Yes, You Can Start a Restaurant in a Down Economy

I am considering opening a short order carry-out and delivery joint. I am 32, and I have worked in a variety of capacities in the f&B industry. I am also an entrepreneur with a keen eye for opportunity. I have "stumbled upon a very small spot that will suit my purpose well. The rent is only 500 per month, and there are 3 hospitals and 3 colleges in the area. The place will require almost no mods as it has housed 3 prior tenants (also restaraunteurs). The only thing that frightens me, is making sure that my drivers make money. Otherwise, how will I keep good ones? Another thing that frightens me is the looming issue of healthcare. I want to be a good boss, and I care about people but...I am in the business to make money. At any rate, it please me to know that I was right on by declining to incorporate a flat top opting instead for a grill that will render my patrons a healthier option. Glad I read the article. Pushing the fact that my food is healthier just might be the difference maker. Now I will research this "fast-casual" thing you guys are talking about. I have about 35k to work with as of now with possibly another 10 or 15k if needed. Anyone have any suggestions as to what else I might consider?

Tobian Norris of GA 2:02AM February 17, 2010

Great article. It's very timely and I think encouraging.

You're points about entrepreneurs are spot on. These unique people are key to what drives many industries in the US and the restaurant biz is one of them. I'm excited to see what new business are going to rise out of this economic downturn.

I think the fast-casual category of restaurants and the street vendors are where we will see some of the greatest growth too and some of the neatest advances.

There's a Mediterranean called Zedo's restaurant that just opened up around the corner from me that fits in the fast-casual category and they've been busy for the last couple of months because they are offering great - and I mean great - food and a great value and I think it's because the entrepreneur there is working hard at finding ways to make his business a success.

-Harold

www.sellmoremeals.com

Harold of FL 5:29PM April 23, 2009

We just closed a restaurant even though we have over 100 years of combined experience, here are some thoughts:

The high failure rate of restaurants is due to the low barrier to entry. The reality is anybody who can scrape together $100,000 can open a restaurant regardless of prior training or education. Think about how many restaurants have failed when individuals like me, my partners and countless others who have decades of experience and degrees in the field are involved. (Between the three of us we have contributed to 100 restaurant openings with less than five failures) The athletes and new-money folks who jump into the game have far worse odds then we do. But they’ve opened-a-plenty in the last few years and the ripple effect of these locations closing is big to us who are in it for the long haul. Here are five:

1.Higher lending costs. All those burned loans get made up for by higher rates to the next operator. Planning on opening a restaurant in 2011 with a loan? Great ready to pay for the closures of 2009.

2.Higher lease rates. The less experienced sign poor leases and increase landlord expectations.

3.Higher Unemployment Costs. Shuttered restaurants send dozens of people to the unemployment line and drive the cost of other operator’s state unemployment tax rate up. States charge new businesses by industry so even if an operator has many locations once they go to a new state they are charged the state’s rate for the industry.

4.Higher Insurance Costs. Time is an insurer’s friend and new operators have more first year injuries which drive up costs. Closing then prevents the insurer from making up the loss through higher rates in the following years. Result? Higher rates to existing and future businesses in like industries.

5. Increased costs of goods and services. Again, the inexperienced view contractors and vendors as partners whose advice they need rather than vendors who are profiting from the operators investment. New operators do not negotiate as well and leaving vendors with unpaid balances makes vendors raise prices to the rest of us. They have budgets to meet too.

I understand this is America and a person has the right to their entrepreneurial desires. The point is our industry has matured. Abe Lincoln was a lawyer with no formal education. He just declared himself one. Being a restaurateur today only requires the same declaration. I just hope all this vacant restaurant space is not filled with amateurs “playing restaurant” and creating a domino effect that the current economy has already started. Having the current vacancies fill, then empty again in 2-3 years will result in a cost of millions of dollars to us who are thinking about what are restaurants will be like in 2015. www.BlogOnRestaurants.com

Bobby Fitzgerald of AZ 12:46PM April 22, 2009