Starting a restaurant business in 2020

So, you have an idea of how you will start your restaurant:

  • You have a great concept.
  • You have your own unique recipes that you want to share with people.
  • And You know something vital that people want.

But you don’t know how easy or hard it will be to bring your concept to life.

In this article, we’ll cover:

  • The basic types of food businesses,
  • Key business model components, and
  • Things to keep in mind before starting or while running a food business

Basics of the food industry

There are 3 key parts of a restaurant business.

  1. Kitchen (where the magic happens)
  2. Service (the way you serve your customers).
  3. Customer acquisition channel.

The part where most restaurants struggle is Customer acquisition.

Traditionally, when a restaurant opens, the front is designed very beautifully, with a large name board and a logo. People can see the interiors and get tempted to visit inside and taste something. If the food is good, and people have a nice experience, they will visit it again. So, the customer acquisition is happening organically by customers passing by, noticing your front door, and entering. If the front doesn’t look good, people will not even enter the restaurant.

The story is very different when you are selling online. When you start, no one knows about you. You have to make announcements and then people will notice you, and they visit your restaurant. And you have to make announcements regularly. Once you have made regular announcements for a sustained period of time, and people remember you from the past when they heard your announcement or experienced your product, then you have a sustainable business. But still, you will have to keep on making announcements to push the sales.

Every announcement you make is an advertisement posted online and has a cost. Try to imagine that the ‘channels’ via which you reach your customers and post ads are similar to massive exhibitions or concerts, where the visitors are there for certain needs. Facebook is a social gathering of friends, family, annoying uncles, and of-course sensationalized news sources and misinformation. Google search is an exhibition where everyone is looking for something or someone. YouTube and Tiktok are open-air circuses, whatever’s entertaining or educational, people watch. Instagram is an art gallery, where everyone is posting images from their beautiful life.

No two platforms are the same. Their differences are massive since the visitor’s intent to be on a platform is significantly different. So, before selecting a channel to promote, understand why people are there. Once you understand that, you can tailor your announcement to be more effective.

Also understand that your chances to become viral are exactly equal to getting selected in the Indian cricket team as an opening batsman. It is like winning a $1M lottery in a country where it’s “illegal to play the lottery!” It is that RARE! It’s IMPOSSIBLE! It’s not going to happen on your first attempt! Even those who become viral (by chance), were practicing the skills without ever expecting that they will become viral. So, instead of aiming for your content to become viral, aim for something more achievable. Figure out what your customers want generally when they are at a platform, and build relevant content for that platform, so you can help them, and make yourself their friend. And talking about yourself to your friend is easy, right?

Business model

Here’s a business model canvas that people talk about a lot before starting a startup (and here is a short video explaining what it is). It’s a good framework to think before you have decided how you can build your business. But being honest here, I’ve used it at a very early conceptualization stage. I never used it afterward.

Since you already know the 3 key parts of a restaurant business, my advice is to run your business initially as “asset-light” as possible. Figure out whether your concept is appealing enough for people that they order regularly, and what skills you may lack operationally that you may need to learn along your entrepreneurial journey. Keep a note of the frequency of order/user. This truly shows whether you have something that people like so much that they would spread the word around themselves. Expand only if you are you are having so many customers that you are unable to fulfill their demand consistently for a month, and are going stock out almost every day. And again, remember! You are not going to become viral! Initially, only your friends will share a word about you with their friends, and that will give you a feeling of demand surge. It quickly dies down in a couple of weeks. So, relax and stop planning for something that may not ever happen.

Please note that this depends a lot on your concept as well. In some cases, it is not possible to get feedback without investment, but in most cases, it is possible. And as an entrepreneur in this domain, I’ve myself seen that it is very hard to earn any money, so spend wisely! Devise ways to sell products and get feedback as cheaply as you can.

Types of Food Operations

Major types of food operations are:

  • Restaurant / cafe (non-alcoholic)
  • Pubs / Bars
  • Cloud kitchen / Dark kitchen (online delivery based)
  • Kiosks (in malls & transit places)
  • Kiosks (in office cafeteria)
  • Meal subscription services
  • Catering services
  • Manufacturing plant for packaged foods

Any of the above models can be your primary concept (except for Kiosks, since this model works best with a base kitchen, as space is less and you would definitely need a place to store inventory). You may build a north Indian restaurant or a brewery as a primary brand, but you can definitely add a cloud kitchen brand (such as pizza, pasta, or a salad specialty) from the same location. This will give a massive boost to your sales if you already have a customer base.

NOTE: If you want to open a pub/brewery/bar or a manufacturing plant for packaged food, I may not be able to help you guys. Since the capital requirement for these setups is extremely high, I would recommend getting in touch with a professional consultant, who has good experience in this domain, and in the past has established popular brands that you “yourself” know of.

