Starting a Veg Restaurant - Food for Thought
By Caryn Ginsberg
Have you ever wondered what it takes to start a veg restaurant? Before serving the first meal, savvy entrepreneurs must cook up a plan to increase the likelihood of sweet success.
As newspapers, radio, and television carry more stories about how vegetarian foods promote health, support the environment, and help animals, more people are exploring veg eating. Although only 2.8 percent of the population is vegetarian according to VRG's most recent survey, up to 50 percent may be seeking more healthful options, including meatless meals.1 A 1999 VRG poll found that 57 percent of the population sometimes, often, or always orders a vegetarian item when eating out. The National Restaurant Association's 2000 Consumer Survey showed that 16 percent of adults were ordering more vegetarian entrees compared to two years ago.2
Chicago Diner, Anjelica Kitchen in New York, Millennium in San Francisco, and similar restaurants are renowned not only for offering vegetarians an enjoyable dining experience, but also for attracting non-vegetarian audiences to sample delicious green cuisine. Despite these high profile successes, however, restaurants are a risky business. Doug Fisher, author of Successful Restaurant Strategies from Start-up to Franchising, told the Toronto Star that 80 percent fail in the first three years.3 The wrong concept, poor location, management miscues, employee theft, insufficient financing, and bad luck are just a few of the factors that can end the dream and leave the owner to meet unpaid obligations.
Prospective entrepreneurs, therefore, need to consider fit, finances, and feasibility before proceeding.
Fit - Chef or Chief?
Many people are drawn to the restaurant business because they are good cooks. Owners, however, wear a lot of hats other than chef's toque. They not only oversee the operational aspects of providing food to large numbers of people but also undertake activities necessary for any business. Although business partners, staff, and consultants can help, owners are ultimately responsible for the following functions:4
Running the Restaurant
- Menu planning and recipe development
- Purchasing, receiving, and storing food
- Hiring, training, and directing staff
- Managing facilities, including sanitation
- Customer service
Business Management
- Marketing
- Strategic planning
- Cash and financial management
- Interpreting profit & loss statement and balance sheet
- Working with lenders and investors
Partners Mickey Hornick and Jo Kaucher brought an excellent mix of skills when launching the popular all-vegetarian Chicago Diner in 1983. Kaucher had previously managed and taught bread lessons at Chicago's original natural food restaurant and bakery, The Bread Shop. Hornick had background in management, finance, and sales.
Although all of these talents were valuable, Hornick cited "hard work" and "fortitude" as most important to Chicago Diner's success. He and Kaucher worked 100 hours per week for many years; even today it can be difficult to put in less than 60. Leslie McEachern, owner of Anjelica Kitchen, also recalls years of 90- to 100-hour weeks. "You're down on your hands and knees under the refrigerator wondering what that new noise is coming out of the machine… It is not glamorous."
McEachern perseveres because she enjoys putting into action the beliefs she holds dear—caring deeply for "things close to the earth." and supporting the self-employed, small farmer. She is proud to work with producers she calls "artisans" to bring customers the best tofu, tempeh, sea vegetables, and more. McEachern believes that it is important to educate the public by example. "You have to be careful about how much you push an issue," she cautions, "You're in the hospitality business."
To see what's really involved in the hospitality business, potential owners should get experience. Any job, including waitperson or dishwasher, can provide valuable information on the rewards and the stresses of food service. Talking to as many people as possible about what they've learned as restaurant owners will also provide insight on the opportunities and drawbacks.
