The eating out market is huge but also very competitive, with many chains that offer a variety of food from different countries competing with independent businesses. Read our practical guide to opening and running your own cafe.
- What competition will your cafe face?
- Establish your customer profile
- Decide what your cafe will offer
- Estimating your cafe income
- Your cafe menu
- Fairtrade
- Buy an existing cafe
What competition will your cafe face?
When you plan your cafe or restaurant business it's important to make an estimate of how much demand there will be. It's also important to find out as much as possible about the competition. Doing some market research will help you with this.
Estimating demand
It's very important to find out whether there is going to be room for your cafe or restaurant in your area. First of all, check out the competition. Count how many existing eating places there are already in the locality and see how many different types of cuisine are offered. Bear in mind that most pubs now serve food, and many have recently upped their game to target the very important family and casual dining market. Sample the food on different days and nights of the week in different establishments to get a feel for how busy you are likely to be. It can be a good idea to locate in an area which has become known as the place to go out for a meal, but you will probably have to offer something a bit different to win customers.
Local area
Note down the different types of potential customer living and working in the area. For example, if you plan to attract business-people for the lunch time trade are there plenty of workplaces locally. Although you are likely to have many customers who will arrive on foot, you may also hope to attract people from a distance. You should consider:
- is the area well served by public transport
- is there ample parking
- is the area considered safe in which to leave a vehicle
Why will customers choose your cafe or restaurant?
You'll want to make sure that enough customers will choose your establishment rather than other eating places. Check out your competitors to see:
- what type of food and drink they offer
- what prices they charge
- whether they offer a take-away service
- what are their opening hours
- what type of customer they are attracting
- how the premises are decorated
- what ambience is achieved
- whether service is quick and professional
This might immediately show you that there is a gap in the market for a certain type of eating place - for example, specialising in vegetarian meals or providing an alternative to a sandwich bar at lunch-times. Be wary about competing mainly on price - it's difficult to offer the high quality food and service demanded by customers today if you are operating on very low margins.
Find out what people want
It can be a good idea to talk to people in your area about your proposals. Ask them:
- what sort of dishes they would like you to offer
- whether they would use a take-away service
- what opening hours would suit them best
- whether they would prefer you to have a licence to serve alcoholic drinks
- what, if anything, don't they like about existing cafes and restaurants in the area
Don't forget that market research can be ongoing. Once your cafe or restaurant is open, talk to your customers. Find out what are their likes and dislikes and ask if there's anything they would like you to serve that isn't currently on your menu. Note down which dishes are popular and which ones don't sell well.
Research current trends, plus legal and tax issues
- Sector trends for cafes
- Legal issues for cafes
- VAT rules for cafes
Establish your customer profile
Your customer base will depend to a certain extent on:
- the sector of the market you are targeting
- your location
- the time of day
Some cafes and restaurants build up a core of regular customers, which may change depending on the time of day and day of the week. For example, during the working week you might cater for local business people, but on Saturday you may get crowds of people coming in for brunch pre-match, on Sundays local families might take advantage of promotions on Sunday lunch.
Some cafes and restaurants - for example in busy city centres or in holiday areas - may rarely see the same customer twice.
Special offers and discounts
Many cafes and restaurants offer customers discounted or even free meals for promotional reasons. You could consider using 'daily deal' websites like Groupon and Wowcher to market and promote special deals from time to time. Or you may decide to offer students and pensioners a discount - although 18-24 year olds spend the least when eating out, they eat out more frequently than any other age group. Although these are always popular with customers you should make sure that you will make enough profit if you decide to have special offers.
Don't forget to brief your staff on which customers are entitled to a discount, and how much. Guard against staff offering unauthorised discounts to their friends and relatives.
No-shows
Restaurants of all types suffer from no-shows - people who book a table but then don't turn up. Individual businesses tackle this in different ways - some don't take bookings, others regularly over-book knowing there will be a number of no-shows. You'll have to decide which approach suits you best.
