Although it would currently appear that many restaurants are closing and this may not be the time to make an investment in this sector, it is, in fact, a booming market. The weak pound has provided a welcome growth in tourism and helped many hotels and restaurants increase revenues and profits. We have also seen property price growth across the sector with restaurants leading the surge, followed by hotels and pubs with prices growing by 14.1, 6 and 4.4 percent respectively. To top it off the ONS reported last year that the UK’s dining out sector is now worth over £87bn annually.
I would argue with these sorts of statistics on your side, this is, in fact, a great time to be investing in the restaurant sector in the UK. So what do you need to make your investment a success and get those all-important returns?
The recent high profile restaurant closures such as Strada and Byron are primarily down to poor management and a failure to adapt and improve their offering and concept over time to appeal to the ever-changing appetites and needs of today’s consumer. Therefore, it is important that you have the right concept to deliver to the market.
You need to consider both your customer and your niche, why will they choose you over your competition? Is your concept on-trend or paving the way for the next trend?
Have you considered your potential market and how they will interact with your concept? Millennials are an important market in the UK as they spend more on dining out than other groups. We are also seeing the age of the so-called ‘Instagram Generation’. However, these groups’ rate experiences and social connectivity as important features of what they choose to spend their money on, so you have to appeal and be prepared to evolve and develop what you’re offering to remain relevant.
Realistic capital investment
Capital start-up costs for restaurants can be high, especially if you are creating a new concept from scratch, so as an investor you need to be realistic on the timescales for your returns. I would allow for at least 3-5 years. Buying an existing restaurant can reduce the capital required, but you need to ask the question, can you add value to the existing business? Also, you will need to ensure you have the expertise in place to grow and scale the business.
You must ensure you have the capital to invest into the physical components such as building or alterations to premises, kitchen equipment, furnishings and decoration of the front of house as well as the operating capital for stock, marketing, employees etc whilst you get the business up and running. One of the main reasons restaurants fail is because they run out of cash!
Is your concept scalable? Restaurant investment rarely provides a return on just one unit, so you have to consider the longer-term scalability of your concept to maximise the returns.
Get the right people
It all starts and finished with the people you employ in your business. Many fail to understand the basic principle that restaurant and hospitality businesses are people driven. The people you employ to operate and work within your business are at the very centre of everything you do. Therefore, you have to get the right people, create the right culture and deliver on your concept values to ensure success.
When you or your team are developing your concept you should naturally create the values your business will stand for and the goals you want your business to achieve. The development of your company values and beliefs must be reflected in every aspect of your design, branding, marketing, and overall business strategy. Your employment process has to emulate and communicate the values and beliefs you hold at your core and the people you bring into your business must buy into them. This will then naturally influence the culture that will become part of your brand. Companies that do this well in hospitality are TGI Fridays and McDonalds, it defines who they are and the people they employ.
Think outside the box
Why do some restaurants do better than others, even when on the outside they appear to be similar? Great restaurants and hospitality businesses are created when the creators take a little risk and think outside the box. In recent years we have seen many innovations tried and tested, some have worked and some haven’t. The opportunities in today’s market provide a platform though for concepts to be tested with minimal risk, through pop-up restaurants or street food markets etc. This enables you to trial different concepts and approaches to then go on and develop the ones that perform best.
You also have a number of opportunities to develop your business income streams externally to your premises, through using a food delivery service such as Deliveroo or UberEats. This upmarket styled takeaway service is growing at a massive rate and cannot be ignored by restaurants, so you must have a concept that can cater to this need.
In addition to this technology is continuing to impact the industry and can be used to not just improve productivity and efficiencies but also enhance the customer experience and social interaction, which is becoming increasingly important.
As with any business or investment, it is a matter of weighing up the risk to reward. The restaurant industry still provides an excellent investment opportunity and a lot of fun along the way.
Good luck and please share your business successes or views on my Facebook pageOutSauced Consultancy
Jonathan Butler is the Author of Business Recipes for Success: Four Steps to Building a Successful Restaurant and Hospitality Business available now on Amazon
More About Jon
An award-winning chef, hotelier, restaurateur, and author Jon has over 27 years experience in the hospitality industry. Having successfully operated his own businesses as well as helped many others to grow theirs. He launched OutSauced Consultancy in 2010, and since then, has helped a number of start-ups, entrepreneurs and SME’s within the hospitality sector, become more efficient, customer-oriented and profitable.
Contact me now to arrange a Business Discovery meeting or Skype call
JON BUTLER - OutSauced Consultancy