How Do You Know When to Expand Your Restaurant Concept?
Expanding a restaurant concept is an exciting time for any business. If your first location is successful with long lines every day, you may be wondering whether it’s time to scale. But there are a number of aspects to consider before expanding your restaurant concept. There isn’t one simple answer to knowing when the time is right because each decision is somewhat unique, but there are some important questions worth asking before you take the next big step.
Before we dive into more complex facets, it’s worth mentioning that the idea of doubling down should give you pause if you’re not on financially sound footing today. Too many operations start scaling before they are financially viable, making success much harder. While it may seem obvious, ensure you’re meeting payroll and profitable with one unit before adding a second. Consider finding other financial backers to help you create financial modeling before growing. Conduct business analysis to understand how much cash flow you need to save to support a new location.
Once you know you’re financially well supported, then it’s time to answer the challenging questions that come with expansion.
Do you have processes, talent and training in place to ensure your brand standards are met — even without direct oversight?
When restaurant brands first come into existence, there’s usually one strong founder behind the brand. This person is the leader making decisions and keeping consistency within the operation. But when a restaurant adds more locations, it’s nearly impossible to run the business the same way. It becomes less about following one individual and more about giving your talent processes and programs to follow.
At Foodbuy, we work with customers to develop standardized processes and help them get better pricing on items. We alleviate some of the challenges by delivering products that create consistency on their menus across multiple locations. Partnering with a Group Purchasing Organization service early in your expansion allows you to scale without adding extra overhead costs — like a procurement team.
Once you have processes in place, it’s important to consider training programs to recruit and retain talent. Retention is key because turnover can be costly while scaling. Beyond the time it takes to recruit and train talent, one aspect that often gets lost is the experience your customers receive when there’s a new employee who may not be well trained. You only get one chance to make a first impression and poor service from a new employee could turn off a potential customer for good.
There are ways to keep turnover low during expansions. Hiring managers should hire for attitude and train for skill, and be committed to teaching. They should provide opportunities for improvement by offering training programs, retraining, certification and recertification. Pal’s Sudden Service put these practices into place and saw positive results with their staff. Annual turnover for frontline employees at the fast food chain is just 1/3 of the industry average, while turnover for assistant managers is only 1.4%, according to Harvard Business Review.
How will expanding your restaurant concept affect your current distributor and supplier relationships?
Operators need to understand their distributor’s cost triggers before starting an expansion. Just because you’re opening more locations doesn’t necessarily mean costs will go down. Take time to figure out what’s attractive and what’s not attractive about your business because being a good customer can lead to lower distribution fees.
Will your expansion go outside of your current geography? Could that move alter the cost of your products? The distance between locations may mean your distributor is driving much further to deliver your products. This could result in higher costs, which is why you need to understand the distributor’s financial model. Would it be beneficial to build a new relationship with a different distribution point? Or should you consider a different distribution company?
Delivery frequency, payment terms, the number of proprietary SKU’s, and the amount of sales support needed all factor in the distributor’s financial model. Some locations operate on a five-day-a-week delivery frequency, but that comes at a very high cost. If you schedule deliveries twice a week and after hours, when demand is lower, your operation could save more money. There are also different costs associated with payment terms, which are layered into what distributors offer as a margin markup. The number of proprietary SKU’s you ask your distributor to stock also factors into distribution costs.
Have you considered the logistics behind non-broadline purchases? You may love your local produce distributor, but they might not service your new location. This is where a GPO service provider can help. They have established relationships with distributors and suppliers across the country.
A GPO can also help manage your service-level agreement with your distributor, ensuring everything you agreed upon is adhered to. Part of our job at Foodbuy is to work with your distributor to make sure you’re getting what you need, when you need it and at the right price — all of which are crucial when expanding.
Where do you stand with proprietary products?
There is a wide spectrum of proprietary product uses. Some operations don’t have any items that are truly proprietary, while others have a significant number. Restaurants early in the growth process tend to build menu items in the back of house with items already in stock at their designated distributor. Larger operations, on the other hand, use more proprietary products to deliver greater consistency.
Some operators are quick to jump to proprietary items to help solve their BOH problems, but it is important not to jump the gun too soon. Yes, proprietary products are important in building a brand. But service problems can become an issue if you create too many proprietary products when you don’t have appropriate scale. Instead, look to optimize products that are already relevant to your distributor and your supplier.
Successful operators will question whether there are existing items that will help with consistency and efficiency across multiple locations. Partnering with a good GPO will help you find the right balance between proprietary items and stock items, no matter where you are in your growth cycle.
Have you done your location homework before expanding your restaurant concept?
Restaurant real estate follows the same rule as personal real estate: location, location, location. There’s nothing more important than restaurant location. Some of the most successful companies invest a significant amount of time and resources into location research. Those restaurant concepts only sign “A sites,” which are determined based on what spaces have the right traffic flows, demographics and financials. Real estate companies also look at the annual income of the customers who live in those communities and how far families drive to eat.
We understand how hard it is to answer these questions. Are you still unsure about how to put standardized processes in place? Are you facing distribution challenges? Do you need proprietary products to ensure consistency? There are resources, like GPO services, that can help you with these decisions. We work with customers every day at Foodbuy to help them find unique solutions for their brand. If you would like to learn more about how can help you, please Contact Us.