C is for Capacity

Lately it seems that for every restaurant that closes, one opens up.  Some re-open with a new concept in a previous restaurant's space, some develop their location from scratch.   But the test for how successful each restaurant becomes is how well they manage their capacity.  Many people think that the capacity of a restaurant is the number of seats it has, but the real capacity, the financial capacity relates to how much can be can be produced from what lies within those four walls.  And by maximizing this to it's fullest, an owner can then pass the economies on to the guest through more reasonably priced enjoyment.

Many factors affect the financial capacity of a restaurant, square footage, number of seats (and how often they are turned), price point of menu, kitchen size are primary portions of the equation.  Having a secondary affect are such things as guest satisfaction (do they return?), location, and the economy.   The primary portions can be adjusted as long as the secondary factors support the changes.  Of course crystal balls are in short supply these days, so knowing the outcome of making a change in a successful equation has its risks.  But by nature a person who opens a restaurant is not necessarily risk-adverse, so you see many restaurateurs willing to take the steps to change their capacity. 

A while ago I wrote about the trend in restaurants becoming smaller, and the majority of new full-service restaurants that have opened since then have been smaller than ones that opened 5-10 years previously.  On the one hand, they have the advantage of lower costs and if popular, table turns that spin like an Olympic skater.  But these tiny locations find themselves limited on earnings due to their smallness, and are finding a variety of ways to expand their sales to increase earnings.  A few mega-restaurants are still opening, but guests pay for underutilized capacity in the high-priced menu items and high-priced wines.

The easiest plan (and requiring the lowest amounts of capital and risk) would be to expand sales at the existing location by opening on closed days or for lunch/brunch, by boosting outside catering, or by utilizing their kitchen as a commissary for smaller retail locations.   Also capacity can be increased by skilled and professional staffing: making sure available tables are turned, keeping guests meals at a even pace, and by accurate handling of guests when the restaurant goes on a wait. 

Having well trained front door people is critical, it is a skill learned after many years of handling a busy restaurant.   Alas, many owners let a "no reservations" policy be their guide for maximized seatings, but this provides absolutely no service to the guests.  And it ties up key personnel juggling where people are located in the crowd, who has walked out, and where they will be seated at the peak of the restaurant's activity.  By allowing reservations it sets up the seating, the flow of the evening beforehand and allows the host/hostess to attend to those who walk-in with more attention and detail.   Because once they enter your doors the last thing you want them to do is leave before dining, there is no way to know if they'll be back.

Some restaurants expand their current locations midway through a lease.  This should only be undertaken with a cost-benefit analysis done first - unless the per-square-foot sales (psfs) of the additional area equals the psfs of the old area it can end up a money loser.  It ties up costly capital and can become a cash flow drain if funded with a loan.  Unless the restaurant owner is also the building owner, I don't think many restaurants are going to be in the position to expand this way until the economy improves.  Currently many restaurants wish they could somehow shrink their capacity, with unused, large private dining rooms costing owners rent, real estate taxes and utilities without generating enough sales to cover these expenses.

The most expensive and highest risk move is to expand a restaurant concept into multiple locations.  This should only be done with a revised business plan if your original plan was for only one location.  Because the mathematical equation that equalled financial success previously is altered - repeat, is altered - with multiples of the same concept.  A poor second location can bring down a successful first if the service, food, volume of sales does not hold the same at both.   You also have to adjust for higher administrative and management costs to oversee two locations properly.  It's not that it can't be done successfully, obviously many have done so, but to maximize the chances for success take the time to put down on paper a "best-middle-worst" scenario as a guide.

This isn't to say that there is only one way to build restaurant, but for those who can find a way to increase their capacity while the economy is decreasing dining dollars, it may mean success in a time of loss.