Opening the first restaurant is difficult, and while you may think that things will be easier the second time around, that’s not always true. You need to have a robust expansion strategy that allows for growth of your business.
There's a lot to consider, including:
Your Resources as a Manager or Overseer
If you’re a very hands-on owner, you may find that your resources are very limited. Some restaurants have their owner integrated into the operations to the extent that they become the “face of the business.”
And this method works very well for a single restaurant.
The issue occurs when you open a second location. You can only be in one place at a time, and if regulars expect to be greeted by you at your original restaurant, they may no longer go to your establishment because you’ve taken that personal touch away.
Small local communities are prime examples of owners that become a vital cog in their business’s operation.
You need to do one of two things:
Hire someone else to run the second location from the start
Hire someone to manage the original business
If your original business starts losing customers because you’re no longer overseeing it, you may need to return to the full-time work there.
You need to make the decision of how you’ll be integrated into your new business.
Will you manage and run it full-time? Will you train someone else, or allow your current business’ manager to run your new operation!?
There's a lot to consider.
Financing Without Impacting Your Current Business
If your restaurant business model is working, you may have saved up capital to open up a second location. Restaurants expanding into new locations should finance their second restaurant as if it is a single, new business.
Use your own capital
Secure outside investors
The second business will need to have capital for:
Lease or building payments
You also need a cushion so that you have funds to pay your employees. A big mistake when considering restaurant expansion is funding the entire process on your own. If you’re 100% financially secure with more than enough in savings, you may be able to fund the business without an issue.
But most business consultants recommend that you seek outside funding.
By running the operation like a separate entity, you’ll be able to keep your original restaurant running without any issues. If seasonal changes lead to a dip in sales, you’ll be able to absorb the loss by keeping each business separate.
Good credit is key.
Lenders are more likely to provide you with a loan if you have good credit. You obviously have experience in running your own business, and this is very advantageous when seeking a loan to fund the new restaurant.
Potentially Working with New Suppliers and Menus
You know, better than most people, that starting a restaurant from scratch is difficult. You have a lot of trial and error ahead of you, and you may need new suppliers. The key factor here will be is the second restaurant the same?
If you’re leveraging your business’s name and plan to open another branch of your business, you’re at an advantage.
If the menu is the same, you’ll be able to:
Use the same vendors
Discuss discounts with vendors
Since you’ll be ordering more product from the same vendors, you may be able to better control overhead and lower food costs at both establishments.
But let’s say that your first restaurant focuses on Italian cuisine and the second serves German food. Your idea may be well-outlined, but you’ll need to:
Create new menus to cater to your demographic
Find new suppliers for your new ingredients
You'll also need to sit down with a chef and come up with unique dishes and recipes. It's a lot of work, and you’ll also need to find what works for your demographic. There's a lot of research and trial and error that went into making your first business a success.
If the second location is going to be completely new idea, you’ll have to conduct:
Additional market research
In-house dish testing
It's far more work to open up a restaurant with a completely new menu than it is to replicate what is already working at your current spot.
Location and the Validity of Small Restaurant Chains
The restaurant business is competitive, and there are concepts that work very well in one location and not the other. A good example of this is the Krispy Kreme franchise. The donut franchise is a major success in some areas.
But it completely failed in other locations.
Canada expansion of the company failed. Krispy Kreme worked well in the US, but it did not work well in Canada. Consumers didn’t flock to new locations despite the concept working in other countries.
Krispy Kreme also opened up several spots in New Jersey at one time, and they often failed. Consumers were accustomed to going to Dunkin Donuts instead, and while initial promotions worked well, many of these locations shuttered.
The location means a lot when learning how to expand a business.
Research local habits and demand
Analyze competitors in the area
For example, some locations are very tight-knit communities. These communities support locals, and they’ll often go to an establishment because their friend owns it. But if you were to open up a better restaurant right next door, it may not work at all.
You need to determine if a small restaurant chain will work for your business.
You'll want to:
Review the potential market
Sit down and make sure that you do all of the market research possible for your new, potential location to lower the risk of failure.
If the area is saturated by competitors or small local businesses, it may be a market that is too hard to enter. Market analysis will determine these risks and help you make a sound decision when opening another spot.
Remember: each location you open will add to the complexity of the business.
Added Complexities and Stress
It’s stressful running one restaurant, but running two? Even more stress. Let's examine a common scenario:
Location two’s manager is sick, so you go to fill the role.
Location one has an emergency, and you’re already at the second one managing.
You can’t be in two places at once. If managers get sick or employees quit, you may be dealing with the same issue in multiple locations.
Bad publicity can also hurt both establishments.
Reviews from one location may reflect on others, causing you to lose potential customers.
There's more of a risk of food poisonings and accidents when a new location is opened.
Supplier issues can hit both restaurants at one time, doubling the potential loss in profits.
You have to be able to withstand bad publicity or issues at one or both locations. It's riskier to open up a portfolio of businesses simply because more can go wrong.
Hiring is the Key to Your Success
If you want to be able to make your business less complex and sidestep many of the issues that others face, you can do so through proper hiring. If you start with the right staff in place, management can help you run your restaurants.
You won’t have the ability to handle both location’s operations.
Traditionally, owners will:
Allow the first location to be managed by the current manager
Attend to the second business during the early growth stages
Check on the original location numerous times per week to ensure it continues running smoothly
Hiring others to handle the tasks you’re not good at is also recommended. This may mean that you hire a marketing team or someone that is better suited to manage your payroll. If you can lower your responsibilities as an owner, you’ll find that managing multiple food establishments will be much easier.
You can ask your current staff if they would be willing to work at the second location on occasion.
Current staff can also help train new employees for the second place. When everyone works as a team, it’s easier to expand your restaurant.
Business owners naturally want to expand their operations, and opening a second location offers the potential to increase profits, bring in more revenue and reach more consumers.