General Precautions

Whenever you have to start designing your concept, always build something keeping your customers in mind. Think: When, where, and how will I serve my customers?

  • Is it a part of their daily food? More suited for lunch or dinner?
  • Will this be preferred in weekly outing
  • Is it suitable in the office
  • while traveling
  • in malls
  • for birthday parties and events
  • Is it a filler concept, which is not the main meal? Or is it suitable throughout the day? (such as a cafe)
  • Is it best served in charities
  • Is it a luxurious dining place?
  • Or is it a Rescue food (maggie, instant foods, vending machines, etc.)

While thinking these, be very rational about all the options. Ask yourself, when was the last time you (or someone you know) had this type of a meal in the given situations. Remember, being true to yourself is the key before starting any long term business.

There are a few general best practices and points to take into account while doing these experiments.

  1. Relying on external factors outside of your control to make this idea take off. If your business requires something that you cannot execute on your own, please be careful of those ideas. An example would be a VR dining experience with friends. The success of this idea depends upon VR headset adoption and then becoming mainstream.
  2. Location: If you are going for a physical location setup, not doing due research about footfall correctly, and understanding the legal background of the property would be a fatal mistake. That’s the advantage of selling online. You can be located anywhere and still become a popular brand.
  3. Not paying enough attention to marketing: Opening a store online means no one can find you unless you show yourself to everyone. You have to make yourself stand out and make people remember you.
  4. Not interested in working on it: It does happen that once you have started a business, you may feel uninterested in managing it. Figure out whether it is because of the minor set back, or you are genuinely unwilling to do probably 24X7.

If you feel uninterested in working on it, you should do whatever you like doing, and pivot to that business. If you are feeling insecure financially, find a job, and close the business. It would definitely feel terrible at first but it’s the right thing to do. As the saying goes, “Don’t throw good money on bad.” Stop wasting money in hopes that someone would buy this business from you. It doesn’t happen that often.

Market your business aggressively. You should always assume that the sales will never skyrocket and you will never reach the levels of being sold out on the first day. With this in mind, market your idea aggressively. And promoting your brand on social media is a new way and probably a sustainable way of doing business! Be active on Instagram, and WhatsApp. Keep a lookout for what is trending on Facebook and try to “ride the wave” and generate business via that. With time, you will get better at it and will be able to drive sales better via those channels, rather than spending money on ad networks or distributing discount coupons on aggregator platforms.

Some helpful thumb rules

Some production numbers may be helpful for you initially.

  • The consistent demand and peak demand are on many occasions are related by a factor of 3, i.e. if the regular demand of your salad bowl is 10 packs, the peak demand can be of 30 boxes.
  • Peak demand can be high on weekends (for special cuisine or high price dishes) and can be on weekdays (if you are offering a daily meal subscription).
  • The maximum production capacity of a single chef cook from home can be lunch/dinner for 30 people (because of standard kitchen equipment used and household utensils).
  • The regular demand that a home cook can get (selling food in his / her residential society) is around 10 packs or 1/3rd of the maximum capacity.
  • You may need to upgrade the location and setup only when you exceed maximum capacity on multiple days a week, consistently for a month or so.
  • Peak selling season for restaurants in October — March (for regular food like daily meals, the opposite is true).
  • After the initial launch among friends and family, there will be days when there’s absolutely no sale. This can be on a Tuesday or Wednesday of the 2nd or 3rd week after launch. Don’t get disheartened if this happens. Consistency matters!
  • CoGS (cost of goods sold) is the material cost of all the ingredients you put in the dish. On the higher side, it should be 30% of the sale price. This means your basic margin should be at least 70%! The lower side depends on the type of product you are selling. Coffee has a 95% margin, pasta or pizza (dishes having cheese) has a 60%-70% margin.
  • The selling price is determined by what people expect or what is the market rate for comparable dishes in your category.
  • Packaging should not be very cheap, and it should not be custom designed initially (unless that’s your differentiating factor). Test out dishes and basic operations capabilities first.

Conclusion

To transform your food concept into a successful business, you have to know why and when will your customers would want it. Depending upon that, you choose your business model, but before that, try to validate business by starting with as little investment as possible. Test out your marketing channels. Once you have enough sales or traction, build your concept, and make adjustments from the learning in the trial phase. Afterward, you must expand multiple cloud kitchens from the same location, and massively grow revenues. Keeping the common precautions mentioned above in mind, I feel you can start a pretty decent business very soon. All the best!

Rockstar Chef helps food entrepreneurs build e-commerce websites and apps, and provides the entire operating system to entrepreneurs to succeed. To know more about us, please visit our website: www.rockstarchef.in. My name is Shreyash, I’m the co-founder of Rockstar Chef. I’ve personally built a profitable food business in the past, so I know a thing or two about it.

We create e-commerce websites and apps for restaurants, and help them create strong and independent online brands.

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