RESTAURANT BUSINESS MODEL (3)

The building blocks of setting up and operating a successful restaurant 

This is the third in a four-part series of articles (3 of 4) focused on exploring the building blocks of a restaurant Business Model. These are what I believe form the foundation for setting up and operating a successful restaurant. In this article I discuss Marketing / Distribution Strategy, Adaptation, Phygital Strategy, Neighbourhood Strategy and Location.

Article 1 of 4Article 2 of 4
P&L (Profit and Loss Statement)
Know Your Customers 
Positioning (your place in the market)
Revenue Streams

Sequence of Service (service style)
The Product 
COGS (Cost of Goods Sold) – Food Cost
Human Resources
Technology
Data Analysis and Sales Trends 
Article 3 of 4Article 4 of 4
Marketing / Distribution Strategy
Adaptation
Phygital Strategy
Neighbourhood Strategy 
Location

Support Services
Breakeven Point
EBITDA
Financing
Growth
Effects of Business Model on Design

RESTAURANT BUSINESS MODEL ARTICLES 1 to 4 – Contents

Marketing / Distribution strategy

I could go on about the traditional aspects of marketing and its importance to your business. Today, this becomes more relevant, with the increased competition both in the online / delivery business and physical “in-house” (real life, as I refer to it) restaurant experiences. This is a topic that people spend a lifetime specialising in. I have selected three components I find important and valuable for owner / operators to pay attention to.

  • PR / Word of Mouth (in this day and age it is the dilemma of influencer / bloggers and the likes)
  • Content Management 
  • Database Management (CRM–Consumer Relationship Management as some would refer to it as)
Marketing and Distribution Strategy food business design

The aim is to maximise your financial returns with the various initiatives you are pursuing. The other important element to pay attention to is closing the loop on all activities in order to assess your ROI (Return on Investment). This will help you evaluate their effectiveness. With that said, there are elements to this approach that will have indirect benefits and are more difficult to calculate.

Your ultimate aim should be to maximise the lifetime value of your customers. This can be done by maximising frequency of engagement and brand utilisation through staying front of mind. The other underlying benefit of this strategy is reducing the cost of new customer acquisition. Not only will you be able to maximise the revenues from your repeat loyal customers, they also become part of your marketing team by spreading of positive word of mouth.

PR / Word of Mouth

Our industry is built on this oldest and most reliable form of attracting more customers. Word of mouth is still the best way to build your business and expand your audience. Whether digital or done face to face, it is the most effective method of convincing potential customers to experience a brand. This has expanded with time to include the world of influencers / bloggers / and online reviews. I will dive more in-depth into this somewhat contentious topic in a seperate article.

Your aim should be to turn customers into brand fans and ambassadors. They make the best type of loyal and dependable influencers. Eventually, this core group becomes your social movers that act as influencers. However, they have a more effective impact because of two primary reasons:

  • They are fans of the brand and will communicate convincingly to their circle of friends 
  • Their circle of friends trust their advice and opinion and will react more readily to their call to action

You want to depend on this group to create their own content and in a way act as your brand ambassadors. 

Content Management 

I prefer referring to this subject with a broader term of “content management” rather than restrict it to “social media strategy and tactics”. This perspective will help you focus on creating and curating content that has relevance and adds value to your customer base / audience across all digital platforms. 

First identify what your brand stands for, essentially, what your brand pillars are. Don’t focus merely on trying to force a sale of a product or promotion all the time. While e-commerce is an important aspect of the reinvented Business Model, online presence should not be centred purely on push messaging and consumption / call to action queues. Instead, create content that engages with your customers. People want to be inspired. They want to learn something new be moved. Think what your brand can do to deliver on these elements. This is your chance to tell your story online and connect with your customers in a meaningful way. Build a community not just accumulate a number of followers.

One idea is to create and host events to help you with developing content and bridging the gaps between the physical and digital worlds. Such events can reinforce the brand messaging and deliver memorable experiences to your customers. This will then lead them to create and share their own content pertaining to those events. 

