming into fruition in many communities and suburbia, once only the cities’ ‘bedroom’ but now so much more. Thinking about a place is the first step to success for the restauranteur.

Chapter 2 provides a way of thinking about the ‘customer’ and discusses how one goes about learning just ‘who’ they may be. To give customers what they want, one must know ‘who’ they are potentially, and how they choose to live their lives – their behavioral characteristics. This chapter discusses the use of ‘demographic’ information and offers various ways to obtain this information. It also provides discussion on the ‘psychographic’ element of the consumer – information demographics do not provide. Further, it delves into generational differences that exist among the potential customer base a city may offer. Finally, the chapter provides a scheme to help the new restauranteur define who their customers should be.

Chapter 3 intends to help the new entrepreneur think about, and evaluate, the competitive nature of a marketplace. It begins with a discussion of the ‘living’ aspects of a restaurant, moving to gaining an understanding of your competitors, and provides a process and criteria to evaluate the competitive forces you will encounter when entering a new city environment. Finally, the chapter provides a competitive analysis summary – a plan to study your competition prior to entering the marketplace.

Chapter 4 discusses the customer selection process by segmenting the marketplace into potential groups of individuals who may enjoy the products and services you intend to offer. The chapter explains ’segmentation‘, and provides an historical overview of the process. Additionally, it delves deeply into the segmentation process, segment demand, a segmentation strategy, and helpful criteria to help you decide on the appropriate market segments to select for your operation. Finally, the chapter provides broad market segmentation strategies for consideration.

Chapter 5 begins the marketing discussion with ‘positioning’ the product and service mix the new restaurant intends to off to consumers. It presents the topic of ‘marketing mix’ from both the traditional and current hospitality perspectives, and where marketing data is available broadly, or at the community level. This chapter will help the new restauranteur arrive at the ideal marketing mix and strategy to best promote their concept by focusing on customer wants and needs. Further, the chapter moves on to discuss the marketing environment from an economic, social, political, and legal perspective leading to – a ‘marketing plan’ discussion in the next chapter.

Chapter 6 centers on the marketing plan for the concept. The chapter discussion begins with a clear distinction of ‘selling’ versus marketing’ and what you should include in your marketing plan. There is a discussion on various ‘competitive methods’ which usually receive little consideration but are, nonetheless vital to your successful operation. Finally, this chapter provides different types of sales promotions and techniques.

Part 2: From Concept to Marketplace comprises chapters seven through eleven. Once the marketplace itself, potential consumers, and competitive force evaluations occur, the operation focuses on defining market segments and positioning strategy, and developing a marketing plan that speaks to customers who best fit their business model. Chapter 7 centers on the design of a ‘facility’ that best fits the need of the consumer and restaurant operator. This chapter discusses the importance of bringing together the market, the facility, and money. The chapter provides a discussion on poor locations, how to consider a location, how to perform a detailed analysis of a location, and integrating the concept with the location.

Chapter 8 delves into one of the most important decision restauranteurs have to make – the type of ownership they will choose. This chapter explains the advantages and disadvantages of different form of ownership. The chapter discussion includes sole proprietorship, and various forms of partnerships and corporate structures. Each have personal advantages as well as taxing implications for the business.

Chapter 9 takes an important in-depth look at menu engineering to understand what is selling, when it is selling, how much sales the item garners in relations to all other items for sale, and how each item contributes to your profitability. The income statement is the gauge of operational profitability. It conveys the operation’s revenue, expense of operation, and the profit or loss result of your actions. The balance sheet is the important statement of worth crucial to beginning a new business.

Chapter 10 gives an in depth discussion on constructing the restaurant menu from menu layout, the different types of copy, the use of illustrations and graphics, typeface choices, paper, cover, and color. The chapter also presents menu-writing strategies involving location and sequence, descriptive terminology and accuracy. These elements come together into the physical components of the menu.

Chapter 11 focuses of arriving at the correct menu pricing to match the needs of the target market and create value in the mind of the consumer. While the menu is what brings patrons to your operation, you can never lose sight of its other primary function. It is generally the sole source of revenue to cover operational costs and produce a reasonable profit. This chapter discusses the factors that affect pricing decisions, consumer reaction to price, a thoughtful look at understanding the consumer environment, price as the perception of value and varies ways to price and market the restaurant’s products and services. These elements come together in the development of a restaurant pricing strategy appropriate to a particular market.

Chapter 12 centers on the different forms and functions of restaurant analysis, a major factor in profitability and consistency. This chapter discusses ‘menu engineering’, how to determine the operation’s breakeven point, adjusting menu costing or re-design on the basis of market need, and the different classes of ratio analysis vital to the restaurant operation’s success.

This book discusses its contents in the logical order one must follow to develop a successful business model. An outline of the business model conceptual flow chart follows. It allows a progression of information and as such, the critical decision considerations are raise at the appropriate times. A writing perceptual model follows to help you ‘think through’ the various important elements of the design process.

The appendix contains a structural outline to guide you through the writing process, as well as licensing information, and websites for product information.