Preliminary income information

[bradentucky941]

Hello,

I am preparing to develop a business plan to start a small restaurant and would like to know how to obtain income information of competitors (other restaurants). Is this information that can be obtained through a freedom of information act request? Obtaining income information of other local restaurants would be helpful in determining if the local area could support a new restaurant.

Thanks in advance for your help.

Ryan.

[Patrysha]

Uh no...you can't as far as I know get that sort of information from anywhere unless it's a publicly held company...so you would find that sort of info for franchises and some large chains, but not for the average small restaurant. Your best bets to find that information are observation and extrapolation. However, seeing how they are doing won't really tell you much about how you will do or how your restaurant will impact their business...you won't have the same menu, the same staff, the same ambiance, the same location...so whatever numbers you come up with at this stage of the game are purely speculative. What you should be more concerned about is larger things like the population in the neighbourhood you want to locate your restaurant in..are they homeowners there for the long haul or more transient in apartment buildings or is it more of an office centre type area...if it's a residential type area will there be ample lunch business, if it's an office type will there be evening business? what's the average income in the area...do these people have the disposable income to frequent your place frequently with the price point you are aiming to charge...have other restaurants been in the area and failed? Are there any plans for other restaurants to appear within the next few months? There's tons of factors outside of what the restaurants that are currently around make.

[vangogh]

Welcome to the forum Ryan. I agree with Patrysha. I think the only way to get that information is to ask the restaurant owners and I doubt they'll tell you. Observation is your best bet. You can ask some questions if they come off simply as from a curious customer. People generally like talking about themselves and their businesses. However you'd have to be careful asking. Also if you're in a small town it won't be hard to figure out why you were asking, which could later come back and bit you.

Restaurants are one of the few businesses that most any area can usually support. We all need to eat after all. I would imagine your area has room to support one more.

[Spider]

I am preparing to develop a business plan to start a small restaurant and would like to know how to obtain income information of competitors (other restaurants). Is this information that can be obtained through a freedom of information act request? Obtaining income information of other local restaurants would be helpful in determining if the local area could support a new restaurant...You can calculate this data. Don't be afraid of extrapolating, making assumptive calculations and straight guesses, if nothing more concrete can be obtained.

You can find out much by observing. Go into a target restaurant and study the menu, check the prices, look around at other patrons and see what they are eating, calculate their bill from the prices on the menu in front of you. Notice the occupancy level and time of day, day of week, week of the month and so on. Visit this same restaurant at different times and different days, noting all the data just described. It wouldn't take more than a few visits to get a feel for each restaurant in your target area - enough to make an educated estimation of their daily, weekly and monthly sales. Eating out every meal for several weeks, including coffee breaks, would cost less than a market survey firm would charge.

[huggytree]

i dont know how you would know what the income of any business is....when i started mine i guessed at what my old boss made by his lifestyle....he had a Denali and a Lexus and went to Mexico/Italy for vacations....he also owned a cottage.....i was able to guess his income pretty accurately

I was way off on what he charged per hour though...i was off by 25-35percent

Ill make a few Neg. comments about restaurants while im at it though...just to throw some reality at you!

1. Restaurants seem to come and go quickly....when they are new they are popular and can go down hill quickly if the quality is poor or even if people just get bored...you need to keep changing the menu to keep people excited....advertising budget needs to be LARGE
2. your working VERY hard...just to make a few bucks off each customer.....you needs thousands of customers a week just to make some money.....i would not be interested in selling 1,000 products @ $1 profit each a week when i could choose a different business and make 4 $250 sales a week.....i feel its just harder to become rich making $1 per customer....to make that $1 you will need to hire and manage a dozen employees too.....OR = you could have no employees and have a different business that does require so many sales
3. the economy.....when people pay more for gas and food they cut other things out of their budget....guess who? YOU!!!!....

very few restaurants seem to survive long term...mostly chains.......its not something that would appeal to me since you need tons of up front money, need to hire and manage a dozen people...all to make $50k or so a year....unless you own a chain of them i dont see it ever being worth the risk....i think restaurants have an above average risk factor and a lower profit potential....but thats just my gut feeling.....maybe they are cash cows...but i doubt it

[huggytree]

You can calculate this data. Don't be afraid of extrapolating, making assumptive calculations and straight guesses, if nothing more concrete can be obtained.

You can find out much by observing. Go into a target restaurant and study the menu, check the prices, look around at other patrons and see what they are eating, calculate their bill from the prices on the menu in front of you. Notice the occupancy level and time of day, day of week, week of the month and so on. Visit this same restaurant at different times and different days, noting all the data just described. It wouldn't take more than a few visits to get a feel for each restaurant in your target area - enough to make an educated estimation of their daily, weekly and monthly sales. Eating out every meal for several weeks, including coffee breaks, would cost less than a market survey firm would charge.

