I Want to Set Up My Own Restaurant !

1. I Want to Set Up My Own Restaurant! Proyecto de Apoyo a Empresarios Latinos en Comunidades Rurales

2. Supported by Grant # 2008-55401-04642

3. Content • Introduction • Advantages of investing in a restaurant • Disadvantages of investing in a restaurant • Exercise 1: Advantages and Disadvantages • Experience is Essential • Themes to Consider • Comparative Advantage • Exercise 2: My Project’s Comparative Advantage • Concept • Exercise 3: Concepts • Market Research I • Market Research II • Exercise 4: Market Research • Financing I : The Access Problem • Financing II: : Financing Education • Financing III : Resources in NC • Marketing and Promotion • Providers • The Menu • Custom Service • The impact of losing a customer • Online Resources • Sources

4. Introduction Many immigrants want to succeed in their new country by becoming owners of their own restaurant. This is the dream of a lot of people who have a vocation that combines the entrepreneurial spirit, culinary creativity and the desire of serving and pleasing their clients. A Census Bureau business survey in 2002 shows that more than 3% of the Latino companies are food or lodging businesses. This module has the objective of guiding and contributing to the training of those who want to establish their own restaurant. It could also be useful for current restaurateurs who want to reflect on their business establishment and operation. This module provides an example of the specific details that all entrepreneurs must take into consideration while establishing their business.

5. Advantages of Investing in a Restaurant • Some of the main advantages of this type of business—according to people who have set up their own businesses are: • Different options--from modest lunch or taco trucks to complete restaurants with bar and meeting room services. • The option of acquiring the franchise as part of a national chain. • Many immigrants have work/professional experience in the industry that they could use successfully. • In addition to attracting Latino clients, in this country ethnic cuisine is becoming more popular throughout society. • This is a business where many family members can get involved if it is run as a family business. • The restaurant can be combined with other existing businesses, for instance, a store, bakery, etc. • Everybody needs to eat… and now, with such a rushed life style, even less well-off people need to eat outside their homes sometimes… or even daily. • Potential of achieving an attractive output of the investment made.

6. Advantages of Investing in a Restaurant • Just as there are advantages of investing in a restaurant, there are also disadvantages and risks. Some of these are common of the industry, others derived from the owners and administrators. • To illustrate this: It was announced in the beginning of 2010 that the restaurant El Bulli, considered by many as the best restaurant in the world, was going to be closed due to considerable losses (500,000 euros per year), according to his owner, chef FerranAdria. • According to serious researches that have been done around this issue, researchers from Cornell University and Michigan State University found that after a year, 27% of the studied restaurants had closed, after 3 years 50%, after 5 years 60% and after 10 years 70%. • Some of the main disadvantages of investing in a restaurant: • It is a highly competitive sector. • High volatility in the restaurant industry. • Restaurants are among the first businesses in resenting during an economic crises. • Complexity of operations. • Lack of training for owners and/or employees. • Wrong location • Non-existent or weak promotion strategy. • High investment and or operation costs. • The business requires a high commitment in terms of time and effort.

7. Exercise 1: Your Advantages and Disadvantages • If you already operate a restaurant, take a moment to reflect and ask: What do you think have been the advantages and disadvantages of establishing your own restaurant? • Even if you haven’t owned a restaurant, what do you expect might be some advantages and disadvantages? • Identify 5 advantages and disadvantages in the following grid.

8. Experience is Essential While considering if having an own restaurant is a good option, you should reflect about the experience needed to succeed in this industry. Many Latino immigrants have experience from their home country or as employees in a restaurant in the US. It is important not to underestimate either, because in all activities there are learning opportunities. There is no substitute for the experience. However, one must also be realistic and evaluate what we know and what we need to learn. Ask yourself the following: Have you had a lot of experience in the restaurant industry? How varied has it been? What have you learned about the operation of a restaurant? What aspects of a business do you need to learn more before starting your own restaurant? Where can you obtain more practical experience?

9. Issues to Consider in Setting Up and Running a Restaurant Setting up and operating a restaurant, no matter how modest it is, implies dealing with different issues that are always encountered in this industry. Among the issues you must consider are: • Analyzing the Market • Operations. • Equipment. • Facilities: location and auxiliary services • Personnel, structure, organization , direction, training and control. • Operation costs and administration of inventory • Food safety • Legal framework. • Accounting framework and taxes. • Finance administration. • Marketing. • Presentations to investors and bankers. • Selection of professionals who can provide needed support (attorneys, etc.) Each of these areas require attention from the owners and administrators. Partial Source: Secretaria de Economía (México), GuíasEmpresariales.

