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You’ve Found a Good Location, But Rent Is High! How Do You Manage Risks Appropriately for Your Restaurant?

When choosing locations for opening restaurants, we believe that many entrepreneurs and to-be entrepreneurs sometimes have to choose between locations offering more affordable rent with less travel convenience for restaurant traffic and locations offering great traffic, travel convenience and even parking spaces but which can be quite expensive to rent. So, which kind of location should you choose?

Location is one of the major factors determining the success and failure of a business.  So, the selection of locations naturally demands consideration of high and low rent in the decision-making process. This is because rent is a fixed cost entrepreneurs have to pay every month until they discontinue their businesses. With that said, one of the most important things to figure out while choosing a location is the customer group that is suitable for the restaurant to be opened. If you do not understand your own restaurant’s concept, such as which demographics, age groups and spending powers to which your restaurant will sell well, including understanding lifestyles and behaviors, it will be very difficult for the restaurant to survive.

Then you also need to know the traffic in the locations where you are planning to open your restaurant such as department stores and community malls. If the products you want to sell do not match the local demographics, then it will be difficult to sell your products, and your restaurant will have to eventually shut down. However, if you successfully identify the customer group suitable for your restaurant, you already have the solution, even if the traffic is a little light or travel is a bit inconvenient, because your target groups are in the location you’ve selected. All you need to do is use some of the many social media tools currently available to publicize yourself and get customers to know about your restaurant. If you can do that, then your business will have staying power. Just know beforehand which customer groups are suitable for your products and where your customers are located.

As for those of you who learn that your customers are found in places with high rent, what you need to do next is to do a feasibility analysis to assess how feasible it is to operate your business.

You can do this by projecting estimated sales at the location for which the rent agreement will be made and subtracting (1) investments in starting the business such as in the following:

rent guarantee,

design fees,

construction fees,

kitchen equipment expenses,

utensil and dish expenses,

ingredient expenses for business launch,

employee uniform expenses,

POS and other expenses.

Then you subtract (2) projected monthly expenses from the above result until agreement expiration, such as the following:

food cost,

beverage cost,

employee salaries,

business owner salary,

water fees,

electricity fees,

gas fees,

internet fees,

rent fees,

marketing expenses,

equipment repair expenses,

taxes,

etc.

Once you have analyzed everything (without being biased in favor of yourself), and you find it likely to profit after subtracting all expenses in the two categories above, then you can use the information you’ve learned to help you make your decision in opening your restaurant without any location concerns. Many have already suffered with both kinds of locations, whether cheap or expensive, because they did not study feasibility and consumer behaviors in their chosen locations.

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