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Sep, 2017

How to start a Restaurant business

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Restaurant is a place where people pay to sit and eat meals that are cooked and served on the premises. It may be classified or distinguished in many ways. The primary factors are usually the food itself (e.g. vegetarian, seafood and other non-vegetarian options); the cuisine (e.g. Italian, Chinese, Mexican, Indian) and/or the style of offering (buffet, self-service, etc.). Beyond this, restaurants may differentiate themselves on factors including speed, formality, location, cost, service, or novelty themes.

Market:

According to India Today, ‘The market size of the country ‘s restaurant sector is INR 247,680 crore ($48 billion), which makes it 24 times bigger than the film industry and places it $9 billion ahead of the telecom sector. And, it is projected to swell to INR 408,040 crore ($78 billion) by 2018 at a compounded annual growth rate (CAGR) of 11 per cent with the organized sector expanding at 16 per cent.

As per a report called “India Restaurant Market Outlook to 2018”, the changing lifestyles with the increasing nuclear families and a rise in the urbanization in India over the past years have also supported the growth of the restaurant market in India. Additionally, the customer preference for the cuisine has seen a transition in India from consuming the traditional Indian food to trying out different cuisines such as the Chinese, Italian and Mexican. Due to the growing exposure to the international cultures and lifestyles, the Indian population has started developing their tastes and is reaching out to restaurants more often which offer different cuisines apart from Indian cuisine. This change in the taste preference of the people in India has motivated many international and Indian players to expand their reach in the Indian restaurant market.

Types of Restaurants:

A restaurant can differ from each other on multiple parameters like theme, cuisine, self-service or not. Following are few types of restaurants mentioned below:

  1. Café
  2. Food truck
  3. Dhaba
  4. Pizzeria
  5. Bakery
  6. PBCL (Pub, Bar, Club, Lounge)
  7. Hookah Parlor
  8. Sports bar
  9. Ice-cream Parlor
  10. Pop-up restaurants

Factors driving the business:

Location:

Location plays a crucial role in the success of a restaurant. The entrepreneur must choose the location wisely keeping in mind the theme and cuisine of the restaurant. For e.g.: A restaurant serving mostly non-vegetarian food will not work in an area where the majority population is of vegetarian people or vice versa.

The entrepreneur must also keep in mind the type of people around, their lifestyle, types of restaurants nearby. Opening a café might not work in an area where there are already 10 cafes around.

The entrepreneur must also be sure of the laws and rules implied on the particular area such as, there shouldn’t be any hookah parlor under 100 meters of any school or educational society, or there should not be any restaurant or dhaba serving liquor under 500 meters of the national highway.

Ambience & Environment:

Customers not only pay for the food served at the restaurants but also for the ambience of the restaurant offered to them. The entrepreneur must design the restaurant attractively with furniture and interiors matching the theme and vibe of the restaurant, slow soothing music playing in the background, dim lighting etc.

The environment and ambience of the restaurant should be pleasant and welcoming. It is one of the key factors that makes a restaurant successful.

Menu:

Finalizing a menu for a restaurant can depend on many factors like location, theme, season, budget, trending dishes, competition etc. The entrepreneur must keep in mind the kind of customers the restaurant wants to attract. If the restaurant will attract majority of young people, then the menu should provide fast foods at affordable rates. If it will attract elder people or mature people, the menu must consist of cuisines, proper dishes.

The menu must also look attractive and classy with proper description of the dishes present. The prices of the dishes must be fixed after taking into consideration the profit margin and the prices other restaurant charge. It cannot be too low that the restaurant’s profit will go down or too high that the customers choose another restaurant instead of yours.

Employees:

Running a restaurant is not a one-person job, it needs a well-functioning team. The entrepreneur will be required to hire skilled chefs and assistant chefs for the kitchen; ones that can make dishes that match the vibe and theme of the restaurant. Restaurant will also need waiters, housekeeping staff for smooth functioning. In finer restaurants, there are host / hostess to welcome customers and to seat them in their tables.

Surrounding area:

The restaurant owner is not only responsible in beautifying the restaurant from the inside but also from the outside, even if it does not come under his bought / rented area.

The entrepreneur must follow his socio-economic responsibility, for e.g. the restaurant owner must repair the outside footpath if broken or keep the outside and nearby area clean, plant trees and flowers etc. They must also make sure that the traffic is not increasing because of the restaurant or the customers of the restaurants.