10. Comparative Advantage • Setting up and operating a restaurant should be seen as a process, not just as a set of actions and decisions that are unrelated. • Therefore, one of the first things to do in the beginning of this process is to identify what is the comparative advantage that you restaurant would have in relation with other food business in your city. • An example: You would like to open a seafood restaurant and • There are no other seafood restaurants in the city • There is high demand for this type of food. • This type of food is your specialty. • Or, for example, you may already be an owner of a store, you know how to get products at a low cost, you have regular clientele and you have space to add a taqueria, while other taquerias do not have these advantages.

11. Exercise 2: Comparative Advantages of my Project • Although setting up a restaurant is just an idea right now, you need to start thinking of a possible comparative advantage for this project. • Ask yourself the following about the restaurant project: • Who would be my direct competitors in this city? • Can the local economy support another restaurant? • What would my restaurant offer that the others don’t? • Would my project have a comparative advantage? Which one?

12. The Concept For some restaurants, one of the comparative advantages that they develop is the concept around which the business is designed and established. Occasionally, you could even draw national or international attention with an interesting and appealing concept. An examples of this is the TaqueríaCascabel in Nueva York, which uses the phenomenon of Mexican wrestling to draw potential clients’ attention. Certainly, they are distinguished from their competitors by their image, but the quality of their food has also received good reviews. Photo: nytacos.com

13. Exercise 3: Concepts Have you considered which concepts would result more profitable in your community? Let’s do the following: • Visit some of the restaurants in your community that are similar to what you want to establish. • In each case, could you identify any concept? • In what would benefit or affect having or not a conceptual clarity? • The selection of the dishes, the decoration, the design of the menus, and other elements, are consistent with the concept? • What concepts could turn out to be appealing to the clientele you want to attract?

14. Market Research I • In an ideal world, every small entrepreneur would conduct a market research study before launching a business. • The reality is that this does not happen because it requires technical specialization that very few small businesses have or can afford. • Nevertheless, at least you should make an effort to know the local market to be better informed and not to waste an investment that could be considerable. • The basic objective of this market research is to yield reliable data that allows you to decide if investing in the project is a good idea or not. • A good entrepreneur needs reliable and high quality information to make decisions.

15. Market Research II • A market research study analyses at least 4 variables: • Supply (products or goods or a service that the business will provide) • Demand (that exists of the good or service) • Market prices in the pertinent market • Marketing strategies that could work • Overall, careful attention to these four components would lead to the conclusions of the market research. • Later, you will find references to online resources that will help you improve your knowledge about this subject. • Source: CANIRAC

16. Exercise 4: Market Research • Visit some the businesses in your city, including those that have a franchise. • Talk to the owners or managers and ask if they conduct a market research. • Who does it and who does not? • Are there any noticeable differences regarding the success between those who do and those who don’t? • If they do not conduct market research, how do they gain the insights they need to make important decision about the operation of their business?

17. Financing I: Accessing Capital to Start Up • As part of this project in support of Latino entrepreneurs, a study was done that included interviews with hundreds of small entrepreneurs, owners of different type of businesses. • One the main findings was that the great majority of small Latino entrepreneurs did not get financing from an institution to open their business. They got start p money from their savings or with help from close family members. • Some entrepreneurs did not want financing, but other who were looking for it to start of expand their businesses. • Therefore, it is possible to argue that there are still barriers that blocked the access to financing when it is needed. • Before seeking financing from a bank, it is important to take into consideration what the bank will ask for--among other things, good credit history and a business plan. • Likewise, obtaining credit is a process that takes time and requires planning. • Before asking for a loan it is better to first go to one of the agencies in North Carolina that specializes in working with small entrepreneurs, giving advice on themes such as financing, and also training on how to improve your businesses.

18. Financing II: Financial Education • Both, financing for a business and loans to individuals (to purchase cars, homes or other objects) are related to the financial education theme. • It is important that each entrepreneur or aspiring entrepreneur gets training about this topic. • To begin, we recommend consulting the webpage mymoney.gov, a site created by the US Federal Government for Latino consumers. The website is the following: http://www.mymoney.gov/Espanol/default.shtml

19. Financing III: Resources in NC In North Carolina there are several agencies supporting small and micro entrepreneurs. You could go to one of them to obtain information and advise about financing and business development. Following there is a list of some of these agencies and their contact information.

