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Rural Restaurant

Background

This farm partnership operates a beef unit over three separate areas. The farmer has been involved in farming for over 30 years whilst his wife has extensive experience in the catering industry, operating as a part-time caterer organising and managing large group functions.
Due to several factors including BSE, low beef prices and Foot and Mouth disease, the partnership decided that they would need to seek additional income. As such, with the wife’s experience and qualifications in food and catering (the farmer would undertake a part-time business management course if the project proved successful) it was decided that a feasibility study of a rural restaurant business in the local area would be undertaken.

Information required

The promoters felt that the following information was required:
  • Cost of premises
  • Equipment fixtures and fittings required and the costs
  • Restaurant running costs
  • Food suppliers and contracts
  • Market price estimates of meals and profit margins
  • Market size
  • Market research
  • Control systems
  • Health and Safety and other relevant legislation

Information sources

The promoters felt that it was important to talk with as many relevant individuals/bodies as possible, some of which included:
  • Architect and Quantity surveyor
  • Department of Agriculture and Rural Development
  • Local restaurant owners/managers
  • Hotel and Catering College
  • Local Borough Councils
  • Market research data Profit margins calculations on meals
This, the promoters found, was difficult to establish but there seems to be two main systems used by the trade:
  1. Cost of raw materials ´ 2.5 or 3 times
  2. Cost of raw materials plus allocated costs; heat, light, wages etc plus margin
It was discovered through research that profit margins are normally between 40-60% with 60% being usual for more established restaurants. The promoters decided that in order to compete with more established restaurants they would operate at the lower margin for the first few years until a regular trade was established.
They also discovered that on a percentage basis the best margins were to be made from drinks, starters and desserts.

Market Size

The promoters obtained information from the local council on the number of residents in both the ward where the restaurant would be situated and of the two nearest large centres of population. Both these pieces of information, which indicated a substantial estimate of the potential market for the business, were encouraging to the promoters.

Market research

This was undertaken through a survey of local restaurants and a postal questionnaire of 100 representatives of church groups, lodges and individuals through the local council area.
The restaurant survey consisted of both personal visits and telephone interviews. This proved very useful in that the promoters were able to sample the produce on offer and also view the facilities where they were able to get ideas for their own restaurant.
The postal survey, or which there were 78 respondents, was very useful as it gave the promoters a lot of information on potential customers and what their requirements as regard to such aspects as payment method, food preferred, frequency of eating out and impression of restaurants.
  • The questionnaire provided valuable information such as:
  • the average group size (5-50) was the most popular response
  • frequency of groups/individuals using a restaurant
  • average price paid for 2 and 4 course meals
most popular types of food (carvery meals, finger buffet and traditional meat and vegetable dishes).

Control systems

The promoters felt that the following were important for their potential business:
Adequate billing systems
  • Customer response questionnaire on leaving the premises
  • Regular accounts review (weekly.monthly)
  • Reliable meat and vegtable supply contacts
  • Reliable cold store system
Staff sign in sheets (avoids pay disputes)
  • Complaints systems for customers
  • CCTV at till
  • Cover all health and safety issues

Legislation

Health and Safety
The storage preparation and handling of food, and food products, is an area governed by some of the most stringent legislation. As such it is vital that this legislation is adhered to at all times and no areas should be overlooked. Not only does this cover such aspects as storage temperature, maintenance and review of control measures, food labelling legislation and identifying potential hazards, but it also covers the training and supervising of food handlers.
Other legislative contacts, which need to be made, include:
Planning
  • Road service access engineer
  • Building control (Council Office
  • Environmnetal Health Officer.(Council Office)
  • Accountant (advise on tax and VAT
Solicitor (Assist in setting up company details)
  • Waste disposal(council office)
  • Insurance consultant
  • Trading standards office
  • Employment law

Conclusions

Lessons learned by the promoters included:
  • Size of the restaurant and kitchen has a direct link to the size of group capacity that the restaurant expects to attract.
  • It is vital to understand and comply with all the legislation in relation to health and safety especially in regard to food preparation areas, fittings surface and food handling.
  • Profit margins on meals are quite high but overall profitability depends on a regular turnover of customers. It may be advisable to have a lower profit margin for the first few years until trade is built up.
  • Market research is vital as it has demonstrated that whilst the potential market size is quite large it is still up to the promoters to market the restaurant effectively.

Further information required

  • Suppliers of equipment, food etc
  • More detailed information on the control systems required
  • Alcohol licence requirements
  • Other legislative requirement i.e. planning, insurance, tax, VAT etc
  • 5-10 year business plan with detailed information on funding sources, capital and running costs, bank charges, marketing and promotion methods and budget, cost of complying with legislation and realistic financial projections.

Important note

The information within these case studies is for general information only. It is not necessarily complete and is not intended to address all issues relating to the proposed diversification ideas. Market and circumstances may change substantially and thus this information should not be used directly within the development of other business cases for diversification without checking its validity at the present time and directly to your particular project and circumstances. Further research is recommended before embarking on any new enterprise.