Having written a considerable number of articles about property and where to buy real estate stock in order to obtain good rates of rental returns and eventually sell on making a fair profit, we shall now move ahead and look into other business opportunities. In this article we will move on to the hospitality business and restaurants in particular.
It is interesting to see that there is a significant amount of people that decide to venture into the highly complex and labour-intensive restaurant business. What most people do not know is that restaurants are not an easy business. Point of fact, simple as this business may look to the outside investor, it is a highly complex business sector. If you wish to make a success out of it you must be willing to put in the long hours, days and months before you see the profits. It can be a risky venture if you do not know what you are up to.
Here are a few important factors that will hopefully be of some help to the young and brave entrepreneur who decides against all odds to start his or her own restaurant:
In a place like Gibraltar, like in most other places, the first thing to do is to study the market and see what there is. Today, like in any other healthy economy, there is a lot out there on offer, covering most of the market needs. The answer is to make a list and see what is and isn’t available. You should walk the town and look into where most restaurants are located. If, for instance, your idea is to start a pizza restaurant, do remember that the market is fairly well-covered with choices that range from Pizza Express to Dominos and plenty of independent pizza restaurants to cater for all tastes and budgets. Unless you come up with something very original and decide to move away from the standard pizzeria and come up with, for example, a ‘Gourmet Pizza’ idea and price them accordingly, you may struggle to make some decent money. It is as simple as doing either something totally different or improving something that already exists. Not easy but certainly not impossible. A great idea would be to jump on a plane and fly to London – see what’s new. Spend a week or two looking for ideas that don’t exist back in Gibraltar. And perhaps try Paris afterwards. Casual dining is perhaps where you want to be; affordable to most, family friendly… It seems to do fine regardless of the economic times.
You must be willing to put in the long hours, days and months before you see the profits.
What is this casual dining thing all about? The best answer to that could be to do a layout of the different dining options in the market. These could be as follows:
1 – High-end fine dining. Restaurants that offer the best of the very best. Finest service, food and décor. Top chefs. State-of-the-art presentation. Often award winners and Michelin starred. To the best of my knowledge no such place exists in Gibraltar. Maybe there is a market for this. The investment could be very substantial but the idea could be a success.
2 – Gourmet mid-end. Not cheap but good value and decent food. There are some of this kind about in Gibraltar.
3 – Casual dining. Informal restaurants serving from pizza to curry meals or sushi and Chinese. There is a lot on offer but still plenty of room to start something original. If you get it right this is perhaps where the money is.
4 – Low-cost: Fast food and takeaway outlets. This is perhaps the most economic of choices which attract the crowds of youngsters and families. There are a good number of chains present in Gibraltar. Some are highly successful whilst others less so but they can still make a profit. This is the most common case of working with a franchise brand. The really good ones ask for a massive investment which could be close to the one-million mark in some cases. Others ask for outrageous royalty fees as well as huge initial fees and payments on exchange of contracts. I would be extremely cautious when entering any type of franchise restaurant business but we shall not go any further into the restaurant franchising world as this may possibly be the subject of another article.
When there is a downturn in the global economy the worst hit are in the upper end of this so called pyramid and people will most likely stop or reduce using the top two whilst they will continue to use choices 3 and 4.
If your choice is either casual dining or some form of take-away or delivery business try and do something different. Two friends of mine from London picked up an idea of selling sandwiches in the City of London some 25 years ago. Sandwiches in London? Yes, that’s right. Sandwiches in a sandwich-minded and oriented country where this type of fare is as old as the sea. And did they succeed? Well the truth is they started off with one sandwich shop in Victoria Street London and their turnover last year 2018 was close to £1 billion. They own nearly 500 shops. Their secret was simple: top ingredients. Their packaging is brilliant. Their quality superb. Great value for money and a great look. A good example of how something as simple as a sandwich can be turned into a highly successful enterprise.
It is as simple as doing either something totally different or improving something that already exists.
Another example is Nando’s. Some 20 years ago two friends from South Africa and Mozambique started selling spicy roasted chicken in Johannesburg. Simple as this may sound, it was a roaring success and today Nando’s owns over 1000 restaurants worldwide. These two examples give you an idea of how a simple and established idea – sandwiches and roasted spicy chicken – can be turned into a multimillion-pound enterprise. As I am quite positive, the founders of the two mentioned ventures did not know their business would flourish in such a manner. They put into them everything from their heart to probably all their limited resources and it worked.
Once you have decided what to open up there are 5 factors that must be included in your business plan:
1 – Cost of labour and social insurance. Try and keep it to a maximum of 30% of your sales income.
2 – Food and beverages cost. This could vary between 18% and 35%. The money is normally in Italian, Chinese and Hamburgers. These three cuisines will therefore have the lowest food cost. A pizza Margherita costs about £1. I would be surprised if you can get a decent one for less than £6 or £7. This means margins are excellent but competition is fierce. Make sure you know this. With burgers and Chinese food cost is slightly higher but margins remain very good.
3 – Rent. This is expensive in Gibraltar but certainly no more than in prime locations along the coast, let alone the main areas of large cities of Europe. Get the best is the answer. And try and get it for fair money. You should keep it lower than 10% of your turnover. 5% would be ideal but not easy. Do not fall into the ‘key’ money trap. Such an extra is only justified if the shop is ready and has already a clientele. Make sure the shop has smoke extractor facilities or that these can be built. And put it in the lease contract. Negotiate with the landlord and keep it as low as possible if this were the case.
General expenses. This is a broad factor that would include marketing costs, utility bills, rates, local taxes if any (not income tax or company tax), tax return fees and bookkeeper. About 5% could be reasonable.
Royalty fees. Between 3% and 9%. Only applies if you have a franchise.
Once you decide to go ahead make sure you are there running it if it is your first outlet. If your idea is good and original there is no reason why your venture should not fly. A good cook who not only cooks well but looks well after your stocks and purchases is essential. A top-class headwaiter or waitress works wonders. Honesty in the hospitality business is most important – much more so than in any other business as it is so easy to steal you blind. There are over 20 ways in which your staff can steal from you do not forget. With the help of modern cameras it is not as easy, but still possible. Good restaurateurs establish a percentage for thefts. With payments done primarily by card or other electronic methods this percentage gets slimmer but bear it in mind.
Last but by no means least the restaurant business is very complex and I normally recommend it to entrepreneurs who really have a passion for food and the hospitality business in general. Maybe it is in the family and you were brought up with it as it happened to me. Or maybe you are the first and could make a success. Be consistent and work hard on developing the idea and you should normally arrive.