Start & Run a Restaurant Business. Brian Cooper
company’s business is restaurant related, as too few prospective restaurateurs do a feasibility study — that may be why so many restaurants fail! With a bankruptcy rate more than double that for the overall economy, it is vital that restaurateurs thoroughly research every aspect of their new venture.
These are the key components of the feasibility study:
• Target area analysis
• Population profile
• Economic profile
• Competition analysis
• Industry and tourism profile
• Cultural and recreation attractions
• Real estate marketplace
2.1 Target area analysis
The goal of your feasibility study is to assess the local competition and begin to understand your marketplace in terms of its demographics. To do this, you must first establish the boundaries of the area in which you wish to locate your restaurant. The area under consideration should then be described and mapped in terms of access via private vehicle using major highways and routes, public transit, and rail. Research the major communities located within the target area so that you can provide background descriptions on them in your feasibility study, giving emphasis to sectors of those communities that will affect demand for your services. History of the economic development in your target area can be obtained from municipal or town economic development offices. If you are not native to the area, this part of your study will be very valuable in helping you to understand your marketplace. Future development in the target area should be considered here: try to imagine how any new developments will affect your restaurant.
2.2 Population profile
Understanding “who” your customers are and “where” they will be coming from is one of the challenges facing a new operation. If you are a neighborhood establishment drawing on the local community, this challenge is the starting point for developing a profile of your customers.
One place to begin your research is with census data for your target area. The US Census Bureau (a division of the United States Department of Commerce; phone 301-763-4636, or go to www.census.gov) is the primary source of population and demographic information in the United States. The US Census of Population and Housing is conducted every ten years. To obtain more current information, you can contact a demographic-research firm for estimates based on computer-generated projections. Local sources, including municipal planning departments, zoning departments, and building inspectors, are also excellent sources for information on your target area. The World Wide Web is another place to begin your search for information. Many communities have their economic development offices linked to their city’s website, so you can start your information gathering from your office or home before heading out to do the field work.
In Canada, census information is taken every five years; this information is available from Statistics Canada (Statscan). You can phone them at 1-800-263-1136, or visit them on the web at www.statcan.ca. The Financial Post Data Group (phone 1-800-661-7678, or on the web at www.financialpost.com) is another source of detailed demographic information for the Canadian marketplace. They annually publish — and sell in print and on CD-ROM — Financial Post Markets: Canadian Demographics, which contains demographic information on 700 Canadian markets, broken down by province, city, town, and census division, including data on education levels, labor force, consumer groups, income levels, population projections to 2002 and 2005, and a complete list of industrial development contacts. Copies are also available on loan from the Canadian Restaurant and Foodservices Association library in Toronto (phone 416-923-8416, toll free at 1-800-387-5649, or on the web at www.crfa.ca).
The population of your target area should be reviewed in terms of its historical growth as well as its projected growth through the next ten-year period. The population by age group should be evaluated with respect to the community’s ability to retain its younger segment to further the economic growth and development of the area. This information will also provide you with a sense of where your marketplace is headed and will help you determine whether your restaurant concept fits with the target area’s population base.
Some other information that can be derived from the census data that will be valuable in establishing a community profile includes:
• Number of dwelling units by structure type
• Number of people that own versus rent their dwellings
• Average level of education of people in your target area, as well as their employment classifications
• Marital status/families by type
• Average household income
• Ethnic origin and percentage of population by languages spoken
• Percentage of population by age group
This information can assist you in putting together an accurate profile of your target customer and can be used to determine the fit or level of acceptance with which your concept will be met. Information on the languages spoken will also be valuable in determining the ethnic mix and diversity in your area. You can supplement the raw data gathered from census information and from city or town planning departments by “people watching” at establishments in your target area. Visiting the competition is a very good way of getting a firsthand look at your prospective clientele!
Information gathered from bartenders, wait staff, and restaurant managers can be invaluable and well worth the effort.
2.3 Economic profile
Analysis of the retail and industrial strength of the community will help to determine if your proposed site is viable. “Location, location, location,” more than anything else, is why an operation succeeds or fails. A location-related error is a permanent one, and every effort to analyze and understand site selection is critical. See Chapter 6, “Choosing Your Restaurant’s Location,” for more information on location.
The economic profile should look at the growth or potential for growth within your target area. Determining the economic profile for the community can help you gauge the appropriateness of your type of restaurant for the area. This information can be gathered from economic development officers and city planners. A description of the mix of commercial, industrial, and retail businesses in the target area should be included in this part of the study. This information, along with the competition analysis, will help determine the positioning of your type of operation within the community.
Here is a story from co-author Gina McNeill — a story that demonstrates that not doing your demographics homework is a BIG mistake!
Murphy’s White Horse Café was located in Egg Harbor, New Jersey, on the major route leading to Atlantic City from Philadelphia. The restaurant had been a local “gin mill,” selling beer by the glass for less than 50 cents, and had no atmosphere to speak of — except for a beautiful, 3-feet-deep by 15-feet-long, solid-wood shuffleboard game. The Murphys purchased the tavern with hopes and dreams of turning it into a New York City–style operation. They were not counting on the locals to support the “new and improved” bar and restaurant, but instead were relying on the droves of people driving down the highway to the gambling dens in Atlantic City to stop in. Wrong! The cars headed directly to the blackjack tables at the casinos, and on the return trip their occupants were too broke to stop or had enjoyed the freebies at the casinos. The wooden shuffleboard was made into beautiful bar tables, much to the dismay of the locals, who, despite everything, came to be the backbone of the bar crowd!
2.4 Competition analysis
Any feasibility study must include an analysis of the competition in your target area. This may help you determine if there is a niche in the area that your type of restaurant can fill. Some restaurants in the target area may be designed on concepts that are similar to yours, and others maybe quite different. Spend some time in the target