Why Start Up Restaurants Need a Feasibility Study


As the costs of opening a restaurant and running it profitably continue to climb, restaurateurs need to be as certain as possible that the kind of operation they envision has legitimate potential for success at a particular site. One way to find out is by conducting a feasibility study. More than a site-location study, this approach involves gathering and analyzing a great deal of information, from demographics to design, which helps operators make a better-informed decision about the potential success of a specific restaurant concept at a certain location.

Conducting a Feasibility Study for a New Restaurant divides the work of performing a feasibility study into five major steps.

•Step 1: Data gathering – The first, and often most lengthy, step in feasibility forecasting involves gathering data about the market area, specifically the population to be served by the restaurant. The goals in this step are twofold. First, restaurateurs will need to investigate the market area surrounding a particular site to determine the potential demand generators (commercial and residential) that are present.

Second, they will need to establish a feel for the area and gather demographic data that will help determine the potential for success or failure of the proposed restaurant concept. To reach those goals, they must become familiar with the age, sex, income, dining-out habits and other characteristics of potential customers; local traffic patterns in the area; population generators, such as large office complexes; and plans for commercial development and other changes to the local marketplace.

•Step 2: Concept development – The second step involves using the data about the population in the market area and forming and evaluating a restaurant concept that fits the area’s needs and preferences. It means making decisions about the components of the restaurant concept, including theme, menu, service style, hours of operation and atmosphere. Potential proprietors will need to be able to define a restaurant concept, describe the concept and, finally, evaluate the concept.

•Step 3: Site analysis – Analyzing the selected site is the third step in determining feasibility. In this stage of the process, restaurateurs must decide, on the basis of the characteristics of the site and a competitive-restaurant survey, whether the selected site has the potential to support a new restaurant concept.

•Step 4: Competitor analysis – In the fourth step, restaurateurs survey area restaurants that might compete with theirs. The survey includes identifying and investigating all restaurants in the market area that may affect the proposed operation. That requires visiting each competitor restaurant to document its particular features. The information will be used to analyze a particular site to determine potential competition. Aspects to evaluate include how easy or difficult it is to find the restaurants and how visible signs are from the road and sidewalks.

•Step 5: Financial statement – In the fifth and final step in a feasibility study, restaurateurs assess the profitability of the proposed restaurant by developing a pro forma financial statement. It will help in specifying revenue-generating criteria, computing estimated average-check and revenue figures, estimating operating expenses, analyzing and interpreting the financial statement, and finally, developing an implementation plan.

Truman Mox can assist you with all your feasibility study needs.

August 14, 2012 12:00 am