A Recipe for Multi-Unit Success
Tips for operators hoping to expand
By Ed Avis
So what makes a business like Massachusetts-based Olé Restaurant Group (click here to see the article about Olé) succeed when so many others fail?
The factors that play into successful expansion range from a concept’s appeal beyond the Hispanic market to the owner’s ability to maintain quality chain-wide.
“The first challenge is to replicate successfully what makes the first restaurant successful, and the second piece of the puzzle is the logistics involved in opening up multiple restaurants,” says Dennis Lombardi, executive vice president of foodservice strategies for WD Partners, a restaurant design and development firm in Columbus, Ohio. “Nothing is more painful than having your second or third unit seriously underperform, because it totally drags down the entire company.”
Asking these five simple questions can help you avoid potential pitfalls operators often encounter when jumping too quickly into the sometimes murky waters of multi-unit ownership.
1. Is my existing restaurant a success?
Your concept must be solid, your restaurant should be making money, and your customer base should be diverse.
“One of the things I see in restaurants [with multi-unit potential] is the ability to pull in all types of people, not just Mexicans,” says Victor Sanchez, director of sales for LaVista Sales, Inc. in Whittier, Calif., and former senior director of ethnic business development, Hispanic sector, for Sysco Los Angeles. “When I go to a restaurant and see all these different people eating there, that tells me this restaurant could go to other markets.”
A diverse customer base is less important if you plan to open the new location in an area with predominantly the same ethnic make-up as your current customer base. But if you hope to expand beyond that base, general appeal matters. “You have to be aware of whether you’re going into an ethnic market or a general market,” Lombardi says. “You have to be very cognizant of that.”
2. Can your concept be copied and maintained?
Your first restaurant might be wildly successful, but can the concept be replicated without you constantly being there? You must be able to recreate the recipes, processes, appearance of the plated food and overall ambiance responsible for your original restaurant’s appeal. You have to be able to maintain all of that, too.
Sanchez remembers a Mexican restaurant in Southern California that opened multiple locations throughout the region. He frequented the business’ various locations, and things were great at first. But eventually the quality slipped.
“I could see a lot of inconsistencies,” Sanchez remembers. “I talked to the owner, and he told me, ‘You’re right, I took my eye off the ball.’”
3. Are the right personnel on board?
Hiring and training the right people to run each new location is key.
“Invariably you find that the personality of whomever is running the new units, the general managers, influence the personality of the entire restaurant,” Lombardi says. “You really should bring on board the person who will be the manager of your second or third site early enough so that they can assimilate what makes your brand special.”
Ramos learned that lesson the hard way. When he opened the second location of his quick-serve concept, ¡Olecito!, in Brookline, he hired a manager from outside the company. “That didn’t work because he didn’t have the experience of the place,” Ramos remembers.
He replaced that manager with a longtime employee and things have run smoothly since.
The importance of having personnel trained in the restaurant’s processes hit home again when Boston University (BU) asked Ramos to open an ¡Olecito! on campus. It seemed like a good idea until the university insisted on staffing it with its own employees.
“Consistency is 100 percent important because people are creatures of habit and they want the flavor of your recipes and that same experience whichever location they go to,” he says. “At the BU location people were asking me, ‘What’s happening?’ So I had to close it down.”
Hiring someone specifically assigned to travel to and keep tabs on all units will alsohelp maintain quality and consistency.
At Café Rio, “area coaches” oversee five to 15 locations and make sure that all employees are well trained and that everything is running smoothly. Managers also attend training sessions at the Café Rio Advanced Food Training facility.
“We bring in all the managers to learn the system. It’s intense training,” Burns says. “When you walk into a Café Rio in Salt Lake City or Denver or Las Vegas, we want every location to have the same experience, the same feel, the same tastes.”
4. Have I chosen the right location?
As any realtor will tell you...it’s all about location, location, location. Lombardi says staying close to your original location when first branching out is a general restaurant industry rule. It allows you to frequently visit the new site while keeping close tabs on the first.
Ramos visits each of his locations at least three times a week, often more. He also uses a POS system he accesses via his smartphone to keep tabs on each location.
“I can see from my iPhone who clocks in and who clocks out,” he says. “I can say, ‘How come there are three people working if there were only 20 covers in the last three hours?’ It’s not an excuse not to visit the restaurants, but it gives you one more way to see what’s going on.”
Lombardi believes that paying more rent for a better location is a good investment. “When you start looking at the economics of a prime, ‘A’ site that might cost more than a ‘B-minus site,’ the A site will invariably return far better cash flows, even after the increased rent you’re paying.”
Hundreds of factors (demographics, parking options, zoning issues, and more) can separate a good site from an “okay”site, so research is essential, Lombardi stresses.
5. Do I have enough money?
If you’re considering opening a second location, it’s likely cash flow from your first location is good. But opening a new site can be painfully expensive.
Ramos used revenue from his first location and several small loans to expand, and he recommends having enough cash on hand to operate the new location with minimal revenue for six months to a year. “If you have just enough to open up, you will lose the battle because you will run out of money,” he cautions.
Since banks will rarely lend money to small restaurant operators, family loans and credit cards are more common sources of capital. A merchant cash advance (basically a loan against future credit card revenue) is another option. No matter the financing you choose, make sure it’s in place before you open your new location.
“Financial issues are big. Over-expansion has been the downfall of many concepts,” Lombardi says. “There are a lot of similarities between opening a second restaurant and having a second child. It’s not easier except that you’ve done it before. Don’t make the mistake of thinking that it’s going to be easier.”