Saturday, 12 October 2013

Why do a lot of people have a fascination with the Restaurant Business? Check This Out !!!

Why do a lot of people have a fascination with the Restaurant Business?

There seems to be something fascinating about owning and running a restaurant, a coffee shop, or even a really small business in the food industry. It is probably something like getting attracted to the opposite sex. A large number of people are infatuated towards the restaurant business, and by the law of averages, a small percentage of them actually end up doing something about their infatuation.
Why does this fascination/infatuation happen?
Reason 1: Everyone Understands this Business
Cricket – The unofficial national game of India, evokes significant emotions both when we play and when we watch India play. Almost everyone in India plays cricket or strongly believes that he or she knows how to play cricket. While watching from the dugout or on TV, you feel that your team member batting in the centre is not playing the shots he should and you feel you should be there whacking the ball around or telling him how to play. But when you go out to play, you end up struggling the same way as your team-mate or even worse.
I met with a seasoned professional in the investment banking space and one of her statements really caught my attention. We were talking about a specific restaurant "Biryani Merchant" that was set up in Bangalore a few years ago. The restaurant shut shop after about a year in operation. She told me that service in that restaurant was really bad and that was the reason they shut down. Though I quickly wanted to ask her how many times she had visited the place and on what basis she was making such a strong statement with so much conviction, I wanted to be nice. But my guess would be "Once" or maybe 2 or 3 times at best.
Almost all of us have visited a lot of restaurants over the last several years. We all have opinions about what is good and bad in any restaurant we visit and what needs to be done to fix the restaurant. This repeated exposure to the business as a customer leads us to believe that we understand the business and what works. Add to this, the age old adage that “If you understand the customer needs and fulfill them, your business will be very successful”.
Reason 2: The Restaurant business seems very successful a.k.a profitable
Most restaurants we visit are typically crowded whenever we visit them – it is another matter that we mostly visit restaurants during weekends or the same times when everyone visits the restaurants. We also typically visit restaurants that are good, recommended by others and the ones we like. Most of these businesses have typically figured out the basics of the business and tend to be operationally profitable. But given our incorrect sampling (even if we have visited over 100 places, most of the 100 end up belonging to the same sample set), we tend to intrinsically believe that all restaurant businesses are very profitable.
Now you have an easy formula – I understand the customer need, the business seems very profitable – let me get into it and make some money and become famous.
Reason 3: Low Entry Barriers
Starting a restaurant business has very little entry barriers. The only real barrier is having some cash to invest. Most people end up saving enough money over a decade or so to be able to invest in a restaurant if they have a real interest. In a number of cases, a few like minded friends are willing to chip in with some money for you to play around with.
Reason 4: The Cool Quotient
Owning a restaurant seems to evoke certain emotions, which make you feel really good and proud – you are probably considered “Cool”. Maybe it is about having a popular place everyone knows about, a place where you can invite friends and contacts and show them a good time. Visiting a restaurant is a “Feel Good” experience for customers – the restaurant is typically filled with positive vibes – the business in general evokes only positive emotions. I believe this is one of the big reasons for a lot of people to get infatuated with the business.
Reason 5: Advice from Successful people & I can work hard
Once you have an initial interest, you talk to a few restaurant business owners – typically the owners of the restaurants you frequent (essentially from the same sample set above of restaurants which are successful and have figured out the basics of the business). In general, we tend to talk to successful people for advice, the media writes about success stories that we read. The unsuccessful people like to forget their bad experiences and move on – so they don’t really want to talk about it or build associations with their unsuccessful efforts. I am firm believer that “Success breeds success and confidence”. So when you talk to successful people, they tend to encourage you and indirectly push to take the leap.
The only real negative thing that successful restaurant business owners will tell you is that it will be a lot of hard work. Even when they tell you this explicitly, we tend to feel that if others can do it, I can – so you really don’t assess how much hard work setting up and running a restaurant business is, compared to most other businesses.
So what you have is a cool profitable business that is easy to understand – so you get infatuated. And then if you have the money and the time, you jump into it. Now isn’t the world becoming very analytical where we try and make every decision very rationally after diligently evaluating the pros and cons? So when you are putting your life, your career and your money on the line for starting a restaurant business, why aren’t we rational about the decision making process and the approach we take?

