Restaurant Expansion: When’s the Right Time for Your Business?
The restaurant industry is a difficult one to succeed in, whether you’re opening your first location or considering restaurant expansion. The median lifespan of a restaurant is just 4.5 years, according to a study by researchers from the U.S. Bureau of Labor Statistics and the University of California, Berkeley.
While this statistic may seem discouraging, it doesn’t paint the whole picture of the restaurant industry. There are plenty of restaurants that thrive for generations.
And when restaurateurs do find success, they often consider restaurant expansion. If everything is going well, why not duplicate that success to grow your profits and tackle new creative challenges?
But building a restaurant empire is not a simple endeavor. While lightning can strike twice, it takes more than luck to ensure successful restaurant growth. It also requires capital, market research, business savvy, and good timing, among other things.
The more preparation and research you put into expanding your business, the more successful you’ll be. To kickstart the process, we’ve put together this guide on how to grow a restaurant business to help you along the way.
Find out all of the essential information on growing restaurants, including:
When you should consider expanding your business
7 restaurant expansion ideas
8 steps to expand your restaurant business
Ready, set, grow!
When to Consider Expanding Your Business
Several signals are pretty good indicators that you’re ready for large-scale restaurant growth. We recommend waiting until all three of these factors fall into place before moving forward with a restaurant expansion strategy:
Your restaurant is making a profit. You don’t want to pursue restaurant expansion if you’re struggling to pay your bills and make payroll each month. Make sure you’re thriving financially first because being profitable means you’ll have the cash to expand. While loans are a viable option, taking on debt this early on will give you less flexibility if you need to borrow funds in the future for unexpected expenses.
You no longer feel challenged. If you feel like you’re running your business on autopilot, it might be time to challenge yourself creatively. Putting together and executing on a restaurant expansion business plan could be exactly what you need to put some pep in your step
You have a reliable team.Finding experienced employees who you can count on is one of the biggest challenges in the restaurant industry, due to staff shortages and turnover. When you’ve got a steady team who you can rely on, you’ll be better equipped to let them run your original restaurant as you work on your restaurant expansion strategy. This way, when you open up your new venue, you’ll be able to count on your senior team members to train newcomers.
While learning how to expand a restaurant business can be a thrilling endeavor, it’s also a massive undertaking and it isn’t for everyone. So, be sure you’re prepared by exploring several different options for growing restaurants, which we’ll dive into next.
When you think about how to grow a restaurant business, adding more locations may be the most obvious method that comes to mind. However, there are lots of other ways to expand.
1. Expand Your Existing Space
You don’t need to build a massive empire to grow your restaurant business. You don’t even need more than one location! It can be as simple as expanding your existing restaurant space.
There are a few ways to increase the capacity of your current location. For instance, you could take over the space next door to add a private room for hosting parties and other special events. Or, you could build a patio to allow your guests to enjoy your food while dining outdoors.
2. Add New Locations
If you’re still passionate about your original concept and want to see how far you can take it, you can open the same concept in a new location or turn it into a franchise. Keep in mind, part of knowing how to franchise a restaurant includes hiring an experienced lawyer to help you with the process.
Whether you choose to franchise or not, you’ve got lots of flexibility in terms of geography. Your new locations could be in your current town or city, in a different city, or even in another country.
3. Form a Hospitality Group
If you feel you’ve done all you can do with your original restaurant concept, you may want to consider forming a restaurant hospitality group to start a completely new concept – or more than one!
A hospitality group is a multi-unit restaurant umbrella for several individual restaurant concepts managed by one company. Each restaurant concept has its own brand, which makes this an attractive option for creative entrepreneurs who are multi-passionate (i.e., interested in running more than one type of restaurant).
4. Launch a Pop-Up or Food Hall Stall
Creating a restaurant pop-up is a great way to earn extra revenue or test out a new concept without the overhead of permanently expanding to a new location. You could open a stand at a food hall, partner with a department store to open a smaller version of your restaurant within their building, or apply to be a vendor at a music festival.
While restaurant pop-ups are temporary, they can give you useful insight into what it would be like to open a new location. Consider pop-ups a beta test for your restaurant in a new area or format.
5. Start a Food Truck
Food trucks are a big hit among foodies. They’re also a smart option for restaurateurs who are looking to expand without committing to new brick and mortar locations.
Food trucks can go almost anywhere, so they aren’t subject to a chronic lack of foot traffic. They also have lower overhead than traditional restaurants, since there’s no mortgage to deal with or rent payments to be made. Lastly, they require fewer staff than a full-blown restaurant, which means lower payroll.
However, every city and state has different rules for food trucks – including where you can and can’t operate – so you’ll need to do some legwork before opening one of these in your area. Don’t forget to look up licensing and permitting regulations too, so you can understand the full scope of what’s required to build and operate a food truck.
6. Create a Virtual Brand
Creating a virtual brand allows you to run a food business with less overhead than is required when opening a brick and mortar restaurant. Because virtual brand concepts forego the front of house, they require less commercial space and less staff. Some restaurateurs even choose to prepare their virtual brand’s food in the kitchens of their existing restaurants, so a new space may not even be necessary.
For example, the American chain restaurant Wingstop launched a virtual brand called Thighstop in 2021 that serves chicken thighs in 11 different flavors. Thighstop chicken is “available for delivery or carryout in 1,400 locations nationwide via DoorDash,” according to CNBC News.
