Even as restaurant designers, we know that design is only ever a part of the puzzle to opening a successful... View ArticleRead more
Even as restaurant designers, we know that design is only ever a part of the puzzle to opening a successful restaurant in London. But fear not, for we have gathered some sage wisdom from a collection of knowledgeable industry friends for anyone opening a restaurant within the current climate. Whilst the conversations and advice were quite varied, we’ve picked out 4 themes that seemed to be consistently highlighted and have finished the article with an overview of opinions on the current market conditions.
Getting the location right for your restaurant can be a dark art – there is no way to ever be sure that you will succeed in an area. Naturally, more prime areas command a higher rent (and accompanying rates!), but in theory, all things being equal, your sales should be higher as a result. In reality it is not as simple as that and every site will have some level of compromise to weigh up. The nuance in here is to understand the overriding importance of finding a location that is best suited to your concept as Sarah Fox from Lemon Fox highlights:
“Getting the right location is essential, but that location also depends on what type of offer you are. For example, if you are Coco Di Mama you need somewhere with massive footfall at lunchtime. Where as, if you are a dine in restaurant, your main trade will come at night so you need to be somewhere with residents for evening footfall and weekends. You need to be clear who your audience is.”
Adam Bowers of Stonebrook London seconds this idea, advising that you need to “decide who your demographic is and decide how your site selection will impact on your brand.” This point about brand is an important element to consider as your site selection will also impact on how you are perceived. For example, if you want to attract a trendy crowd you probably need to avoid a shopping centre for your first location.
Ian Woodley of Finance Kitchen identifies poor location choice as the most common reason for restaurants closing down:
“I think the most common failing is based around the property choice. Most operators get caught between not wanting to spend the money which means a poor site where they have to spend a fortune on marketing to get people to come and find them and the perfect site which, because it’s a prime location, is very expensive and they just can’t run hard enough to pay their overheads. There is no such thing as a bargain in the property world. Site choice is vital.”
Restaurateurs also need to weigh up the risks of going in to brand new developments where neighbourhoods are being created from scratch. Ian Morgan from Morgan Carr warns particularly “If the unit is in a new development with disruption from build continuing after opening, public flow and habit may not change for a couple of years and should be reflected in rent free periods.”
After you identify the right location, Adam Bowers underlines the importance of taking expert advice in order to get a good deal:
“You need to ensure that you are not overpaying, but are being disciplined with your business model. Recently in the market landlords had been pushing up rents although in the last 6 months we are reaching a tipping point with that. Recently lots of restaurants have been failing after spending a lot of money on their new sites, which means there is a good opportunity right now to get genuine turnkey value as the premium does not match the value of what they can get (for example picking up a failed but well fitted out restaurant worth £400k and only paying a premium of £100k). This is a pretty quick route to market.”
One point that I would add here is that you must be sure that what you are inheriting will really match your restaurant concept. It would be a false economy to assume you can fully reuse a previous fitout when it does not fit your brand. There are clearly ways to be smart with this though, with many back of house fitout elements and expensive items like air conditioning systems being obvious to retain. As Ian Woodley warns “Don’t skimp on design, you are there to make an impression.”
When it comes to getting good deals, Charlie Catterall of Etch observes that the response within the property market to the current more cautious climate is that “Prime is almost becoming more prime as operators want to expand but don’t want to take chances. Secondary is falling off a cliff. In addition, more and more large spaces are required as people want to build destinations.”
A final point of advice comes from Adam who sees that people often make the mistake of “Not making an offer for fear it will be rejected. It might come back in the future if other deals fall away. Don’t second guess other people’s drivers.”
3. Business plan
“Business planning is key.” Meg Morrison of Meg Morrison Hospitality proclaims. “I have worked with incredibly talented chefs, disruptive brand concepts; brilliant restaurant designers and the front-of-house teams that provide entertaining, flawless service…However, the first question I ask entrepreneurs and established operators planning to open a restaurant is where is your business plan and financial model?”