Franchising - The "F" word?

Franchising - The "F" word?

I happened to visit a Franchise expo a few months back and was amazed at the number of food businesses trying to franchise. I have also seen a number of people (some of whom I know) investing large sums of money in picking up a franchise of a food business. Here is my take on franchising in this space.

As a franchisee you will be giving away anywhere between 6 and 10% of your revenues (not profits and whether you are profitable or not) to the franchisor. That is a lot of money and means that your operating margins have to be over 25%, for you to atleast generate 15% profits for you - Not an easy task. Plus there will typically be an upfront franchisee fee of 2 to 10 lakhs. Be assured that the franchisor will also charge you for every single piece of tissue & toothpick that they supply to you from their central purchasing unit - nothing comes from the royalty you pay them. Royalty is pure Royalty. With so much at stake, a franchisor needs to absolutely offer the following, for you to even consider it:

1) A well known brand - i.e. if you open your store in an area, folks there should talk about it - "Hey, do you know that McDonald's has opened in HSR Layout". Essentially the brand needs to be strong enough to create a buzz about it and bring you customers because of the brand.

2) History with Franchisees - Probe their track record with franchising and ensure that you speak with current/existing/past franchisees to understand their experiences (both good and bad) - the more existing franchisees you can speak with (all if possible), the better it will be - pick a diverse mix (different locations/cities, age of the franchise etc). If they don't have an existing franchise, stay away - unless it is a large brand with multiple company owned locations and they are looking at franchising after their business has matured - you can negotiate a good deal with them in this case - no upfront fee, 4% royalty and that too only if operationally profitable. Even in this case, be very careful.

3) Businesses who understand the local market: Try and pick someone who is already doing business in the city/country/region where you are looking to franchise - the operational issues are too localized in this business for an external brand to simply come and be successful.

4) A Strong Franchise Support Structure: They need to have a dedicated team to support franchisees through the entire life cycle - decision making, contracting, location identification and leasing, franchise set-up, hiring staff, marketing material, tools and systems, hand-holding till operational break-even and ongoing support as required post that. If they don't have a dedicated team for this, they will not be able to support you anywhere close to the extent that you expect them to - period. Every franchisor claims they do all this - do your due diligence on this. My assessment is that a lot of them have very little knowledge and experience in franchising and don't really understand the expectations of the franchisee. So you will end up doing as much as you would in creating your own brand, but in this case, you will be paying a franchise fee and eating into your margins on an ongoing basis. The guys who convince you to pick their franchise (the dynamic personalities and people who own the business) will invariably stop showing up and assign a "TEAM" once they encash your checks and make you dive deep enough - so you will have no escape.

In summary, I would suggest that franchising will leave you disappointed unless it is a company with a very well known brand and takes an active interest in making their franchisees successful. According to me, there are very few of these around.
A lot of companies use franchising as an easy route to try and expand - essentially they learn how to grow and understand the operational difficulties with growth, using the franchisee's money. I can give a few examples here, but don't want to hurt the brands (some of them are still operational, are successful and one of them has even raised venture funding)

Menu Engineering: How to Raise Restaurant Profits 15% or More !!!

