After slumping during the pandemic, the South African restaurant industry quickly regained its strength and saw growth return in 2021.
So, does this mean it’s a good time to open that restaurant you’ve always wanted? It could be. However, opening a new restaurant is not easy. It takes creativity, patience and dedication to succeed. Most of all, you’ll need a solid plan to get you there. With this in mind, here’s a rundown of the key things you need to know before you take the plunge and become a restauranteur.
There are already more than 15,000 restaurants across South Africa, and competition for leisure rands has never been higher. If you’re going to make your restaurant a success you’ll need a novel concept, a great marketing plan, first-class location, terrific food and a reason for people to come back again and again.
From your location to your restaurant décor, menu, marketing, even your pricing policy, your restaurant concept influences your whole business.
Do your research before settling on a theme. What kind of cuisine is already available where you intend to operate? Is there a gap that nobody else is filling? Can you build a successful business within that niche? Additionally, you might want to consider the operating style of your potential competitors. Can you offer something that they don’t have? For example, if your area is full of casual diners, is there room for a restaurant that offers a high-end experience? (In such a case, you might also want to ask why there are no high-end restaurants there already – does the local customer base want such a business?)
Popular restaurant concepts include:
Within these genres there are myriads of sub-concepts, for example, Italian, French, International, American, Asian, Caribbean, Mexican, Fusion, BBQ, etc. From here you can further finetune the concept – is it a to-go type of restaurant, a self-service eatery, or maybe it’s full-service where the wait-staff take your order at the table? Ultimately, your restaurant concept will be a mix of these categories.
Concept example: Mexican fast casual with order at the counter and delivery to your table.
Once you have your concept settled you can consider other important details, such as your restaurant name, brand logo, interior design and of course, your menu…
It’s never too early to draw up a draft menu. The kind of food you sell will impact your costs, your pricing and your profit margin. You’ll need this important information for your business plan.
Building a successful menu means more than just offering the same old classics. How can you make your restaurant’s cuisine stand out? Is it high-end ingredients such as wagyu beef? Is it a fusion of cuisines from around the world? Is it just a very short menu of solid cooking done to the very best? Keep in mind that your menu will be judged against similar competitors – and your food is the only way you can make a great impression on the folks who order your menu to go.
Before you commit money to your project, you should conduct essential research. This is the kind of information you need to know upfront:
After your food offering, the location of your business is the most important part of opening a restaurant. You want a location with high visibility in an area with good foot traffic and perhaps a parking lot nearby. You also want a viable customer base. Do the math. Is the area where you want to open big enough to support another eatery? Can you attract enough people to your restaurant to sample your menu? Are there already too many restaurants selling in the same territory? If your chosen location is either too competitive or the local population is too small to support your business, look elsewhere.
Apart from some of the major fast-food franchises, few restaurants can appeal to everyone. Instead, you’ll aim your business at a small segment of the people who eat out in your area. Who are they? What is their price point? What expectations will you need to meet – for example, are you fine dining or middle market casual fare? Determine your ideal buyer, then shape your theme, menu, branding and marketing accordingly.
Once you’ve got a handle on your market and who your customers are, you’ll need to create a business plan that lays out your vision. This will be especially important if you’re seeking external investment or a commercial business loan to open your restaurant. Investors and lenders will expect a detailed plan that covers every aspect of your potential business, including financial forecasts. Keep in mind that business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them.
Even if you don’t need investment or a loan, a business plan can still be an extremely useful tool. Use it as your business manual, referring to the contents to guide your strategy and manage your financials.
Find out more about creating your business plan here.
If you don’t have enough cash on hand to launch your new restaurant on your own, you’ll need funds from investors or lenders. Many new business get started using financial support from friends and family, but if that’s not an option, there are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need to get your restaurant off the ground but be aware that investors will usually want a piece of the action in exchange for their money. This means you will need to give up a share of your ownership and you may lose overall control of the business.
With a business loan you don’t have to surrender a share of your restaurant to get the funds. Although it’s never easy for new businesses to borrow money, some lenders have special products and programs for startups and entrepreneurs. These types of financing include:
To get these types of loan you can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of startup loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a startup loan before.
Your restaurant concept and your business location influence each other. For example, if you choose a location in a downtown area where there are lots of offices, you may do well by offering lunchtime cuisine and a place for office workers to hold impromptu meetings. Alternatively, if your location is near a scenic waterfront, a fine-dining establishment may be in order.
When it comes to cost, turning a vacant space into a restaurant, with a kitchen, dining area, bar, serving stations, customer restrooms and so on, will consume the largest part of your budget. Depending on your location and the size of your operation, leasing and build-out costs can be anywhere from R100,000 to several Rmillion. No matter if you’re leasing the space or buying the property for cash or with a commercial mortgage, be aware you will also be responsible for property taxes, permits, inspections and agency fees.
You’ll need to register your restaurant with local, state and federal authorities. But before you do that, you’ll need a name for the business. You’ll want a name that is not taken by another organisation, as infringing on someone else’s brand name and copyright could end up in a costly lawsuit.
You will also want a website and branded email addresses for your eatery. Check to see if your preferred company name is also available as a domain name. If your domain name is available, you should be able to buy it via any of the advertised web hosting services.
Once you’ve settled on a name, you must decide if you want to run the business as a sole proprietorship, an LLC or a corporation. Although it involves more paperwork, operating as a corporation can protect you if the business does not succeed, as you are not personally responsible for the company’s debts. If you choose this route, you must submit your articles of incorporation to the secretary of state’s office in the state where you register. You can do this in-person, online, or by mail. You will have to pay a registration fee at the time of filing – typically R100.
