The restaurant industry is a difficult one to succeed in. According to a study published in Cornell Hospitality Quarterly, roughly one in three restaurants close within their first year of business.
Of those that survive this critical year, only three in 10 will make it past year five.
While these statistics seem grim, they don’t paint the whole picture of the restaurant industry. There are restaurants that thrive for generations.
When restaurateurs find success, they consider business expansion. If everything is going well, why not duplicate that success to grow profits and tackle new creative challenges?
But growing a restaurant empire is not a simple endeavor. While lightning can strike twice, it takes more than just luck to ensure success while undertaking a business expansion. It also takes good timing, lots of savings, market research, and business savvy, among other things.
The more preparation and research you put into expanding your business, the more successful you’ll be. We’ve put together this guide to restaurant business expansion to help you in your endeavor.
In this guide you’ll learn:
- When you should consider expanding your business
- Ideas for building your restaurant empire
- What you’ll need to do in order to expand your restaurant business
Ready, set, grow!
When to Consider Expanding Your Business
Think back to when you first opened your restaurant. We bet that the first few months – or even years! – weren’t all smooth sailing. You were trying to break even, striving to build a reliable team, and constantly refining your menu. The last thing on your mind was expanding the business; you just needed to make payroll.
You’re probably reading this article because things are different now. With some time, business savvy, and luck, you’ve hit your stride. Your restaurant has become profitable, you’ve built a trusted team, and you’ve nailed down which dishes your customers love most. Now you’re considering growing the business.
When is it time to seriously consider a business expansion?
Several signals are pretty good indicators that you’re ready for an endeavor of this scale. We recommend waiting until all three of these factors fall into place before moving forward with a new restaurant business plan:
- Your restaurant is making a profit. You don’t want to start expanding if you’re still struggling to pay all your bills and make payroll each month. Make sure you’re thriving financially – don’t expand your business if you’re in the red. Having profits to work from will help you 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 by growing the business.
- You have a reliable team. Finding experienced staff that you can count on is one of the biggest challenges in the restaurant industry. Staff shortages are prevalent and turnover is at an all-time high. 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 to build a new one, or grow the business in other ways. And when you open up your new shop, you will be able to count on your senior team members to train newcomers.
While business expansion can be a thrilling endeavor, it’s a massive undertaking and isn’t for everyone. There’s nothing wrong with foregoing expansion and continuing to run a successful restaurant. There are plenty of challenges that come up as a business matures. Even if it’s your second, third, or fourth location, use a business plan to keep you on track through all the thrills of opening your next location.
8 Ideas for Building Your Restaurant Empire
Adding more locations or opening a new concept may be the most obvious ways to grow a restaurant business, but there are lots of other ways to add revenue streams. Check out these ideas for growing your restaurant empire.
1. New Locations
You have a few options when it comes to expanding your business by opening more restaurants. 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. This new location could be in your current town or city, in a different city, or even in a different country.
If you feel you’ve done all you can do with your original concept, start a completely new restaurant concept while continuing to run the original restaurant. Take advantage of the brand name recognition you’ve created with your first success to draw crowds to your new concept!
Creating a restaurant pop-up is a good way to earn extra revenue or test out a new concept without the overhead of expanding to a new location permanently. 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 pop-ups are temporary, they can give you useful insight into what it would be like to open a new location of your restaurant. Consider pop-ups a beta test for your restaurant in a new area or format.
3. Food Truck
Food trucks are a big hit among foodies. They’re also a smart option for restaurateurs who are looking to expand their businesses without committing to new brick and mortar locations.
Food trucks can be taken anywhere, so they aren’t subject to a chronic lack of foot traffic. They have lower overhead than a traditional restaurant, since there’s no mortgage to deal with or rent payments to be made. It also requires fewer staff members than a full-blown restaurant, so it won’t add too much to payroll. However, every city and state has different rules for food trucks – including where you can and can’t operate – so there may be more (or just new) boxes you have to check before opening one of these in your area.