Decide what your cafe will offer
If you have enough staff you might consider offering a take-away service, perhaps at lunch times. There is a growing trend for take-away breakfasts so you could also explore whether there is a market for this amongst your customers. You could offer a delivery service through Just Eat or Deliveroo. You might also consider offering a local delivery service, either by using your own drivers or by doing a deal with a local taxi firm.
It can be a good idea to have a daily specials board. Many regular customers look forward to trying a new recipe from time to time. Why not have featured wines every now and then too.
You could also consider turning your cafe or restaurant into an internet cafe by creating a Wi-Fi hotspot so that your customers can access the internet.
Quality standards
Consumers have become used to high standards of presentation and service and it is important that:
- your premises are clean, smart and inviting
- your staff are well trained, polite and efficient and do not make mistakes with orders
- your recipes use good quality ingredients
- customers feel that they receive good value for their money
Maintaining high standards of food and service is important in gaining repeat custom. Customers who have enjoyed their dining experience are also likely to tell their friends and encourage them to visit your cafe or restaurant.
Advertising your catering services
It's important to let potential customers know about your cafe or restaurant and the catering services it offers.
There are a number of things you can do to promote your cafe or restaurant, including:
- setting up a Google Business Profile so you appear on Google Maps when people carry out a local search
- advertising in your local newspaper and any other local publications, such as a leisure guide
- buying an entry in a restaurant guide
- handing out business cards to everyone patronising the cafe or restaurant
- making sure that your logo and telephone number are prominently displayed on your vehicle
- launching your own website, showing all the features that will attract customers to your cafe or restaurant. You could offer an online table reservation service
- having leaflets printed, perhaps highlighting the ingredients you use - for example, "only local organic produce used". If you're planning to target the business community you could distribute leaflets to local offices and other workplaces
- using social media like Facebook and Twitter to raise the profile of your business
- managing your listing on the TripAdvisor feedback website - you could also pay to advertise on TripAdvisor
- running special promotional offers on 'daily deal' websites like Groupon
Almost all types of advertising and promotion have a cost, whether it's financial or your own time and effort - or both. You need to make sure that the beneficial effects of your advertising efforts are worth the time and money spent on them. It's up to you to decide which types of advertising work best for you - sometimes this is down to trial and error.
Estimating your cafe income
Note: all of the figures on this page are given for illustrative purposes only
Your weekly income will be affected by:
- the number of seats in your cafe or restaurant
- the number of sittings you have
- how full you are on each day of the week
- the average 'spend' per customer
It can be very frustrating for restaurant owners to see their restaurant half empty or less for the first part of the week, but then have to turn away bookings on Fridays and Saturdays because every table is booked. There are a few things you can try to improve matters - for example restricting the length of sittings on busy nights (at the risk of irritating some customers) and offering special price menu deals on quiet days - but for most restaurants this weekly pattern of trade is just something they have to live with.
For example, you might open a restaurant which has room for 60 diners. However you will only be really full on Friday and Saturday, when you might serve 100 people, in two or more sittings. Thursday may be quite busy too, when you serve around 65 people, but the rest of the week is often quiet. You decide to close on Mondays and Sundays. You only have a few people in on Tuesday and Wednesday. You only open in the evenings. So your weekly sales pattern might be something like:
Number of covers served:
- Monday - closed
- Tuesday - 10
- Wednesday - 20
- Thursday - 65
- Friday - 100
- Saturday - 100
- Sunday - closed
If you offer a menu and wine list in the mid-price range the average spend per head in the restaurant is likely to be somewhere around £15 - £25. In the above example the 295 covers served in the week at £20 per head would bring in income of £5,900.
If you are licensed to sell alcohol, income from drinks might amount to between 15% and 20% of this.
