August 4, 2013
Have you ever dreamt about opening a bar or a cafe? How about a restaurant? Statistically, 62% of office workers interviewed have ‘always wanted to open a cafe/bar/restaurant‘, and there’s a high likelihood you reading this might too. Or at least know a friend who has this same dream.
“Ah, if only I had my own little place to bring my friends and family to chill during the weekends.” Sounds familiar?
Although it seems glamorous and ritzy being a F&B owner, there are huge misconceptions and naive notions to actually owning and operating one. I know it’s not a bed of roses because I’ve worked in several bars, restaurants and ran a F&B kiosk company. Here I’m going to share the major oversights and delusions people have towards opening a F&B concept, and for you to seriously ponder these points before embarking on your dream cafe.
1. Underestimating capital required
The major reason many food entrepreneurs fail, is by simply underestimating not only the initial budget required, but also the capital needed to sustain operations. Rental deposits, utilities installation, renovation costs are all common points that new entrepreneurs tend to under-budget during planning. Next, operating capital to buy food inventory, pay workers are also part of the minimum sum your bank must have to be able to turnover operations. Suppliers usually do not give credit unless you have a history of working with them, since there are still many cases of companies not paying their bills.
With any new F&B place, the first 3-6 months is going to be a nightmare for your cash flow. You have to spend quite some time to generate brand awareness, as well as a pool of repeat customers to be able to finally generate profit. Within this time, you will have to burn through your cash reserves, thousands of dollars till it happens. Marketing expenditure will also be highest during the start as you want to bring in business to your unknown brand. The question you have to ask yourself is do you have to holding power, as well as the stomach to see thousands of dollars flow out each month?
2. Seems easy enough to do
A key factor why the F&B industry sees thousands of companies shut down as well as thousands more open up each year is because it seems easy enough to do. There are not much barriers to entry other than a relatively high start-up cost, and your friends have been telling you for years to professionally sell the delicious home-made cakes you made for them each Christmas. It’s just baking in a larger quantity right? What else is there?
Cooking commercially is a HUGE difference, mind you. Baking 10 cupcakes a day versus 1000 cupcakes a day is a completely different monster. Cooking equipment is different, even the method has to be tweaked because increasing mass production affects consistent quality of the food. Controlling volume production is something you’ve not experienced before.
Then we go to rent. Commercial landlords are mostly not going to look at your business plan and go “hmm, perhaps you lack a feasible business plan, you should go revise it first.” Ok, I take that back- good landlords, will do that but it’s extremely rare. Why? Because the landlord would gladly take your rental money instead of leaving a shop space unoccupied. Whether your business succeeds or not is irrelevant as long as there’s the next sucker in line to lease to. And seeing most landlords collect a minimum 3 month deposit, any default of eviction cost is easily mitigated with your deposit money.
3. Mistaking passion for skill
Yes, having passion is important because it keeps you on your goal. But passion alone is not enough without actual skill. You might say you have a lot of passion for food, but you’ve never actually cooked a proper meal. You like the restaurant industry but have never worked in one before.
Passion doesn’t create a 4-course set meal for a table, cooking skills do.
You must not only be passionate about the subject, but be willing to attain the skills about the same subject. A chef can be a successful food taster, but a food taster might not be a successful chef.
Passion is sometimes overly exaggerated in people as well, from their language and their behaviour. Superficially, there seems to be a lot of passion. You might see them constantly talking about food, taking photos, reviewing restaurants etc… BUT when the opportunity finally comes down to cooking, working the long hours or driving for excellence in their business, they buckle from the load. True passion is to keep going even when times are bad.
4. Not applying a decent ingredient margin
People who have been cooking at home tend to undercharge their products and not earn a decent enough margin for a sustainable food business. You need on average at least 30-40% cost margin on any item you sell. A dish that cost you $2 has to be sold the lowest at $5 (using 40% gross product margin).
Many home chefs have been cooking for ages with ingredients bought from the supermarket, or the wet market, and so you start basing your cost and range of products on these avenues. It seems cheap enough when you buy it for yourself, but you can’t be selling a $2 cost lunch at just $3, as you will require far too much volume to cover your overheads with this profit. This becomes a problem because products from public supermarkets tend to cost more than industry food suppliers, and people are not aware to use suppliers.
Firstly, you have to source out food suppliers and use them for better rates whenever possible. They also have a much larger range of items that can act as replacements to lower cost, but still yield similar results. Lower your food costs whenever possible.
Secondly, don’t be afraid to price it right. People will pay if they see the value, and it has been proven time and again 30-40% product cost is a workable number. It boils down to understanding the economics in a food business that make it work.
5. Unable to sacrifice long and irregular hours
This is especially accurate for food entrepreneurs, because food never sleeps. Most restaurants have the best business during the weekends. Clubs and bars typically open till 3am. Are you willing to make sacrifices to your family and friends, to run your business?
Getting a call in the middle of the day that perhaps the ice machine has broken down, is as common in the food industry as Taylor Swift breaking up again. Things that require immediate attention no matter what you are doing will tend to pop up repeatedly in F&B. Staff training, maintaining food quality, working out a proper running operation all takes immense time from the owner. And at the start, you won’t have a manager to handle all this for you.
I have seen so many people having grandeur dreams of owning a restaurant, be completely distraught when they themselves actually try working in a restaurant. Even standing for 12 hours straight is a challenge, not to mention being stuffed in a hot room being screamed at for the same 12 hours.
Don’t talk the talk if you can’t walk the walk.
6. Stress is not your friend
Living with stress is the number 1 fundamental skill of an entrepreneur and any business owner. Nothing affects you like the state of your own business, and no one other than the founders can understand this feeling. In the F&B world, you will see your sales performance every.single.day. And when things are bad, you’re going to loss sleep every night worrying about paying the rent, your staff or even paying yourself.
This stress is amplified if you are working everyday IN your business itself, instead of ON your business. Being in the 12 hour day to day grind, and then having to face poor daily sales is enough to make any person insane. Imagine coming home late after a full day of menial work, then having to spend another couple hours to plan and execute your marketing strategy, then doing the accounts. Then having to repeat this the next day. It’s simply not possible to sustain this in the long run, as your mind and body will break down.
Yes, you’re going to have to do it in the beginning, so you have to be prepared to face stress the likes of which never seen before. If you can’t deal with the heat, get out of the kitchen. But eventually, you have to work out a system to take yourself out of operations and focus on managing the big picture.
For more information on how to be working ON your business like you should, read my Food Marketing 101 page. If you thought this was an insightful article, share with your friends!