I agree with Spiders approach...you can guestimate a lot if you spend time at a few restaurants...ill bet you can come within 10 percent of being right on...

my guess is they make 10-20 percent profit off each meal....accept places which have a dollar menu...they lose money on every dollar menu sale

[greenoak]

the word on the street around here is about what huggy said....its a very tough business....huge turnover around here, especially in the ones trying for upper end end when they dont have great product.... ....and many seem to be for sale..
i would try and find a resturant forum or organization and try and soak up the benchmarks/averages etc etc..
..

[Patrysha]

I don't get it. Every business is tough if you offer a poor product, poor service, poor ambiance...that is not unique to restaurants. The can be cash pigs or cash cows just like any other business...it's ownership and vision that make the difference.

[Spider]

I don't get it. Every business is tough if you offer a poor product, poor service, poor ambiance...that is not unique to restaurants. The can be cash pigs or cash cows just like any other business...it's ownership and vision that make the difference.I second that! Take a look at business history and you'l find a just as many successful businesses started in bad times as started in good times. And you can start a business in a crowded market and be successful if you do what you do better than your competition.

[tylerhutchinson]

Observe and ask questions. There are sites to give you averages in your area for certain popular industries. I have it bookmarked so if I can find it I will post.

One thing I did was sort of lie to a few companies to get the data. I posed as a college student taking a class (which technically I was) and told them that part of the final project was to interview a business owner to get an idea of how owning a business is from costs and expenses, to operating, to profit margins! Got me a lot of great info that they normally would not tell a future competitor. I have emailed several others since then and they gave me an idea of how they run and operate. SO you would be surprised how many might actually tell you! If not you can go with my approach! Bwah hah hah!

[Spider]

Ah, well. All students that call from now on will get, "Sorry, we don't disclose that information, " or, "Sorry, we don't answer surveys." Shame, really. I'm sure this just makes life more difficult for students when they could use a little help.

[tylerhutchinson]

You sharing your profits to competition really means nothing. It may only encourage or discourage people to start. But their income is dependent on their success not yours. If anyone asked me (which people do) in my industry I tell them how long I have been in, when I started seeing good income, and where I am now.

[Spider]

You sharing your profits to competition really means nothing. ...Then why did you bother asking them?


...One thing I did was sort of lie to a few companies to get the data. I posed as a college student taking a class (which technically I was) and told them that part of the final project was to interview a business owner to get an idea of how owning a business is from costs and expenses, to operating, to profit margins! Got me a lot of great info that they normally would not tell a future competitor. I have emailed several others since then and they gave me an idea of how they run and operate. SO you would be surprised how many might actually tell you! If not you can go with my approach! Bwah hah hah!And why would you recommend "sort of lying" to get information that "means nothing?"

I don't get it.

[Reflo Ltd]

Patrysha makes excellent points.... but let me add these personal observations. I do a lot of work for a couple major restaurant chains and know plenty more people that are in the business or who have been in the business.... and I have frequented plenty of restaurants as well.

Cheap fast food chains do well because they are cheap and their food is of acceptable quality but their margins are low, they make it up in quantity. They have basic menu items and then add new products occasionally to trial them. if they do well enough they stay on the menu and if they don't, they get the ax.

Sit-down chains are very similar except the quality of food is better and prices are higher. Also the service is typically better as is customer satisfaction policies. A large chain of this type does not typically make more than 10% profit... actually 10% would be very good for them but again they have quantity on their side. You might not live well on 10% but when you have 1000 or more locations, it does ok.

The key considerations for small single location restaurants are 1. Price, 2. food quality, 3. service, 4. cleanliness..... and not in this particular order. Location and parking (ie ease of accessibility) are important too.

I see a lot of places suffer because of poor customer satisfaction.... for instance, if food is bad or something is not right, the management should be willing to make it right or take it off the bill (or both) immediately. It shows people you care about what you serve and about their patronage. Saving nickles and dimes will cost you many dollars over time.

Price your food fairly. a fair price can also overcome other shortcomings.

IF your food is going to come from prepared sources such as cans and bags and frozen stock from the local costco, don't try to get high-end prices for substandard food.

Food should look good when plated. quantities should be sufficient... this is probably the cheapest way to add value to your offerings.

I disagree with others on the changing variety idea. I prefer a place with a good menu of things I know are good and that I can count on being there when I visit. There is a local place, now in a far worse neighborhood than it was when I was a kid may years ago. Their menu has not changed, they have good prices and very good food. They serve a lot of standard diner fare and many ethnic dishes. They do a sensational business, the owner is always there and friendly and on the very rare occasion there has been a problem with the food, it is taken care of with a smile.

A favorite show of mine is Diner, Drive-in and Dives. I think you will also find that many of these favorite places haven't changed much in many years. They have good food and that is key.