Menu Engineering: How to Raise Restaurant Profits 15% or More

  • Learn how to design your menu for greater profits
  • Gain ongoing profit increases of up to 15% from one menu redesign and additional profits from future refinements
  • Strategies discussed apply to all types of menus: traditional food menus, wine lists, menu boards, and more

Menu engineering is the study of the profitability and popularity of menu items and how these two factors influence the placement of these items on a menu. The goal is simple: to increase profitability per guest.
The concept of menu engineering is not based on random, seat-of-your pants decision making; it is rooted in work performed in 1970 by the Boston Consulting Group to help businesses segment their products in a way that facilitates analysis and decision making. The idea was brought to the restaurant industry roughly a decade later by Professor “Coach” Donald Smith of Michigan State University.
While menu engineering is most often mentioned in the context of traditional paper restaurant menus, the concepts are equally applicable to menus posted online, drink menus, specials written on table tents, and items written on menu boards. Simply put, if you sell items that have varying levels of profitability and popularity, menu engineering may help you increase your profits.
A well-executed initial menu-engineering effort takes me about a week to complete and can increase a restaurant’s profits by 10% to 15% on an ongoing basis. And the profit impact doesn’t have to stop there. Some restaurant groups call me in once a year to squeeze additional profits out of the same menu, and although the low-hanging fruit has already been picked in these cases, I have always been able to find additional profit increases that tend to be in the 10% range.
The difference between the more and less successful attempts at menu engineering does not hinge on an establishment’s type or size. Instead, the determining factors are the restaurant owner/manager’s knowledge of the menu and willingness to put in the time and effort needed to understand the process and execute changes. And if you need proof that the benefits are not restricted to a select few, here’s a compelling fact: I have been in the business for more than three decades and have yet to have a customer take me up on my money-back guarantee that clients who follow my recommendations will increase profits by at least $1,000 in each restaurant.
The restaurant industry has a lot of low-hanging engineering profit waiting to be picked. Out of 100 randomly selected restaurants, I estimate that 40 of them are performing some sort of menu engineering. And these locations are not specific types of restaurants—they are both big and small, high-end and lower-end. Furthermore, out of these 40, I estimate that only 10 are doing a good job with their engineering efforts. The other 60 out of 100 aren’t performing any engineering at all and are leaving a lot of easy profits on the table.

10 Ways to Elevate Your Customer Service from Good to Great


10 Ways to Elevate Your Customer Service from Good to Great

5 star customer service When it comes to running a profitable bar or restaurant, the ability to deliver exceptional customer service is crucial.
And all that it takes is just a handful of negative customer experiences or Yelp reviews to hurt your bar or restaurant business. In fact, according to a 2012 study conducted by two economists at the University of California, Berkeley, Professors Michael Anderson and Jeremy Magruder, a restaurant with a rating improved by just half a star – on a scale of 1 to 5 – was much more likely to be full at peak dining times.
Even if your bar or restaurant delivers good customer service most of the time, there is always room for improvement, right? So, here are 10 Smart Ideas to help elevate your customer experience from good to great.
1. Properly train your service staff: In the hospitality industry where employee turnover is generally high, instituting an effective training program for your service staff can be difficult. But cutting corners on training is a big mistake.
2. Understand your customers’ expectations: In order to avoid disappointing customers, you need to know what they want and expect. Online surveys and guest comment cards offer valuable information about what customers want and expect from their visit.
3. Deal with customer complaints quickly: The more quickly you can deal with a customer complaint or issue, the better. For strategies to quickly respond to customer complaints, read our previous blog post here.
4. Know what is going on in your bar or restaurant at all times: While you can’t be at your bar or restaurant 24/7, you need to know what is happening at all times. Install a video surveillance system and monitor it constantly.
5. Show your customers that you care about them by going the extra mile: Simple gestures can make your guests feel valued and important. For instance, personally visit each table to see how your guests are doing or make sure that your kitchen staff is flexible in accommodating your customers with special requests.
6. Be prompt: Don’t leave your customers waiting. Make sure your guests have drinks while they are waiting, or if the server is too busy to get to the table, help them out.
7. Instill service with a smile: Positive energy is contagious. Hire servers and hosts/hostesses who will smile and make your guests feel happy, especially when unforeseen issues arise.
8. Keep your guests entertained: Give your customers fun things to do while they are waiting, such as the ability to play fun arcade and trivia games on their mobile device or tablets at the bar or table. Check out our BEOND Tablet Playmaker to learn more.
9. Make sure your employees are knowledgeable: Avoid mistakes like a server who doesn’t know the daily specials or a bartender who doesn’t know how to make a popular cocktail, even if it’s off menu. Everyone on your staff has the responsibility of being knowledgeable.
10.  Say thank you: Always thank your guests and be grateful for their patronage no matter how great your business is doing.
Put these basic strategies into action to elevate your customer service from good to great in no time.

