The Ingredients of Restaurant Success

"Steak" Out Your Spot

A good location is crucial to the success of a restaurant. Choose a building on a well-traveled street where it's possible to install highly visible signage, but beware of historic districts, where there are restrictions on every aspect related to a building's exterior. Check out the local pedestrian traffic, like Lao did. Because his restaurant is on a busy thoroughfare in the middle of New York City, he does a brisk carryout business during lunch hours--and attracts famous guests like Martha Stewart. Also, look for a building with a large, well-lit parking lot as close to your establishment as possible, and check out the other local businesses. If there are too many restaurants in the vicinity (especially if they serve the same type of cuisine), or if the other businesses don't generate a lot of regular traffic themselves, you could find yourself short on customers.

As for leasing a building formerly used as a restaurant, don't sign until you find out its history. There may be a very good reason why it failed--reason enough to make you invest your time and money elsewhere.

Finally, Hanning recommends buying used equipment when you start out, especially when it comes to big-ticket items like refrigerators. "In a few years, when your cash flow is better and you're duct-taping your appliances together, then you can buy new," he says. "Restaurant auctions often have good deals."

Study the Menu
Probably one of the most exciting aspects of establishing a restaurant is coming up with a winning food lineup that dazzles diners. Naturally, menu selections should reflect your establishment's theme consistently (i.e., no herbed couscous at a pizza parlor), and you should create signature menu items that set you apart from the competition. For instance, Lao built his dumpling empire on six varieties of dumplings (including a chocolate dessert dumpling) and simple add-ons like Asian salad, noodle soup and green-tea milkshakes. It takes approximately 2.5 minutes from order to delivery--and he sells about 1.4 million dumplings a year. "That's more dumplings than I ever imagined I'd see in my life," he says with a laugh.

At Four Food Studio, Sidhom and co-owner Jay Grossman, 34, avoid "menu fatigue" by rotating the offerings on a seasonal basis. They keep their loyal customers informed about the new selections through an e-mail blast sent just before the menu changes.

Anita Lo, chef and co-owner of both Rickshaw Dumpling Bar and Annisa, a contemporary American restaurant in New York City's West Village with 2006 sales of $1.5 million, features a five- to seven-course tasting menu in addition to the regular menu to keep clientele interested in her culinary offerings. "I tailor the tasting menu to each table and never bring back the same dishes," says Lo, 41. "I also keep a database of everything my regular customers have ever eaten, so they have a unique dining experience every time they come in."

Pricing menu items is an art unto itself. Your prices should reflect everything from food costs to labor (both prep staff and servers) and overhead (i.e., utilities). You should also build in a profit margin of at least 10 percent to 15 percent to make sure the business is on a firm footing for future growth.

Tell Them About It
Seasoned restaurateurs are the first to admit they don't spend much--if anything--on advertising. "In a fine-dining environment like New York, advertising makes you look desperate," says Lo. "It's better to make sure everyone who comes in leaves happy--that's your best advertising."

Curcio believes that if you have to spend more than 5 percent of your operating budget on advertising, then there's something wrong in your business plan. Others think that print advertising isn't particularly effective for drawing customers, TV and radio are way too expensive, and coupons don't build repeat business--just business from customers who come in only when they can get a discount.

Even so, it's important to get the word out to potential clientele when you are just starting out. Unless you are opening a linen-tablecloth restaurant, try announcing your presence in the neighborhood by distributing fliers (at 4 cents each or less) and by holding a grand opening. This is one event you'll actually want to advertise in the local newspaper and by sending out news releases to the local media. Host the event a few weeks after the doors actually open to make sure all your equipment, cuisine and staff are up and running smoothly. Offer specials, give balloons to the kids and hold fun activities to make a favorable impression on new customers. Have business cards and printed menus at the hostess stand or cash register that customers can pick up, and consider giving away promotional items like pens or keychains imprinted with your business name and phone number. And don't forget to invite the media. Free press from food critics, life-style writers, columnists and others is worth its weight in gold.

Word-of-mouth is another potent publicity resource. At Four Food Studio, the partners create their own buzz by holding special events, like Monday "Industry Night," which attracts up to 500 people who want to network with other professionals. They also held a brunch recently that featured horses, a petting zoo and blow-up slides in front of the restaurant to attract families.

"It's not the same old, same old," says Grossman, the restaurant's crea-tive marketer. "We try to create a place with a different feel, a different flavor every time someone visits."

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This article was originally published in the March 2007 print edition of Entrepreneur with the headline: The Main Ingredients.

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