Of the local joints that have crappy tasteless food, they keep a certain crowd because they are cheap. A $1.99 breakfast can be as bland as can be but it sells because it is cheap... it also draws in the additional sale of a 1.85 cup of coffee or juice or soda, add bacon or sausage for a buck and it easily becomes a $4-5 dollar breakfast.

I have often wanted to start a restaurant myself. Have even looked to buy a few places. However, as I am getting older and two of my three kids are now out of high school, I don't know that I want to be committed to such an endeavor. I know it is a business of long hours and needed attention from the owner to be sure the place is run right and the employees stay honest. My family owned a bar and restaurant when I was a small kid but I don't have much experience from that. They closed up when the large factory across the street closed... I was probably 7 or so.

In short, serve good food and don't be a jerk or cheapskate to your customers and you will already have something that most small places do not.

[Patrysha]

Yeah, I've picked up what I know from a combination of personal observation and studying restaurant management (informally, I have a bad habit of picking up University textbooks on every topic under the sun). I saw things as a kid with my aunt and uncle owning two restaurants. There were a couple of summers where my cousin and I practically lived in the pizza one...we were hardly ever over at the steak one...guess it was more acceptable to have kids in the pizza place. My parents were going to go into the business...our garage was packed with equipment off auction for a couple of years and I swear we at pizza every night for months as mom tested recipe after recipe for doughs and sauces...ultimately though they couldn't get a the lease they wanted in the place they wanted and they never did open. My first jobs were in food services and I've been working p/t at a restaurant since last year...

[greenoak]

ditto with reflo....good post...
i probably wouldnt believe many owners, if i was asking hows business....how would you ever know if they were being sincere or what great meant? and its a real personal question that shouldnt really be asked...
one thing that wouldnt work around here is high prices and teeny gourmet portions.....if you get them in the door and they accept your prices and they order why not give them plenty? also i love a good menu that doesnt change...specials yes, but if somethings a favorite i would like to get it again....

[Patrysha]

Well and then there's the fact that you can never be sure what numbers mean...$80,000/mo in revenue sounds fantastic, but is meaningless without knowing the expenses...

[huggytree]

something that helped me when i went into business is to find a mentor....i got very lucky to find someone who even gave me a personal class for a day on how to run my business...he was a direct competitor....the reason he did it was to stop the new guys from becoming price cutters... he taught me how to bid on jobs, how to come up with my costs, what my profits should be.....tons of written info that i still use today

find a restaurant owner who will take you under his wing....another thing i always do is look for a competitor who is very successful and copy them

[Patrysha]

Copying is death if you really want to make it big with a restaurant. In almost any business really, but especially in the restaurant biz. You just need one star dish and the right follow up to keep a restaurant busy night after night. Of course, more is better...but the point is you can't get that by copying. Cuz when you copy you go back to becoming a commodity...and what sane business person wants to run a commodity business...there's hardly any profit in that. If you're going to copy, you might as well become a franchise owner. At least that's my opinion...

[Spider]

Copying is a little different from modeling - and modeling is a well-respected and often-used strategy in self- and business improvement. With regard restaurants, I can see that copying - same system, same menu - would be detrimental. However, modeling - same system, different menu - would be a recipe for success. There are plenty of systems being used successfully - from the mass-produced hamburger system to the individually-cooked and delivered pizza to the individually-prepared high-end French restaurant. Copying a successful system (ie modeling) is a sound strategy worth considering.

[greenoak]

right.i think modeling/copying is great too... ...thats what we did at the start.... copied a really good places systems....and we had the same target audience in mind too.... so it was very good..
..that man mentored me without even knowing it..... we did business together buying and selling to each other and competing against each other at the same auctions for over 20 yrs....i would never have asked him how much money he made tho!!! not acceptable at all between us...
my son still talks about smittys rules...that was the guys name...and he, my son, was in middle school at the time...

[huggytree]

i didnt mean copy in the sense of having the same menu and theme......you need to have your own theme, brand, food.....but you can copy their look but twist it to your theme.....you can copy their kids menu and some of the special things they do, but twist it to your theme and brand....

in my business i copy the service, pricing, quality...general things.....copy the way they do business....if they are successful how can you loose if your doing the exact same things????????????

be different of course, but make sure your differences build upon the guy your copying...not take away from......copying is a place to start..

[tylerhutchinson]

Then why did you bother asking them?

And why would you recommend "sort of lying" to get information that "means nothing?"

I don't get it.

It means nothing being the owner giving it out. You are not giving out trade secrets or the reasons for your success. Looking into your industry is important. I wanted the information when I was learning about the industry to see what I may be getting into. Now that I AM in the industry there is no reason for me not to share my profit and details of my company (minus company secrets and advantages).

I have shown people how I do my marketing for my business and told them to copy how I do it since it is successful. I am not above helping start-ups (part of the purpose of my company). So to me I do not see why a company owner would want to keep it a secret. That is all I was saying.