How much Power (Electrical Supply) do you need for a Restaurant?

You obviously need sufficient power supply to ensure that all the electrical appliances in your restaurant are able to function simultaneously. As a general guideline, a typical restaurant will need atleast about 20 KVA power. 1 KVA is approximately equal to .8 KW.

The big power consumers are the following:

1) The Kitchen Exhaust System: The exact power requirement would depend on the motor capacity and the efficiency of the motor used. The capacity (power generated) would depend on whether the blower is kept right next to the exhaust hood in the kitchen or taken all the way to the terrace of the building. Most small restaurants will typically need a 2 HP or a 3 HP motor powering the exhaust system blower. 1 HP is approximately equal to .75 KW and assuming a motor efficiency (this is the efficiency of converting electrical power to mechanical power) of 50%, you will need 1.5 KW for every 1 HP. So a 3 HP motor (the most commonly used motor at restaurants) will need about 5 KVA power. Once running the motor may not consume as much power as the motors need an extra power surge during start-up.

2) Air-Conditioners: Depending on the number and type of ACs you install, you will need to calculate your power requirement. A typical 1.5 Ton Split AC will need about 2 KVA of power supply.

3) Freezers/Chillers/Water Coolers: The exact power requirement for these appliances are typically mentioned in the back of these appliances. As a guideline, most freezers and chillers need about 300-500 KVA of power supply.

4) Mixers, Grinders, Microwaves, Ovens, Electric Stoves, Beaters, Water heaters etc.: These small appliances you will use in the kitchen are large power consumers. Most of them need between 1 KVA and 2 KVA of power. Depending on the items you use in the kitchen, you will need to calculate your power requirements. For a typical restaurant you won't use all of these items at the same time - so can assume you will need about 2-4 KVA for these small kitchen appliances.

5) Lighting, Sign Boards, Billing System etc.: You will notice that most restaurants use low power consuming CFL lights and LEDs. As a guideline, you should budget about 1-1.5 KVA power for all your lighting, fans, sign-boards, computer/billing system and other small electrical stuff in the restaurant. If you use a Neon sign-board, the power needed will be higher (budget an additional .5 KVA atleast) 

Let's now take an example of a 2000 sft air-conditioned restaurant, with 4 split ACs of 1.5 Ton capacity each and a exhaust system with a 3 HP motor. The table below shows the calculation of the total power requirement for this restaurant. You will need to compute the power requirement for your restaurant based on the exact items you will need and will be using.

Friday, 11 October 2013

Roof Top Restaurants

While a Roof-top restaurant can be quite cool from a customer's perspective, if executed well, there are some challenges for the restaurant business owner.

1) In most states in India, you can't get a trade license for a pure roof-top restaurant. The rules state that you cannot have a kitchen in a roof-top/terrace. So to comply, your kitchen will need to be in one of the lower/properly built-up spaces in the building. In practice though, most roof-top restaurants seem to have some part of their kitchen in the terrace floor - e.g. Tandoor for making Rotis, or even the entire kitchen on the terrace floor housed in an unapproved constructed space on the terrace.
2) If the kitchen is in a different floor, transporting the food through stair-cases becomes an issue. So you will need to install a service lift (may be tough if the building structure does not allow it)or have a wide dedicated passage for the food to be carried through. While the issue will be a little lesser in the case of a buffet restaurant or a fine-dining restaurant (where the service levels can be a little bit more relaxed)
3) Creating a temporary roof for the terrace area is not easy, especially if aesthetics need to be taken into account. Barbeque Nation is a great example of a great temporary roof set-up - Their tent-like roof structure looks nice, withstands weather conditions. Rough cost estimates for these structures is around 2-3 lakhs per tent.
4) In most buildings, the floor area of the terrace is not something you can straight-away use for a restaurant. So you may have to spend reasonable effort and money in civil works like flooring etc. Civil works in general are expensive and time consuming.

