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Jun, 01 2009

Restaurant biz - Picking out right space

Location is the most important aspect in the success of a food and beverage (F&B) outlet.

Location is the most important aspect in the success of a food and beverage (F&B) outlet.

As it is not easy to relocate a restaurant after starting operations at one site, one has to be really careful in scouting and selecting a congenial spot and negotiating a lease deal. Prospecting and finalising a deal are very important in restaurant business, as one has to go with the decision for decades. A lot of research is required in figuring out the commercial and technical viability of the site. The decision is going to be very crucial in the context of total return on investment (ROI) of a franchisee business. If the rental percentage is so prohibitive that it erodes a major chunk of the sales revenue, it might become an unviable business model in short to medium term. It is not important that a franchise buys a location, as this actually takes the initial investment to a very high level..
For buying a prime property, the investment for an F&B outlet can go up to Rs 4 crore. Before finalising the property, the franchisee must consider some key points below:

  • Carpet area should be sufficient enough to run an F&B outlet;
  • The frontage vs. depth of the property should ideally be 1:2. For example, in 1800 sq ft site, ideally, the front should be 30 ft and depth 60 ft. This ensures an impressive signage as also operational efficiency;
  • It should be in a high footfall mall/market, with ample parking space;
  • The building should be technically sound – it should carry a strength certificate from a structural engineer;
  • Ample power back up should be available for the site;
  • The title of the property should be clear, and rent agreement should be registered immediately;
  • The franchisee should try to keep the lock in period in the deal to the minimum;
  • There should be no visible obstruction to the property or the signage;
  • The franchisee should be able to get all utilities like water, electricity, etc installed in the premises.
  • He should also be able to get all necessary municipal and other licenses for running a restaurant in the premises in question.

Sales-to-rent ratio

When it comes at sales to rent ratio, the rent should ideally be 10 per cent of sales. Initially, it may go upto as high as 15-20 per cent, and typically reduce during the tenure of the lease. Franchisors support the franchisee at each and every step of site finalisation and beyond. It involves doing the initial feasibility studies related to all commercial and technical aspects of the site – right from benchmarking competition sales in the vicinity, to mapping footfalls, negotiate lease agreement and all its important elements with the landlord, and moreso helping the franchisee in all legal aspects of the agreement.

In case, the franchisee takes a wrong decision in selecting the location, the only way to get over it is to spend a lot on marketing, discounting and promotions. This would entail tying up with other retail stores, distributing discount coupons and aggressive above the line marketing which is actually very costly. The other way, in the current recessionary times, is to actually gauge the profitability after incurring marketing and promotion spends and trying to cut down the costs drastically and run with only the skeleton requirements. If everything fails, and it is becoming an incessant drain on the resources, store closure could also be looked at.

Study footfall

As an advice, the franchisee should study the footfall for a tenure of at last two weeks. People often consider only the weekend traffic / footfall and base their assumptions on that. Whereas, one has to consider even the weekdays sales in coming up with an expected sales figure, on which profitability would be calculated further. Moreover, the franchisees should use the company`s expertise to the fullest and take their advice along the way. They should not only look at commercial places in the vicinity, from where a lot of lunch business can be expected, but also take into account the dinner business, which will mostly come from residential establishments. Hence, in choosing a property, that location will definitely have an edge, which exists in a residential cum commercial establishments in the vicinity.

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