Finances - Measuring Carefully
When you compare the price of dining out to eating at home, you may think that owning a restaurant is highly lucrative. However, the following table from the National Restaurant Association5 shows that for every dollar in sales for the average restaurant, only 5 to 6 percent—five or six cents of profit—remains before paying corporate income taxes.
|
Full Service Restaurant |
Limited Service Restaurant |
|
| Sales | 100% | 100% |
| Where it goes (% of sales) | ||
| Cost of Food Sold | 27% | 32% |
| Cost of Beverages | 7% | 3% |
| Salaries and Wages | 31% | 29% |
| Employee Benefits | 4% | 2% |
| Occupancy Costs | 6% | 6% |
| Other | 19% | 23% |
| Total Expenses | 94% | 95% |
| Net Before Income Taxes | 6% | 5% |
In addition to these slim ongoing profit margins, restaurant owners face substantial upfront demands on cash, including facilities, renovation, equipment, furnishings, initial inventory, insurance, legal support, and more. Therefore, one of the biggest pitfalls in starting a restaurant is estimating and obtaining the required financing. In a Restaurants USA article, Fred Schneeweiss, president of Restaurant Management Consultants, noted, "The biggest mistake I see people make is that they underestimate their working capital [funding needs]… they might think that they need $25,000 in equipment, and it turns out that they need $50,000 or $75,000."6
According to Davy Davidson, another vegetarian restaurant veteran, "A regional chain would very roughly require $1 million minimum to sustain a few stores for a couple of years assuming they are each at least breaking even within a year." Sources of financing can include commercial bank loans, SBA loans, investors, financing from someone, a restaurant seller, partnerships, personal finances, and venture capital.7 However, Davidson notes, "This economy is a bad time to raise money unless you have a ‘name' and successful track record in the area in which you're trying to raise money,"
Paul Travis launched the first SUNSPOT QuickGreen Cuisine in the Seattle area in 1994 in a converted Kentucky Fried Chicken site. To offset the higher costs of organic ingredients and labor-intensive products, he established a centralized kitchen facility to serve multiple units. Travis attracted both board and staff members with considerable restaurant experience. Thousands of customers enjoyed meals at the three SUNSPOT QuickGreen Cuisine units that Travis ultimately opened.
The chain needed between six and eight units served from the centralized kitchen facility to be profitable. Competing for prime locations was difficult, however, because landlords often chose coffee or bagel shops with a well-know name, a proven track record, and more substantial financing. Delays in securing locations and compromises on location hurt the chain. Travis received 150 inquiries about franchising, but that was too expensive an option, too far along in the business. Despite $850,000 in financing raised over three rounds, the last SUNSPOT QuickGreen Cuisine closed in December 1996.
Feasibility - The Ingredients for Success
Just as most cooks require a recipe to prepare a great dish, restaurant owners need a business plan to lay out what's needed to succeed. The heart of the business plan is a feasibility analysis to assess the viability of the idea. This analysis not only helps the entrepreneur evaluate the venture, but also helps define assumptions for the financial forecast and convince funders that the concept is sound.
In their book Start and Run a Profitable Restaurant,8 Brian Cooper, Brian Floody, and Gina McNeil, experienced restaurateurs and instructors, list the following elements of the feasibility analysis:
Population profile - Who lives or works in the target area from which the restaurant will draw? What ages, income levels, and attitudes prevail? How fast is the population growing? For a vegetarian establishment, consider how veg-friendly the area is and from what geographic radius the restaurant may draw customers. Information is usually available from the local library or government, as well as from U.S. census data.
Industry and tourism profile - Looking at the retail and industrial strength of the community gives clues to the financial health of the market. If the area draws out-of-town visitors, this may be a valuable customer segment. The local Chamber of Commerce, government, and tourism council are all good sources for this data.
Competition analysis - Even if the new restaurant will be the only all-veg establishment, it will still compete with other restaurants, especially for non-vegetarians. Although having a number of nearby restaurants can be a plus in generating diner traffic, it will be important to consider what special elements will convince customers to choose the vegetarian one.
Real estate market - "Location, location, location" is the phrase often used to describe the key success factor for retail establishments. Understanding the commercial real estate market will help in determining what the restaurateur can expect to pay when buying or leasing property. In addition to community trends, physical aspects of a proposed site are critical. Is the restaurant visible? Is there enough parking? Do pedestrians have to cross busy streets to reach the location?
Conducting this thought-provoking analysis helps the prospective entrepreneur to fine-tune the concept or identify insurmountable barriers. Next steps include more detailed design, menu, marketing, and other tactical planning. Paul Travis also recommends that would-be owners test their food with potential customers before moving ahead with in-depth business planning and start-up.