On the positive side, the biggest benefit you would get is the lower rental in square foot terms. In places which have reasonably good weather (like Lucknow), customers also enjoy a nice terrace restaurant ambience and this may help improve customer foot-falls if executed well.

Run Your Restaurant: Service Tax - What are restaurants doing?

Run Your Restaurant: Service Tax - What are restaurants doing?: It's been over 5 months since any AC restaurant in India was supposed to have started charging service tax of 12.36% on 40% ...

Service Tax - What are restaurants doing?

It's been over 5 months since any AC restaurant in India was supposed to have started charging service tax of 12.36% on 40% of the total bill value - i.e. 4.944%. What are various restaurants doing?

1) To be on the really safe side, some restaurants are charging 4.944% on the entire bill value and the customer pays for the service tax. The restaurants can then claim input credit for any service tax they pay. So in some ways, the customers are now paying extra and some portion of the extra amount is a benefit to the business because of the offsetting with the input credit.

2) A few restaurants are charging service tax only for dine-in customers. They do not charge the service tax for take-aways and deliveries. This issue is still ambigious and hopefully the service tax department will issue a clarification for the same. Whatever material is available in the public domain - CA Club forums etc. seem to suggest that all sales originating out of a AC restaurant is applicable for service tax.

3) Restaurants which use a composite VAT model need to charge service tax on the bill value - minus VAT only. i.e. If the bill amount is 100 and the VAT is 4% (in Karnataka) - the real bill value is 96. So service charges needs to be charged on 96 and not on 100. Most restaurants don't do this - they charges service tax based on a sale value of 100.

Most customers seem to gotten used to paying this extra 4.944%. For restaurant owners, this is yet another issue to deal with now in the wake of spiraling input prices.

Thursday, 10 October 2013

Alcohol - Licenses / Permits and Costs

If you want to serve alcohol in your restaurant, you will need to shell out big bucks for the liquor license. Essentially, in Uttar Pradesh (similar in a number of other states), the government has stopped issuing new liquor licenses - so you are at the mercy of the folks who have a license with them. The common practice used is to sell or lease the liquor license to an interested restaurant owner.

1) If you want to serve bottled beer and hard liqour, you will need to get a Liquor license (called CL-9). This will cost you about 50-60 lakhs in Banglore if you want to purchase it (saw an ad 2 weeks ago for 70 lakhs - . If you want to lease it, you will still have to shell out about 40-50 lakhs as a deposit and then pay the guy a monthly lease amount (could vary between 50K and 2 lakhs, depending on the demand and supply situation).

2) If you want to serve only draught beer, there is a separate draught beer license you can get - this will cost you about 20 lakhs to purchase, or to lease a deposit of about 10 lakhs and a monthly lease amount of 20-40K.

3) To encourage wine consumption, the government now issues wine licenses directly for a small amount of 5K. You may have to pay an additional 10K towards miscellaneous charges, but for under 20K, you can get a license to serve wine at your restaurant.

This entire business of liquor is quite a messy area and unless you have the money (big bucks) this may be a difficult one to handle. The trouble is, even if you buy the license, you never know when the government will decide to issue new licenses - then the value of the license you hold will become much less/worthless.

Note: I am not an expert in alcohol licenses and will not be able to help anyone procure these licenses. Most hospitality consultants offer license procurement as a service - Kindly use Justdial to find out hospitality consultants in your area. The license norms tend to be very location specific (state, district which your place comes under) and you will be better off working with a local consultant or asking an existing bar / liqour store owner for help.