“For first time restaurateurs the most common mistake we see is under estimating cash flow.” continues Nick Chambers of Pineapple. “Whatever you’re spending on the acquisition and fit-out, you’ll need at least the same again as operational expenditure. If on day one your venue isn’t packed, how will you continue to pay suppliers, staff, rent if there’s no revenue? What if it’s day 30 or day 90? You need the cash to be able to pivot the offering, manage PR and still pay the team. The perfect opening doesn’t exist — there will be something you have to change, and you should be emotionally and financially able to continue to adjust and pivot for up to year, in some cases.”
In terms of how you get hold of this money to fund your business, Ian Woodley provides an in depth overview on the current funding landscape:
“It’s the toughest its been in the 4 and a half years since we started. From our perspective to open sites and grow you need capital and dependent on where you are on your journey that comes from equity investment or debt and there are major issues with both of these right now. Equity investors have witnessed a string of high profile failures amongst the chain restaurants which has badly dented confidence in the sector. Add to that the Brexit effect where investors have held back before committing as they want some certainty around how the UK economy will perform. There is money out there but people are being super cautious.
On the debt side, banks and other loan providers are seeing poor performance from previous loans and whilst the sector has always been viewed as risky that is particularly the case at present, even simple deals have become very difficult to do as lenders have limited their appetite.”
London is a saturated market and as such the general wisdom is that it can support a wide variety of weird and wonderful niche concepts, however Adam Bowers cautions that whilst “Londoners are thirsty to try new things, just because you have a niche concept, doesn’t mean that it will succeed.” Originality is good, but it has to be backed up by a level of quality that will keep people coming back. Customers that come once for the novelty, post on Instagram and never come back do not make for a great business plan generally….
Nick Chambers highlights the importance of research too. “The only way to mitigate this risk is through research…. It’s better to spend a year on research and still walk away than it is to open something you’re not sure about.” Ian Woodley agrees you need to take the time to “see what’s out there and do it better, encourage comment from people that know and prove your concept (through street food, pop ups , supper clubs etc).”
Sarah Fox offers a point of view that reflects on a timeless mantra: “A successful restaurant will offer a good product in a great environment at the right price. Value for money is important at all parts of the market.” Whilst this is clearly not at all easy, the aim remains, as it always has, actually quite simple.
5. The current market
There was a really mixed response amongst our experts on this question, with some seeing a positive picture and others a more challenging one – perhaps simply reflecting the uncertainty in the market right now.
Adam Bowers comments that “CVAs are happening and will continue to happen for the foreseeable future. Year on year spending is up, but people are becoming more discerning in where they spend it. It comes back to positioning and purpose.”
Nick Chambers sees opportunity in the uncertainty. “I think it’s a really interesting time. That’s not to say there’s no turmoil, but a bit of chop-and-change is a good thing for independents or new concepts. If you’ve got the cash, there’s no better time to buy a small group of restaurants as a going concern and alter them to your concept — it’s a shame we don’t see more operators open to this idea. If you’re a start-up business, there’s plenty of options in emerging neighbourhoods that I would bet on. Franchising is often overlooked but we’re seeing some fantastic brands expand through either franchising or licensing deals.”
Ian Morgan sums it up as “Exciting, evolving and accelerating. There is room for the classics and the good ones will always be safe such as Dishoom/ Hawkmoor and safe bet locations such as Broadgate/ Westfield/ etc, but places such as Arcade and Kerb’s latest foodhall in Covent Garden will allow brands and great food to accelerate their position in London.”
Sarah Fox ends on a positive note. “If you have a good offer, it’s a great place to be. There is over-supply in the market and we need to see consolidation to allow new entrants – concepts with great service and an interesting product, are well executed and located, will win through. You will always see churn, but there is enough people here to support the level of food we have.”
A huge thank you to our panel of contributors to this article. Here is a little more detail about them if you want to track them down:
Sarah Fox – Lemon Fox
Hospitality and property consultancy
Adam Bowers – Stonebrook London
Property acquisition specialists for restaurants, leisure and hospitality operators
Charlie Catterall – ETCH
Boutique retail and leisure property consultancy
Ian Morgan – Morgan Carr
Project Management, Cost Management and CDM Advisors
Ian Woodley – Finance Kitchen
Connecting investors with food businesses that need investment
Dynamic hospitality consultancy
Nick Chambers – Pineapple