Unfortunately, bad luck or timing can defeat an otherwise sound concept. SUNSPOT QuickGreen Cuisine lost its director of operations to a health crisis, and one of its locations suffered from reduced access due to construction. San Francisco's VegTime® got caught up in the Internet business bust according to founder Davy Davidson -
"VegTime® opened a restaurant in San Francisco on May 7, 2000. Our quick-serve restaurant provided delicious, organic vegan food. We enjoyed a loyal following for a year. Unfortunately, we didn't have a crystal ball, and we opened just as the local economy and the downtown district began its decline. The significant drop in our customer base that resulted from local dot-com failures and layoffs proved unsustainable and so we closed at the end of June 2001. Customers were both dedicated vegetarians and health-conscious non-vegetarians. VegTime served about 100 customers a day. Regularly we heard how much people loved our food, environmental policy, and friendly service."9
Davidson has since taken VegTime's signature Handi•Pies—savory, handheld, stuffed and baked pies—and created a wholesale business. The products are currently available in Northern California, including at Whole Foods; in Southern California; and in the Northwest. Her new venture reinforces that restaurants are not the only option for people interested in bringing delicious veg food to the public.
Wrapping it All Up
Given the challenges of starting a restaurant, should would-be vegetarian entrepreneurs put their plans on the back burner? Not according to Mickey Hornick, who believes that there's tremendous potential for vegetarian restaurants right now, especially with the number of students in cooking schools who want to work with plant-based foods. Although the restaurant business is "not for the faint of heart," a realistic assessment, unwavering commitment, a strong concept, sufficient funding, and a dash of luck can add up to a venture that's both financially and philosophically rewarding.
Hornick and Kaucher know. Chicago Diner has just celebrated its 20th anniversary and the business is thriving. With Mad Cow Disease and factory farming in the spotlight, media coverage of the restaurant is high. "What a great way to live your life," says Hornick. "You've got to do something. It's been a fantastic experience, very fulfilling."
Like Hornick, McEachern stresses the challenges and the rewards; "You have to do it for yourself. This is not about recognition or money. You can earn a decent living, but it's really hard…. You have to have the passion to keep it in perspective."
Resources
There are numerous books, websites, and other tools to help the novice restaurateur obtain the necessary information to evaluate and launch a restaurant.
Libraries and booksellers have titles on starting and managing restaurants.
National Restaurant Association, (202) 331-5900. Represents, educates, and promotes restaurant and food service outlets and serves associated distributors, suppliers, and service providers. Website has many free articles, links to other resources, and materials for sale.
Census Data, Community demographics from the government.
EASI, EASI offers data based on radius around a specific address, useful for analyzing neighborhoods. 2000 data is free with free site registration.
Small Business Administration, (800) 827-5722, and Service Core of Retired Executives (SCORE), (800) 634-0245. Organizations providing information, advice and other assistance to small businesses.
Vegetarian Resource Group, (410) 366-8343. VRG has materials for food service, including Vegetarian Journal's Foodservice Update and Vegan in Volume.
"The Market for Vegetarian Foods," Vegetarian Journal, 2002 Issue 4
Tableservice Restaurant Trends 2001, National Restaurant Association, p. 35
"Restaurant Risky Business, Expert Warns," Toronto Star, May 24, 1999
"BusinessManagement," Restaurantowner.com
Restaurant Industry Operations Report - 2002, National RestaurantAssociation
"The Best-Laid Plans: Avoiding the Common Pitfalls of Restaurant Planning," Restaurants USA, January / February 2000
"Restaurant Financing: How Easy is it to Get Money Today?" Restaurants USA, January / February 2001
Start and Run a Profitable Restaurant, Brian Cooper, Brian Flood and Gina McNeill, International Self-Counsel Press Ltd., 2000.
VegTime website
Caryn Ginsberg is a strategic idealist for Priority Ventures Group, a consulting firm that helps nonprofits and businesses improve results through strategy and marketing.