Once you have decided on the size of your cafe or restaurant and your pricing policy you should enter your estimate of monthly income in the cash flow. Bear in mind that the restaurant trade can be highly seasonal - for example you are likely to serve more customers in the run up to Christmas and over New Year. Remember too that in the first few months of trading your income probably won't reach its full potential because your business will still be making a name for itself.
Your cafe menu
A number of different factors will probably influence the choice of dishes you'll offer your customers, and the range of alcoholic drinks that you'll stock. For example:
- the sector of the market you will target. For example, will you be opening a basic cafe, a restaurant aimed at the middle market, or an exclusive high-end restaurant? You might decide to target ethical consumers by offering a range of Fairtrade food and drinks
- your opening hours. Will you open early enough to offer breakfasts to people on their way to work, or will you open at lunch time to offer workers and shoppers a lunch menu and perhaps take-away food? Maybe you'll target the evening trade and not open at all during the day
- the theme of your cafe or restaurant. For example if you plan to have a Spanish theme most of your dishes and wines will be Spanish, although for variety you might include dishes from other countries and French or New World wines
- the size of your premises. For example if you have a spacious bar area you will be able to stock a wide range of alcoholic and non-alcoholic drinks - non-alcoholic drinks are growing in popularity as young people have increasingly given up drinking alcohol
- the expertise of your chefs and their ability to produce new dishes to attract customers
Because the catering sector is so competitive it is important that you keep up with changes in consumer preferences and introduce new menu choices at regular intervals. You could consider showing the amount of calories in each dish on your menus.
Bear in mind that you must by law provide your customers with information about any of 14 specified food allergens if you use these as ingredients in your dishes. There's more information about this on the Food Standards Agency website.
Give careful thought to your menu pricing. Ideally you will cost each dish and price it on the menu accordingly, allowing yourself a reasonable profit margin. Consider whether you will add a bit of extra profit onto very popular dishes. Decide how much mark-up you will add to the cost price of wine and other alcoholic drinks too. To reduce waste and improve their profits, some restaurants no longer offer an a la carte option and instead offer set menus with more limited choice within each course.
Fairtrade
Recent years have seen an increase in consumer demand for ethical products that help producers and farmers in the developing world. You could meet this demand by offering a selection of Fairtrade products such as teas and coffees, or by using Fairtrade ingredients in some of your dishes. This would show your customers that your business is ethically aware and committed to fighting global poverty. Offering Fairtrade products can also be a good way of differentiating your business from its competitors.
What is Fairtrade
Fairtrade guarantees a fair deal for producers and farmers in the developing world by making sure they receive a fair price for their goods and products. Fairtrade items are generally slightly more expensive than similar products - but more and more consumers are happy to pay a little extra to help producers become self-sufficient. All Fairtrade products are marked with the easy to identify Fairtrade Mark. There's a huge range available including teas, coffees, spices, sugar, chocolate, fresh fruit and vegetables, and even wines and beers.
How does it work
The Fairtrade system works by paying producers a set minimum price for their goods - giving them a living wage. On top of this, producers also get an extra sum of money to invest in their business or community. This is called the 'social premium'.
In return, Fairtrade producers must meet certain standards. These are set by Fairtrade International. As a cafe or restaurant it's unlikely that you'll deal directly with producers - you'll probably purchase your Fairtrade goods from a UK supplier.
Licensing
Cafes and restaurants that sell food and drinks which already carry the Fairtrade Mark don't need to be licensed by the Fairtrade Foundation. But if you plan to use the Fairtrade Mark in any of your advertising or on your menus you'll need to have it approved by the Foundation.
Where to get Fairtrade goods
Only licensees, such as manufacturers and importers that are registered with the Fairtrade Foundation can apply the Fairtrade Mark to a product. You'll probably purchase your Fairtrade marked goods from a registered wholesaler or catering distributor in the UK. More and more suppliers are offering Fairtrade products so it's worth asking your current suppliers if they have a Fairtrade range available. The Fairtrade Foundation website has a list of registered wholesalers and catering distributors that sell Fairtrade marked products to the food service industry throughout the UK.