Another family favorite, Denny’s, also launched not one but two virtual brands in 2021 – Burger Den and Melt Down. “This new concept allows us to focus on one of our strengths, great burgers, with new varieties using items already in our pantry,” said CEO John Miller.
7. Add New Revenue Streams
Perhaps the easiest way to expand your current restaurant business is by simply adding new revenue streams. Here are four of our favorite revenue streams you can explore to boost your restaurant cash flow:
Catering: Introducing a catering component to your current restaurant is an easyway to gain a revenue stream without having to invest heavily in new resources – the main investment may be a van or a delivery provider to expand in this way.
Online Ordering: Popular among customers, online ordering is now a mainstay at most restaurants. Online ordering offers several benefits for restaurateurs compared to call-in ordering, including increased order accuracy and volume, greater staff efficiency, and a better customer experience. And, customers spend an average of 50% more on takeout when they order online vs. when they call in, which is great for your restaurant’s bottom line.
Event Space Rentals: Renting out your restaurant when it would otherwise be closed can help you maximize revenue. If your space is only open for breakfast and lunch, rent it out in the evenings for corporate events, meetings, or parties. Or, if it’s only open for dinner, partner with a coworking company to turn your unused restaurant space into a temporary office for freelancers and remote workers.
Branded Merch: Add merchandising to your restaurant expansion business plan by selling apparel and accessories. You can print shirts, hats, and aprons with your restaurant’s name, logo, or catchphrase on them. Or, package signature food items for sale. Did you catch the Queer Eye episode when the barbecue joint-owning sisters bottled up their famous sauce? It’s now selling at a rate of 1.7 bottles per minute!
How to Expand a Restaurant Business: A Step-by-Step Guide
Taking the right steps is key to ensure a successful restaurant expansion. Let’s go over exactly what you need to do if you decide to grow your restaurant business.
1. Decide What Expansion Looks Like
We’ve covered a few different restaurant expansion options. Now it’s up to you to choose which type of growth you’d like to pursue – a new location, multiple new locations, franchising, creating a virtual brand, starting a catering operation, or something else altogether!
This is a big decision, so give yourself the time you need to choose carefully. It’s important to consider what makes sense from a financial perspective, but also which of these ideas fires up your creative energy. Don’t commit to something you’re not at least a little excited about just for practicality’s sake.
2. Carry Out a Customer Analysis
Customer research is always critical, but it’s especially so if you’re starting a new restaurant concept with a different target market than you’re used to serving. You need to learn everything you can about your prospective audience to ensure you create a restaurant they can’t wait to try.
3. Conduct Restaurant Site and Service Modelling
Finding the right location is essential to your new restaurant’s success, so be thorough with your research. Whether you’re staying local or expanding farther away, look at records to see which businesses have opened then closed up shop in that area, so you’ll know what doesn’t perform well.
In addition to choosing the right site, you also need to decide which service model you want to operate under – fine dining, fast casual, quick service, or something else. Check your desired area for a saturation of similar businesses – you don’t want to be the fifth froyo shop on the block!
4. Write a New Business Plan
Now that you know what expansion looks like for you, it’s time to roll up your sleeves and map out how you’ll bring your big vision to life with a restaurant business plan. You can either revise your original plan or create a restaurant expansion business plan that reflects your new goals.
Opening a new restaurant (or multiple locations) requires cash. However, if you’re looking for investors, make sure that they bring more to the table than just cash. Seek out a strategic partner who can provide business expertise and make introductions to others who can help you on your journey.
6. Apply for Licenses and Permits
To open any restaurant, you’ll need a business license, employer identification number, food service license, and liquor license. You’ll also require several permits, including a food handler’s permit, certificate of occupancy, building health permit, resale permit, seller’s permit, and sign permit.
Keep in mind, those licenses and permits are just the ones you need to open your doors. To actually run your restaurant, you may also require a music license, a live entertainment license, a sidewalk cafe permit, a dumpster placement permit, and/or a pool table license. But don’t worry — we’ve got your back with all the details you need on restaurant licenses and permits.
Lightning doesn’t strike twice without some help. Ensure that your second restaurant will be just as successful as the first – if not more! – by bringing on team members like a general manager with solid experience, who can oversee the many moving parts of an expansion and knows how to manage restaurant staff efficiently.
When you open a new location, it can also be a wise move to have your old team train your new hires, especially if the new restaurant will be operating under the same concept as your original venue. Consider promoting some of your original staff to leadership roles in the new location, if distance permits it. If you’re expanding across the country, study the local labor market to familiarize yourself with the staffing challenges you’ll be likely to encounter so that you’re prepared to combat them.
You might also want to upgrade your point-of-sale to a system like TouchBistro POS that is equipped with multi-location management features, so you can access all of your key business metrics for different venues in one place.
Growing your restaurant empire is an exciting venture with many opportunities. Proceed strategically and carefully to set yourself up for success. When you ask the right questions and bring the right people on board, you’ll make the best business decisions possible.
Dana is the former Content Marketing Manager at TouchBistro, sharing tips for and stories of restaurateurs turning their passion into success. She loves homemade hot sauce, deep fried pickles and finding excuses to consume real maple syrup.