Restaurants are governed by a host of laws, and you will need to get the necessary licenses and permits.
Required licenses and permits for a restaurant:
The design and efficiency of your restaurant will have great impact on your business. You want a space that functions well but also provides customers with a pleasing experience. Restaurants are divided into two sections – front-of-house and back-of-house.
Your key food suppliers will be determined by the theme of your restaurant – for example if you’re operating a fish restaurant, you’ll need suppliers who can get this delicate fare to you as fast and as fresh as possible. Depending on the type of restaurant you are running, you will need food suppliers for the following:
Your equipment needs will also be shaped by the type of restaurant you operate. Typical commercial kitchen and back-of-house equipment includes:
If you don’t have the cash to buy the equipment you need, consider equipment financing that lets you use the equipment as you pay for it. You may also be able to find some used commercial kitchen equipment that will be cheaper, although you should always check for damage and faults before making any large purchase.
Unless you plan to cover all the bases yourself, you’ll need employees to make your restaurant work. To control your costs you could bring in your head chef as a partner, making them an owner in the business and requiring a lower salary than they would if they were only an employee. You may also be able to operate with only a small number of experienced employees, such as your sous chef, in the early days of your venture. For unskilled work, bulk up your staff numbers with less experienced workers who will command lower salaries.
The total number of employees you need will be determined by the size of the business and what kind of service you provide. Industry averages suggest a typical full-service restaurant needs at least ten employees. Larger and fancier establishments will need many more.
As the old saying goes, advertising pays – and you’ll need to market your new restaurant to establish a solid customer base. Experts suggest allocating up to 20% of your operating budget to marketing activities in the first year of operation.
Before you start any kind of marketing activity, conduct some basic research – what are your competitors selling? What kind of loyalty programs do they offer? Are there any successful promotional tactics that you can mimic? Create a plan that promotes your brand and sets your restaurant apart from all the rest. Utilise a range of marketing actions to get your story across:
Before you go live with your shiny new restaurant, you’ll want to run some tests to make sure everything works and to iron out any glitches. In the hospitality trade, these tests are called a ‘soft opening’ and you will usually invite friends, colleagues and contacts garnered from your business’ social media accounts to come and kick the tires. Typically, you will offer discounts or some other benefit to those that attend. In return, you get to ask them for a detailed review. Holding more than one soft opening – perhaps for a whole week before your grand launch – can give you valuable business information, allowing you to sort out any kitchen issues, finetune menus, improve ambience and décor and tailor with your pricing.
Opening a restaurant involves several key considerations. One of the first steps is to conduct thorough market research to understand the local demand, competition, and customer preferences. This helps in identifying a suitable niche or concept for the restaurant. The location is also critical, as it needs to be accessible and attractive while being within budget.
Creating a comprehensive business plan is also important, outlining the financial projections, marketing strategies, and operational plans. Securing sufficient funding through savings, loans, or investors is necessary to cover the initial costs such as rent, equipment, and initial inventory.
Make sure that you comply with local health and safety regulations is mandatory, including getting the necessary permits and licenses. Hiring skilled staff and providing them with proper training ensures that the restaurant runs smoothly and delivers good customer service.
Effective marketing strategies are needed to attract and retain customers. This includes creating an online presence through a website and social media, as well as traditional advertising methods. Managing the day-to-day operations, maintaining quality control, and continuously adapting to customer feedback and market trends are ongoing responsibilities that are key for the success of the restaurant.
Owning a restaurant can be profitable, but it depends on various factors. Success largely depends on effective management, location, concept, and market demand.
Profitability is influenced by the ability to control costs, including rent, food, labor, and utilities, while maintaining a competitive pricing strategy. A well-crafted menu that appeals to the target demographic, efficient inventory management, and high customer satisfaction also contribute to profitability.
However, the restaurant industry is highly competitive, and many new businesses face challenges such as fluctuating customer preferences, economic downturns, and high operating expenses.
While some restaurants achieve high profits, others struggle to break even or fail to sustain operations. So, the profitability of a restaurant depends on a combination of strategic planning, consistent quality, and adaptability to changing market conditions.
There are few limits to the cost of starting a restaurant business. You could open a simple, Mom and Pop lunchroom for a few thousand rands, but if you were based in an expensive city, you could easily spend several Rmillion to deliver the ultimate high-end dining experience. However, those are the extremes. Depending on location and the size and focus of your restaurant, industry experts suggest R175,000 as an average startup cost.
Opening a restaurant with no money is challenging but possible with strategic planning. One approach is to seek investors or partners who are willing to fund your business in exchange for equity or a share of the profits. Developing a solid business plan that highlights your concept, market research, and projected financials can attract potential investors.
Crowdfunding is another option, where you raise small amounts of money from a large number of people, often offering rewards or equity in return. You could also consider starting small, such as launching a food truck or a pop-up restaurant, which requires less capital and allows you to build a customer base and prove your concept.
Leasing equipment instead of buying, negotiating favourable terms with suppliers, and minimising startup costs by starting with a limited menu can help manage expenses. Additionally, look for grants or loans specifically aimed at new businesses, and explore government programs that support small enterprises.
Running your own restaurant can be lucrative and a lot of fun, but you’ll need some meaty cash to get you there. Funding is where Swoop can really help. No matter if you’re launching a brand-new restaurant, or you’re buying an established business, chances are you’ll need finance to make the operation grow. Many types of business loan are suitable for restaurants, but working with finance experts can make all the difference when applying for funding. Contact us to discuss your borrowing needs, get help with loan applications and to compare high-quality business loans from a choice of lenders. Give your restaurant the five-star treatment. Register with Swoop today.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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