Pricing
When you buy Fairtrade certified food and drink products from a registered wholesaler or catering distributor, you can probably expect to pay a little more than you normally would for similar products. The slightly higher trade prices cover the set price and social premium that are paid to the farmer or producer, as well as supply chain costs and the cost of certification and product licensing.
Although trade prices for Fairtrade products are higher, you may benefit from extra business. You may also be able to raise your own prices to cover the extra cost. Bear in mind though the purpose and aims of the Fairtrade movement when you set your prices. The Fairtrade Foundation makes it clear that profit margins on Fairtrade items shouldn't be higher than on similar products.
Promoting Fairtrade goods
Offering Fairtrade products can be an attractive selling point for your cafe or restaurant and can help to attract ethically aware customers. So it's important to make sure that potential customers know about the Fairtrade products you serve.
The Fairtrade Foundation is responsible for promoting Fairtrade in the UK and can provide useful materials and advice to help you to advertise your Fairtrade products. Any materials that include the Fairtrade Mark, such as menus or promotional posters, must be approved by the Foundation.
The Fairtrade Foundation organises a Fairtrade Fortnight each year to promote the Fairtrade system. This could be a good time for you to raise awareness of the Fairtrade food and drinks you offer. For example, you could run a Fairtrade tasting evening Remember to highlight the social benefits of the Fairtrade products you use.
Where to find out more about Fairtrade products
The Fairtrade Foundation is part of the international Fairtrade movement and oversees all aspects of Fairtrade in the UK. For more information on Fairtrade, the range of products available and how you can get involved visit the Fairtrade Foundation website.
Buy an existing cafe
You might decide to buy an existing cafe rather than start your own venture from scratch. Buying a going concern can mean that the products, customers, regular sales, staff, premises and equipment are already in place.
Your market research into the catering sector as a whole - and the locality in particular - will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. Be careful when buying an existing cafe, or indeed a fully-equipped vacant food premises. It's a fact of life that large numbers of cafe and restaurant businesses don't survive for very long, so you may well be buying a business or premises that has already proved to be less than 100% successful. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.
Try to find out as much as possible about the cafe's reputation. Look on review websites, particularly TripAdvisor - how good or bad are the feedback comments and rating? What about it's food hygiene rating (local authorities give a score of 0 to 5)? Has it recently failed any food hygiene inspections? Are there any actions or enforcement orders still outstanding? It can take quite a while to turn things around for a cafe or restaurant which has got itself a poor name.
But buying a business can be a hazardous, expensive process unless you have the right skills and experience on your team, including legal and financial know-how. Establish the genuine trading and financial position of the cafe, so that the price you pay is not too high.
Franchises
Franchising can be a good 'halfway house' between starting out from scratch and buying an existing business. If you purchase a franchise you'll still be setting up your own business, but you could benefit from the experience, resources and brand name of a business that is already successful.
There are plenty of different franchises available in the catering industry - particularly fast food and take-away. Some are national and some are more locally based. Although different schemes vary in detail, most feature the following key points:
- as a franchise holder, you will remain self-employed but will use the identity (corporate colours, logos, trade name and so on) of the franchisor
- in return, you will pay the franchisor a fee - this might be a one-off investment, a monthly charge, or a combination of both
- both you and your franchisor will have to fulfil certain obligations and maintain certain minimum standards
Many franchisors will provide you with any specialist training you require, help with advertising and marketing, and advice and support on a range of business and technical matters.
Details of the above points are set out in the franchise agreement or contract, which both you and your franchisor will sign. The agreement will also deal with other matters, for example any territorial exclusivity due to you and the minimum period for which the franchise will run.
Before entering into a franchise agreement, it is advisable to compare the terms of different franchisors to be sure that you are getting a good deal. Go through the contract with your solicitor before signing anything. More information about franchising is available on the Franchise Info website. Information is also available from the British Franchise Association (BFA).