Thinking about buying a restaurant? The food service industry can be lucrative, but there are some things to look out for. Find out what to know before you invest.
THE FUTURE OF FOOD SERVICE
After weathering the challenges of a years-long global pandemic, the food service industry is on the mend, incorporating new tools and lessons learned. While the restaurant business may not have returned to “normal” as we once knew it, the foodservice industry is expected to reach $898 billion in sales and grow its workforce by 400,000 jobs (with total industry employment at 14.9 million) by the end of 2022. As the restaurant world is reopening after quarantines and stay-at-home orders, restaurateurs face a new set of challenges, responsibilities, and opportunities for growth.
People always need to eat, so the food service industry will never become obsolete, but the process through which we access our food is changing. In recent years, online food ordering has become broadly popular, with digital ordering and delivery growing 300% faster than dine-in traffic since 2014. Other technologies have also come into play, as well as guests becoming more concerned with reducing food waste, and restaurant workers asking for more equitable pay.
The dream of owning a restaurant is complicated by the realities and demands of a multi-faceted industry, but it can also be deeply rewarding if you ask the right questions before investing.
WHAT COSTS SHOULD YOU BE PREPARED FOR?
Purchasing a restaurant may offer lower barriers to entry than other industries, but not all opportunities are created equal. Opening a globally recognized fast food franchise or a fine dining restaurant can cost upwards of a million dollars, and that doesn’t necessarily take ongoing costs into account. According to a survey conducted by Restaurant Owners, the median cost to open a new restaurant is $375,500, and that figure will vary depending on a number of factors including location, size, cuisine style, and more. Another element to take into consideration is whether you plan to buy an already established restaurant space (possibly already outfitted with equipment and a staff) or start from scratch.
If you choose to go the franchising route, your startup costs will be laid out in itemized detail in the brand’s Franchise Disclosure Document (FDD). Unlike with an independent food service business venture, the costs to open a franchise will cover everything from training and ongoing marketing support to assistance with real estate and the use of a proven business model and established brand name.
Some of the startup costs to anticipate with a franchise include:
Initial Franchise Fee. This is a set, one-time fee that is essentially the cost of entry to begin your franchising journey with a particular brand that gives you access to the name, operating system, and to receive training and ongoing support.
Real Estate and Property Improvements. This includes mortgages, down payments, and leases. It also includes the cost of materials and labor if improvements are required.
Supplies and Equipment. Examples include initial product inventory, point of sale devices and other proprietary technology, general supplies, etc.
Insurance. Like any business with employees, franchisees must purchase workers’ compensation insurance. Those that work out of a fixed location will also require property and casualty insurance, while mobile-based businesses must carry auto insurance.
Marketing and Advertising. In terms of franchise startup costs, many franchises require new partners to pay for initial signage and “Opening Day” advertising. Beyond that, all franchisees typically pay ongoing ad and royalty fees, the costs of which vary, but are based on a percentage of sales over a given period of time (monthly, quarterly, etc.).
Working Capital. While this isn’t a fee you will pay the franchisor, it’s important to bear in mind that you may not immediately turn a profit, so you should have enough money squared away to cover operating and living expenses for at least three months as your business takes flight.
Franchisees face far less hidden or unexpected expenditures and benefit from more ongoing support than independent restaurant owners, making this an appealing route, regardless of your level of previous experience in the food service industry.
WHAT KIND OF RESTAURANT SHOULD YOU OPEN?
While there are endless restaurant ownership opportunities to explore, fast casual restaurant statistics suggest that this is an ideal sector to consider. While the COVID-19 pandemic presented exceptional challenges for the restaurant industry, fast casual concepts fared slightly better than full-service or fine dining establishments. Compound Annual Growth Rate (CAGR) is the touchstone for franchises to understand how their investments are growing. Despite adversity, the fast casual restaurant industry is on track to grow by more than 10% CAGR over the next five years.
Bridging the gap between full service and fast food, the fast casual restaurant industry is filled with an endless amount of potential for both guests and restauranteurs, combining convenience, affordability, and flavorful possibilities. The fast casual market was valued at $125.6 billion in 2019 and is expected to grow to $209.1 billion by 2026, making it a winning business opportunity for savvy investors.
Fast casual restaurants are positioned to be more pandemic and recession-resistant, able to adapt and refocus their services during difficult times. Limited in-person dining capabilities have been devastating for many restaurants during COVID-19, but fast casual establishments have pivoted to embrace delivery and takeaway options to control costs and sustain income while keeping mindful of guests’ and employees’ safety.
TAKE A SEAT AT THE TABLE WITH YOUR PIE
As one of the country’s leading fast casual pizza franchises, Your Pie provides an outstanding opportunity for hungry entrepreneurs hoping to make a mark in the food service industry. For over 14 years, Your Pie has been serving its guests with fresh, authentic ingredients and inviting franchisees to become a part of a brand that values fun, teamwork, and community in addition to delicious, custom-baked pizzas.
Regardless of your industry experience, Your Pie seeks franchisees who are committed to our values and want to build a rewarding business together. To learn more, explore your franchising opportunity today.