Restaurant groups are a profitable business concept. Not only do they allow for creative collaborations between chefs, business leaders, and investors, but they can transform entire cities and communities by introducing fresh restaurant concepts that boost local economies. If you’re running a single eatery that has proven successful, perhaps you’ve been thinking of a venture into a restaurant group. Read on to find out if starting a restaurant group is right for you.
What Is a Restaurant Group?
When asked to name a food chain or franchise, most people can rattle off a list of some of the best-known brands in the U.S., from McDonald’s to Olive Garden to Cracker Barrel Old Country Store. Rather than a standard concept multiplied across different locations, a restaurant group has a different structure. It is made up of distinct dining concepts that fall under a single corporate entity with centralized finances and management.
Some hospitality groups were founded by well-known chefs and have swanky locations across the world. Others are mom-and-pop operations. But all restaurant groups offer significant potential benefits over owning a single location. They include opportunities to get creative and try new ideas—all while increasing revenue. To be successful, restaurant group owners must take into consideration a variety of important factors as they grow.
Identify and Cultivate the Right Talent
If you’re the chef-owner of a restaurant, chances are you are very involved with day-to-day operations, from building the wine list to chatting with regular customers. Your passion for cooking or another aspect of hospitality is likely what first attracted you to the industry. A restaurant group is not exactly the same labor of love. When you expand operations you will need to be ok with the fact that you will not be as hands on or have nearly as much control. And you will likely have to recruit new people to take over some of the tasks you enjoy, which requires a lot of trust.
“Management capacity is very important,” said Paul Kukla, Vice President PNC's SBA Finance Group. “Ask yourself how you are going to manage different locations concurrently and hire good quality staff in a competitive labor market.”
The good news is that because you already have at least one successful restaurant, you likely have some stars on your team who will play a critical part in building your new ventures, and that includes identifying and hiring more top talent.
Keep in mind that with more employees comes more paperwork and reporting requirements. However, you will also be better positioned to offer your team more diverse perks, such as gym memberships and discounted public transportation cards.
Also be aware that cliques that can form within the different teams, depending on the group’s dynamics and different personalities across the restaurants. To promote stronger relationships and superior customer service, you may need to be more deliberate in scheduling company-wide holiday parties and other team building events.
Seek Out the Right Investors and Support
If you have the resources, perhaps you will self-fund your next restaurant location. That is the most direct and independent way to build a restaurant empire. But if you need an investor to help realize your dream, you may need to expand your network to find the right fit. In the best case, an investor supports your efforts and helps keep you focused. In the worst case, they could micromanage you into making financially or creatively unwise decisions. “It can be good to have an investor, but you need to have a clear understanding of their role from the start,” Kukla said. “How active will they be in the day-to-day business?”
You also need a sound plan for repaying the investor capital. “If a restaurant does not have strong enough capitalization, we may recommend that you give up a certain percentage of ownership in exchange for some investment capital,” said Kukla. “ It may be a difficult thing to accept, but giving up a percentage of ownership to gain critical support can help you out in the long run."
Investors or not, you will also want to make sure you retain legal counsel if you don’t have it already to set up the parent company and the individual restaurants for success. You may also need to outsource other professional services such as recruiting. Seek out a reliable team that can advise you on areas you are not familiar with.
Know Your Financing Solutions and Initial Costs
“When we're looking at financing a potential second location, one question in our mind is how much support can the existing restaurant provide while the second location becomes established and self -sustaining. Having a profitable original location can alleviate pressure on the new location,” said Kukla.
Kukla stressed that it is critical to get a complete understanding of your upfront costs and overall cost structure to avoid putting yourself in the precarious position of being undercapitalized. “A lot of people underestimate the cost involved in getting a restaurant to the point where it becomes self-supporting and generating enough cash flow from daily operations.” Your project cost breakdown should be all-inclusive, including staff training, soft costs, supplies, and inventory, as well as a cash cushion to handle unforeseen cost overruns or expenses, or cash flow shortfalls during the initial months.
Come up With a Structure and Plan
Determine the overall mission of the group and how you will communicate and foster a sense of identity and community. Ask yourself how you envision the structure of your group as far as corporate versus venue roles. You will need director-level positions to handle finances, culinary, training and more.
As you create your ideal restaurant group, begin to sketch out a plan, keeping in mind that the right opportunity may pop up out of the blue. Ask yourself how many restaurants you would like to have and where they would be located. Owning two or more restaurants close together has advantages like convenience and perhaps even sharing a commissary kitchen. When they are far apart you may have logistical challenges and a lot of driving back and forth.
Kukla advises negotiating with potential landlords for a lease that gives you the right to occupy your space for up to 10 years, and ask whether they would be willing to contribute to your buildout costs or offer discounted rent for the first six months. If the landlord does contribute toward the project cost, it is best if that money comes in early or midway through the project instead of being a reimbursement after the restaurant opens. If the contribution is a reimbursement you would have to increase the amount of equity contributed to the project at the outset, possibly causing an additional strain on liquidity
As they evaluate a potential new project, restauranteurs should also estimate cost per seat and cost per square foot, said Kukla. How much space will you devote to dining tables versus the bar area to maximize profits? Understanding the relationship between cost per seat/table and revenue per seat/table is critical in understanding profitability. You also need to have a solid grasp on the restaurant’s gross profit margin and net profit margin. These key metrics illustrate how cost increases can affect bottom-line profitability. The margins also tell you how you can respond to pricing pressures from various sources.
Managing your supplier relationships is also very critical. Explore how much support suppliers can provide during the initial phase of the restaurant. And determine who would be the back-up suppliers if needed.
Develop Concepts and Branding
Because you are not simply replicating the restaurant you already have, you will have an opportunity to get creative and have some fun. Just make sure your new concept is sound.
Research and decide on specifics like the theme and type of cuisine and price point. How will the restaurants in your group complement each other? The restaurants will be different, but what will be your group’s brand voice and how will you maintain brand identity across venues? You also do not want the new restaurants to cut into the business of your other spots.
"Determining how your restaurant will position itself in the competitive landscape of the local market is critical," Kukla said. "What is your restaurant's competitive advantage and key differentiating factor as it relates to other restaurants in the market? Balancing differentiation and appealing to a wide enough audience is critical."
Partner With PNC to Start Building Your Restaurant Empire
Growing a restaurant group is not without its challenges, but if you build a team with the right partners in the right places, the rewards can be great. When it comes to banking, PNC Solutions for Retail Businesses and Restaurants gives you the support, services, and flexibility you need as a small business owner. Let's get started today.
