CHAPTER ONE INTRODUCTION Reasons to Open a Restaurant

CHAPTER ONE INTRODUCTION • Reasons to Open a Restaurant • Liabilities of Restaurant Operation • The History of Restaurants • Buy, Build, or Franchise?

WHY GO INTO THE RESTAURANT BUSINESS? • Money • The potential for a buy-out • Place to socialize • Challenge • Habit • Firm lifestyle • Opportunity to express yourself 2

LIABILITIES OF RESTAURANT OPERATION • Long hours • Excessive fatigue / health problems • Little security for managers who work for others • Family life can suffer • For owner, possibility of losing investment and investors 3

REASONS FOR RESTAURANT FAILURE • Starting with a lack of sufficient capital • Poor management • Rapid expansion and competition from other restaurants 4

FAILURE REASONS CONT’D • Economy is at a downturn or recession • Family problems • Owner loses interest in the operation 5

THE RESTAURANT FAILURE RATE • Failure rate of 59% for a three year period • Highest failure during first year- 26% • Second year 19% • Third year- 14% 6

HISTORY • 1767: M. Boulanger, the father of the modern restaurant, sold soups called restorantes, which means restoratives – Origin of the word restaurant • 1794: French Revolution caused many chefs to flee to America – Paypalt brought the term restaurant to the US • 1827: Delmonico’s, the first restaurant in the US, opens 7

BUY, BUILD, FRANCHISE, OR MANAGE? • Several career option in the restaurant industry: – Manage for someone else – Purchase and operate a franchise – Buy an existing restaurant and change it or operate as is – Build and operate a new restaurant 8

ADVANTAGES TO BUYING • Satisfies an aesthetic personal desire • High rewards if successful • Risks cut with knowledge of why previous restaurant failed 9

DISADVANTAGES OF BUYING • High financial losses if restaurant fails • High psychological losses if restaurant fails • Difficult to overcome reputation of previous operator 10

ADVANTAGES OF BUILDING • Freedom for personal preferences in all aspects of creation • High psychological gains if successful • No previous failures on the site 11

DISADVANTAGES OF BUILDING • Very risky in all aspects • Extremely high amount of capital required • Difficult to find investors – Millions of dollars in investment can be lost 12

ADVANTAGES OF FRANCHISING • More likely to be successful • Proven concept • Building design, menu, and marketing plans already created and tested in market • Training and management support available 13

DISADVANTAGES OF FRANCHISING • Must pay franchising fee, a royalty fee, and advertising royalty • No guarantee that if concept worked in one area, it will work in another • Franchiser/ franchisee relations can be strained 14

ADVANTAGES OF MANAGING • Least financial risk • No investment needed • Structured working environment 15

DISADVANTAGES OF MANAGING • Psychological cost of failure is high • Limited say, if any, in operating procedures, concept changes, etc. 16

BUY / BUILD / FRANCHISE / MANAGE ADVANTAGES & DISADVANTAGES 17

The End 18