I’ve always dreamed of owning a restaurant. Some people want to own upscale Italian restaurants, some want to own a bar, some want to own a (hipster) cafe that’s pretty much in trend now…. well the restaurant I want to own isn’t really glamarous. One day I wanna own a steamboat (hotpot) restaurant. Something about having a round table with a hot pot in the middle that everyone takes food for each other from gets me.
In the past years I’ve gotten to know a number of entrepreneurs in the F&B or restaurant business. People who own large chains like Absolute Thai or Madam Kwans, to Chatime outlets to cafes or bars or independent burger joints. Talking to them I’ve learned quite a few things about the restaurant business that I never knew before and so today I thought I’d share that here. Note that I don’t think any of these are real secrets. Anyone in the F&B industry would know this and more… but from someone not in the industry I thought this was interesting.
1) It costs anywhere from RM500,000 to RM1,500,000 to start a restaurant/bar/cafe
The lower range of the budget is achievable for restaurants that don’t have to spend too much on renovation and restaurants that are based in places where rent is low. The upper ranges are for restaurants that spend more on renovations, have a bigger premise and are based in places where the rent is expensive. Like in malls.
2) Location isn’t really everything.
If you’re based in a mall you probably have the ability to drive more customers than say being based in a suburb somewhere… so if location IS everything then why doesn’t everyone just open restaurants in malls?
While malls give you a lot of foot traffic, it’s expensive. Restaurants based in malls can easily spend 1/3 of their revenues on rental. There are other costs involved too. Most malls require you to renovate your restaurant every X number of years regardless of how well maintained or well kept your premises are.
To make things worse, the rental agreement with a mall normally lasts 3 years. So if your business doesn’t make it in the first year, you can’t just shut it down without paying the remaining 2 years of rental which can be substantial. So once you open an outlet in a mall, chances in you’re in for the long run… whether or not you make money.
The entrepreneurs I speak to who do well in malls normally do so with big volume. Perhaps that’s why you don’t see many fancy fine dining restaurants in malls.
One entrepreneur shared with me that in malls, your food doesn’t have to be super good. As long as you have a restaurant with a nice look and feel and your food is average or above average (with maybe one or two hit dishes)… people will come because it’s convenient.
This is really different from restaurants outside that are known for really good food. Whether it’s Village Park Nasi Lemak, or Teluk Pulai BKT… nobody cares about what the look and feel is like. People go there for the good food.
3) It takes 2 years on average to earn your initial capital back
If it takes you less than 2 years then you’re doing a great job. If it takes you more then you’re doing a bad job.
4) Staffing is a major problem
One thing all restaurant owners seem to have is problems with maintaining their restaurant staff. Whether it’s the people who help in the kitchen or the waiters and waitresses. They often hop from one restaurant to another and more often than not, they just don’t show up at work leaving the restaurant very short-handed.
Larger chains cope better with this because they’re able to move staff from restaurants to cope with sudden shortages.
Most of the F&B entrepreneurs I talk to tell me that staffing is their biggest headache.
5) Theft is another problem
With technology and point-of-sale systems, it makes it harder for cashiers to steal money from the cash register but not impossible. Theft also happens in the kitchen. In some kitchens where the chef orders the food, sometimes he chooses one supplier over another and pays a higher price in return for a commission. So restaurant owners have to constantly manage this. Again this gets easier once a restaurant becomes a chain because they centralise the buying process rather than leave the power to each individual chef.
6) Franchising is an easier way to learn the restaurant business but…
I know entrepreneurs who have built very successful businesses from franchising the right brands from overseas. Tony Romas, Chatime, Din Tai Fung … they’ve all done super well and many of them had no previous F&B experience or knowledge.
The tricky thing about franchising though is it all depends on the franchisor. Good franchisors provide a lot of support and marketing for their own brand so it drives more people to your restaurant. Bad ones don’t…. and then you find your fate stuck in the hands of the franchisor.
7) How much money can a restaurant make?
This really depends. A decent restaurant should be able to pull at least RM2-3 million revenue a year. And make a profit of about 15-25% of that depending on how well they manage costs.
There are restaurants that make good money with even less revenue because they have lower costs. And some that make many times that RM2-3 million because they’re huge. It’s really hard to say.
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The consensus I got from all these entrepreneurs I’ve talked to is that the F&B industry… while it looks easy is actually really hard. But then again no business is easy… any easy business out there would have strong barriers to entry or been done so many times over and over again that competition would naturally make it hard.
I now know that the dream of my steamboat restaurant is achievable. But the dream of a profitable steamboat restaurant… well that’s harder.
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space