Don’t forget to look up licensing and permitting regulations to understand the full scope of what’s required to build and operate a food truck.
4. Ghost Restaurant
Ghost restaurants are establishments that only offer food for takeout or delivery, completely lacking a sit-down component. This digital restaurant concept is the rage right now, and for good reason.
Ghost restaurants allow restaurateurs to experiment with new foods with less overhead than opening up a brick and mortar shop. Because these concepts forego the front of house, they require less commercial space and less staff. Some restaurateurs even choose to operate ghost restaurants out of the kitchens of their existing concepts, so a new space isn’t necessarily even needed.
Introducing a catering component to your current restaurant is a simple way 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.
Plan your catering menu by figuring out which of your current dishes can easily be made and transported in bulk.
6. Event Space Rentals
If your restaurant closes after lunch or is only open for dinner, why let it sit empty when you’re already paying the rent? Renting out your restaurant when it would otherwise be closed can help you maximize revenue.
If your space is in a business area and is open only for breakfast and lunch, rent it out in the evenings for corporate events, meetings, or parties. If your restaurant is only open for dinner, partner with a coworking space company to turn your unused restaurant space into a temporary office for freelancers and remote workers.
Add merchandising to your restaurant business plan if your business’ brand is as popular as its food. You can take merchandising in one of two ways. The first way is to sell apparel and accessories. Print shirts, hats, and aprons with your restaurant’s name, logo, or catchphrase on them.
The second way is to package signature food items and sell them across the country and the world. 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!
Anything that can be made in bulk and has a shelf life is a good candidate for merchandising – think sauces, jams, and even ice creams.
Of all of the business expansion ideas we’re sharing with you, franchising is the most complex. It involves giving entrepreneurs the secrets to your restaurant so that they can duplicate its success.
Franchising involves figuring out what makes your concept special and putting faith in others to replicate that success. If you decide to franchise, hire an experienced lawyer to help you with the process.
Business Expansion: What You’ll Need to Do in Order to Succeed
After you decide how you want to grow your restaurant empire, you’ll need to take the right steps in order to set yourself up for success. Let’s go over exactly what you need to do if you decide to expand your business by opening up a new restaurant.
1. Decide on a Concept
First, you need to nail down your concept. Figure out if you want to do exactly the same thing in a new location, or try something completely different.
2. Find the Perfect Location
Do you want to open your new restaurant close to your existing spot, in a new city, or maybe even in a new country?
Be thorough with your research. Whether you’re staying local or expanding farther away, check your desired area for saturation of businesses – you don’t want to be the fifth froyo shop on the block. You’ll also want to look at records to see what kinds of businesses used to be in that area to see what doesn’t do well.
3. Equip Yourself with the Right Technology
As you expand to new locations, you’ll need to get more comprehensive licenses for your restaurant’s software, like a more enterprise version of your POS. Find software for other needs that integrates with your multi-unit POS so that you can access all your key business metrics in one place, even if it’s across different locations.
When you open a new location, you’ll probably want to have your old team train your new hires. Consider promoting some staff at your original location 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 challenges you’ll be likely to encounter so that you’re prepared to combat them.
Lightning doesn’t strike twice without some help. Ensure that your second business will be just as successful as the first – if not more! – by bringing on strategic partners.
Network to find someone with experience in managing multiple concepts and ask them to come on as a managing partner. If you’re looking for investors, make sure that they bring more to the table than just cash. Look for a strategic partner who can provide expertise and make the right introductions.
Growing your restaurant empire is an exciting venture with many opportunities. Proceed strategically carefully in order to set yourself up for success. When you ask the right questions and form the right partnerships, you’ll make the best business decisions possible.
Get hot restaurant tips. Delivered.
Top Challenges Facing Restaurants Now
Finance & Operations
Restaurant Groups 101: How to Turn One Venue into an Empire
Opening a restaurant is challenging Striking the right combination of location, concept,... more