Database Management 

This component of your marketing strategy is immensely important. More so these days, in a world where everyone is competing for and trading with the customer database. It is all about going back to the basics which apply today as they did years ago. Know and value your customers. Understand their needs and show them you care. These are the basic building blocks for a meaningful community management strategy. Done well, this can commercially translate into higher frequency of utilisation, eventually transforming customers to loyal fans. 

This highlights the need for your content and communication strategy to be a two way dialogue. It is where the listening portion of communication plays a big role. It is vital to have a system in place to have swift and actionable responses to commentary and feedback left on various platforms. With that said, you need to engage in dialogue with non complaining customers as well.  Yes, social media is important and engaging with customers on these platforms is beneficial, however, not all your paying customers who are your real fans and followers, are on your social media pages. Single them out, know who they are, and find out the most effective way to communicate with them directly. Thank them for their loyalty and occasionally reward them for their continued business. 

Think of your database as an asset. Just like your team, your physical space, and your inventory, your customer database is an asset. Constantly invest in maintaining and growing it. The mathematics are simple, you get a higher strike rate when you promote something for a client base that knows and trusts your brand. Plus, you always want to be on their minds and remind them how much you care about them and how much they enjoyed their last visit to your restaurant. 

Numbers to Consider

Restaurant Marketing Numbers food business design

Adaptation

Programming for constant evolution and change is the best strategy an owner / operator can adopt to ensure the success and longevity of the business. This has become ever more relevant these days, given the turmoil the industry is facing. Just as traditional restaurateurs understand the concept of seasonality and menu adaptations based on seasons, the Business Model needs to evolve and adapt in the same way.  

Today, more than ever, this is clear with what the world is going through and the severe hit the industry has taken because of the pandemic. Many operators struggled to adapt to the digital presence required to stay open. The current situation was partly what drove me to start this knowledge exchange site. The key is to always live in the now with your eyes looking to the future. 

Customer behaviours are constantly evolving. You need to always monitor and be aware of market movements. We have all been swept by things such as the health-conscious drive of self-optimization, functional food, and the move towards non-meat products, and how “foodies” on social media can “influence” large numbers of consumers to mimic and engage with your brand both online and by stepping into your restaurant. Being ahead of the curve or at least aware of shifts in the market can help you adapt and remain relevant. Of course, I am not advising that you be everything to everyone, it is a matter of having your hand on the trends pulse and to be prepared and agile enough to keep evolving.  

Phygital Strategy 

As you will often read me say, “and, not or” is my approach on things. Nowadays, businesses cannot differentiate or segregate their online presence from their brick and mortar store. Actually, they can, but it is highly advisable not to. The same concept of maximising meal periods because you pay rent 24/7. Why not maximise your revenue streams and connection opportunities with your audience? Give them more reasons to love you. 

So, to add more lingo to the vernacular, brick and click is the way of now, I would not even say the way of the future. The key is not only to concentrate on the financial metrics while pursuing this strategy, but also focus on adhering to the same principles and core values of delivering engaging experiences.

Think of your online strategy split into two components :

  • E-commerce
  • Customer engagement.

Under the e-commerce revenue channels strategy, Ghost Kitchens, and a robust Delivery Strategy can be explored. 

Caution : approach with care. It is easy to fall into the trap of deliveries and focus on the number of orders sold as a measure of success. Don’t be lured by that and always monitor your profitability.

Under the customer engagement component, you need to explore innovative ways in which you can transfer the experience you deliver to the digital space. You need to convey and tell the story of your brand online and impact your customers the same way you do when they visit your restaurant. 

Neighbourhood Strategy

For both the e-commerce and in-house strategies, focus on your neighbourhood, it makes financial sense. My advice is usually, get your neighbourhood to provide you with enough business to break-even. The rest, from further afield, can be your profit margins. This makes sense on multiple levels. 