Service:

When customers spend money on food at the restaurant, they also spend money on the service offered at the restaurant. The entrepreneur must make sure the service provided to the customers are quality services. The staff must be pleasant and kind, do not keep the customers waiting for long time to take order or serve the order. The service must be prompt and the staff must keep the customers informed always even if the orders are getting delayed.

Hygiene:

The most crucial factor of a successful restaurant is hygiene. The entrepreneur must make sure the hygiene of all parts of the restaurant are maintained as nobody would want to eat at an unhygienic place. Good hygiene also augurs well for the restaurant staff.

Equipment:

This will depend on the type of restaurant the entrepreneur wishes to open. Some basic equipment that will be required are as follows:

  1. Utensils
  2. Cutlery
  3. Oven
  4. Refrigeration
  5. Deep freezer
  6. Gas-stove
  7. Chairs, Sofas and tables
  8. Ice-Cream making machine (in case of an Ice Cream parlor)
  9. Espresso machine (It is necessary in case of café and coffee shops)
  10. Food Processor
  11. Heavy Duty Mixer Grinder
  12. Proper Air- Ventilation
  13. Television
  14. Music System
  15. Dishwasher
  16. Heavy duty cold pressed juicer
  17. Wood fired Stone pizza oven (In case of an authentic pizzeria)
  18. Bike (to make home deliveries)

Licenses:

  1. Registration under Shop establishment act (known as Gumatsa in Maharashtra) from Municipal Authority / NOC from local authorities.
  2. Udyog Aadhar MSME online registration Certificate.
  3. GST
  4. FSSAI License (The processing units should follow the Food Safety and Standard Authority of India (FSSAI) act 2006. FSSAI Act is the applicable pan India for all food products. It prescribes minimum standard operating procedures, food safety norms, packaging & labeling norms)
  5. Incorporation Certificate. (in case of private limited company)
  6. Liquor License. (If liquor will be served at the restaurant)
  7. FDA license.
  8. Fire Control license.
  9. Permission from pollution control board.
  10. Playing of Music in restaurants – Can be obtained from Phonographic Performance Limited (PPL)/Indian Performing Right Society. This license becomes mandatory when you are planning to play recorded or live music of two or more members of PPL.

Entrepreneur’s qualification:

There is no specific qualification to start a restaurant, however they must have some skills that is required to make the restaurant run resourcefully.

  1. The entrepreneur must have good knowledge about the food industry and how it functions.
  2. They must have proper business plan is decided before stepping into the business.
  3. They must do proper research about the market demand, customers preference, competition etc. beforehand.
  4. They should know from where and how to source fresh and superior quality vegetables and other raw materials at affordable prices.
  5. The entrepreneur should also keep a check on the market trends, festivals, changing preferences of their customers and makes changes in the restaurant accordingly.
  6. They also need to have good managerial skills in order to make the business run smoothly.

Marketing:

Marketing strategy is the most crucial factor of a successful restaurant. The entrepreneur must have a proper marketing plan to promote the restaurant. They promote the restaurant in many platforms like social media, TV advertisements, flyers, pamphlets, hoardings, word of mouth etc.

Investment & Finance:

The entrepreneur will be required to make some capital investment in the restaurant. The initial investment may range from 2 lakhs to endless amount, depending on the type of restaurant. It is a capital-intensive business so the entrepreneur must sort his funds before starting the business, so that the restaurant could function smoothly.

One can get finance through various sources like nationalized banks, private banks, and financial institutions. There is not much scope for working capital in restaurants as the working capital cycle is only of 7-10 days and the payment is done on the spot at once by the customers. You can even contact us at info@udyogcredit.com, if you require help with your financing.

A snapshot of the typical formal financing terms and conditions is given below:

 

  Contribution by Bank Contribution by Entrepreneur
Capital Investment 75% 25%
Working Capital Gap (Raw Materials+Debtors-Creditors) 75% 25%
Tenure of Loan 5-7 years  
Moratorium 6 months to 1 year  
Can be funded by Scheduled Commercial Banks, Co-Operative Banks
One can also enjoy the Mudra Yojana Scheme & Standup Scheme launched by the Government of India

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