20. Marketing and Promotion • A restaurant without a market plan would never reach its full potential, because every business needs to be promoted so the public knows its products and services. • Promotion includes the following activities: • Public Relations: Activities that allows the business to generate, administer and maintain relations with its potential market. In the same way, it generates a positive image for the business, in order to maintain and increase its clients fidelity and preference. Example: sponsor a football team, support a scholarship for local students to go to college • Personal Salesmanship: Activities that are carried out directly with the customers, giving them recommendations about certain specialties. Example: talking with someone to learn their tastes and recommending the kind of dishes on the menu they might like • Sales Promotion: Special activities aimed at increasing sales. Example: issuing a special discount card to frequent customers • Publicity Activity in charge of raising awareness of the product with the public or potential market, representing the line of direct communication between the services that a business offers and the clients, both current and potential clients.

21. Providers • Providers are the ones supplying the products or services that the restaurant utilizes to function. • Given its importance, this aspect of restaurant business should not be neglected, since it could determine the success or failure of the business. • A good provider should offer the following: • High quality products/services. • Punctuality and reliability in delivering what’s ordered. • Effective and clear communication. • Availability. Proven capacity to have in stock the requested products/services. • The best prices without sacrificing quality. • Credit policies that includes lines of credit in case you needs them. • Finding a good provider takes time and effort. Ask for quotes and evaluate the providers with the criteria aforementioned. Source: CANIRAC

22. The Menu The menu is not only a list of dishes and prices, is a fundamental part of the strategy to achieve the restaurant’s success. According to the Chamber of Commerce of the Restaurant and Food Industry of Mexico (CANIRAC), the menu is the backbone of the restaurant business, as well as the guide for the business operation systems . A good menu should please the diner’s 4 senses: • Sight -This could be achieved utilizing attractive colors in the menu design. It should be easy to read and have photos where customers can see the dishes offered • Taste -The diners at the moment they read the menu should be capable of finding a variety of foods and different preparation styles (grilled, cooked, fried, sauté). • Touch-Through a photograph or a description that along with each dish in the menu, the diners should perceive different textures and consistencies of one or various dishes. • Smell-If the dish has a clear description, the diners should be able to imagine the smell of the dish, which would whet his/her appetite. Source: Canirac

23. Customer Service Every client deserves to be treated well. Here are 9 tips to improve customer service: • Never forget that the client is the boss. The restaurant is there to serve him/her. • Always have as an objective exceeding the customer’s expectations. • Offer individualized attention. Introduce yourself to your customers and make your services available to them. • Select, train and value your personnel so you can keep good customer service as a constant. • Design a restaurant, including menu and furniture, having as the principal objective the client’s comfort. • Make the effort to get to know your frequent clients. • Take care to rapidly and fully address the problems and complaints you hear about and listen carefully to your customers. • Demonstrate your clients that you appreciate their presence (not only their money). • Occasionally, offer something extra (a drink, dessert) to frequent clients.

24. How Much Does It Cost To Lose a Customer? • Many restaurant owners have asked themselves how much it costs to lose a client, either because he did not like the food, the service, the location or any other reason. • Specialist Bill Marvin de Virtualrestaurant.com offers a calculation, based on a customer that visits you twice a year and spends every time $25, representing $50 annually . • That is not a large amount but if you multiply that times 5 years, we reach $250 in losses. • Furthermore, studies show that happy customers recommend a business to other 5 persons, in average, so to the losses of $250 it is necessary increate other $250 of each of the other 5 persons and this amount gets to $1,250. • However … remember that those 5 clients who would have brought you other 25 clients… and then those125 would have brought 625 clients…. • Lesson: You should not look down or lose even one client!

25. There are a lot of sites available online that have useful information for restaurant owners. The list that we present next are just some of the existing resources. Online Resources Available

26. Sources • CANIRAC, Modelo Estandarizado de Negocios para PYMES del Sector Restaurantero. http://www.economia.gob.mx/?P=7452 • Checklist for Starting a Business, Compiled by Michigan Small Business Development Center at Washtenaw Community College. http://www.ci.milan.mi.us/DDA/1_checklist-wash-8-20-2businessstarts.pdf • Minority Business Development Administration, The State of Hispanic Business, 2006. www.mbda.gov • Mymoney.gov. http://www.mymoney.gov/Espanol/default.shtml • Nytacos.com • Secretaria de Economía (México), Guías Empresariales – Restaurantes y Fondas. http://www.contactopyme.gob.mx/guiasempresariales/guias.asp?s=8&guia=68&giro=3 • Sidney, G. Restaurant Failure Rates Recounted: Where Do They Get Those Numbers?. http://www.restaurantowner.com/public/302.cfm