Neighbourhood Strategy food business design

From a dine-in perspective, energy will be focused on customers with a higher frequency of visitation. Most of your clients would be within a walking distance from your restaurant, or a very short commute. 

In terms of deliveries, focusing on the neighbourhood (proximity) improves the key metric of delivery time and the cost of fulfilling the orders.

You can create a closer-knit relationship and turn customers into guests. Friendliness, familiarity, loyalty, are all built by connecting with and serving your neighbourhood. 

Build a community of loyal fans and friends. Now more than ever, the importance of “shop local” has prevailed in response to the current pandemic. Engage and be part of your neighbourhood and community, carry not only do business there. What I mean is to get involved with community events and initiatives. Host, collaborate, contribute and give back as much as you take. 

I get that this is not doable across the board with all locations, but consider this while planning your new venture and you will spend less sleepless nights trying to scrape and achieve your break-even points as you will have a stable base of clients. You don’t want to be a fad, nor even a trend. You want to be a staple in people’s everyday lives.

Location

This section is relevant if you are reading it during the planning stages of a project (prior to securing a location). Yes, as the saying goes, location, location, location. It is true that the geographic location could be important depending on the type of restaurant you operate and the city you plan to open in. I will dedicate a separate article to dive into locations and their evaluation as this is one of the most significant decisions you will make as an owner/operator. There are certain considerations I thought I should highlight here: 

General Considerations

  • Decide whether you are a mall type of operator versus high street.
  • Business district or residential neighbourhood?
  • Street facing or in an alleyway?
  • Is visibility important?
  • Is access important?
  • Current offer (supply) in the trade area.
  • Any outdoor seating areas?
  • Size. What should be the size of your restaurant?

On the last point, I keep emphasising during the various meetings and workshops I hold with clients is: size does matter, and the smaller the better. 

Revenue Considerations

  • Try to determine the demand you can expect from the location. Weekday vs Weekend. Day vs Night. Business vs Leisure. 
  • Can you pursue a neighbourhood strategy?
  • How busy are other operators in that area? Can you observe any with queues or waiting lists?

Commercial Considerations

  • Variable vs fixed rental
  • Outgoings and other costs
  • Grace periods for fitout 
  • Rental instalments 
  • Any contributions for the landlord for the setup and fitout?
  • Period (duration of rent)
  • Permitted uses clause (becomes more relevant if you are operating in a mall environment)

The point I keep highlighting with rent is, don’t pay your landlord more rent that you make in terms of profits. 

Investment Considerations

  • Was it a restaurant previously?
  • MEP (Mechanical, Electric, and Plumbing) provisions available 
  • Landlord fitout guidelines and requirements
  • Local authorities code 

The best-case scenario is that you have a location that:

  • Has MEP provisions in place
  • You can keep the kitchen in its location
  • There are a few restaurants enjoying high demand within proximity
  • Enjoys good visibility (depending on the city you are in)
  • Has weekday and weekend demand
  • Attracts leisure and business customers
  • Has daytime and nighttime demand
  • Is as small as needed
  • Has outside seating provisions
  • Is based on variable rent
  • The landlord will contribute financially and give ample time (rent free) for fitouts 

Scouting for and securing a location is a game of compromises. Set your ideal scenario that fits your concept and business first. Then assess the locations based on the compromises you will need to do compared to the ideal scenario.  


Continue reading article 4 of 4


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LINKS TO OTHER RELATED ARTICLES 

If your enjoyed this article and found it useful then I would recommend you check out the following : 

THE BUSINESS OF FOOD What it takes to turn your food passion into a successful business 

ULTIMATE GUIDE TO RESTAURANT DESIGN What it takes to design a successful business not only a beautiful space  

GET IN TOUCH

I am keen to hear from you. Listen to your stories, challenges and experiences in the industry. I would also like to know if you found this article useful and whether you had a specific question or subject you wanted me to tackle in the future. Get in touch with me

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