copyright © 2014 by john wiley & sons, inc. all rights reserved. chapter 14 restaurant business...

Copyright © 2014 by John Wiley & Sons, Inc. All rights reserved.

Chapter 14 Restaurant

Business and Marketing Plans

The Restaurant: From Concept to Operation, 7th edition

Courtesy of Panificio

1


Objectives• After reading and studying this chapter, you

should be able to:– Describe the various forms of business ownership– Discuss the advantages and disadvantages of each

form of business– Identify the major elements of a business plan– Develop a restaurant business plan– Conduct a market assessment– Discuss the importance of the four Ps of the

marketing mix– Describe some promotional ideas for a restaurant

2


Introduction• Business plans

– Increase probability of success• Communicate to financial backers

• Restaurants– Are experiencing extreme challenges

• Difficult times

3


Introduction (cont’d)• New restaurant operation has a

choice of legal entities– Sole proprietorships– Partnerships– S corporations

4Courtesy of Panifico


What Business Entity Is Best?

• Under law, all businesses are operated as:– Proprietorships– Partnerships– Corporations

• Each has different tax consequences– Advantages and disadvantages

5


What Business Entity Is Best?

• Under law, all businesses are operated as:– Proprietorships– Partnerships– Corporations

• Each has different tax consequences– Advantages and disadvantages

6


What Business Entity Is Best? (cont’d.)

• Choice of entity affects:– Federal income taxes– Liability to creditors and other persons– Legal and/or personal relationships

among owners– Legal life and/or transferral of the

business entity

7


Sole Proprietorship• Simplest and the most prevalent

– Restaurant operator does not draw a salary for federal income tax purposes• Reports as income the profit for the year or

deducts, as an expense, any loss for the year

– Proprietor is not an employee• However, income is subject to self-

employment tax

8


Sole Proprietorship (cont’d.)• Advantages

– Simple and reasonable salary

– Funds can be withdrawn

• Without tax consequences

– Business can be discontinued or sold

• Minimal tax consequences

9


Sole Proprietorship (cont’d.)• Disadvantages

– Owner cannot participate in qualified pension and/or profit sharing plans

– Owner is liable for everything– No legal existence apart from the

owner(s)

10


Partnership • Any venture where two or more persons

endeavor to make a profit– General partnerships

• Complete liability but full management rights– Limited partnerships

• Share limited liability with no services performed • Advantages

– Flexible– No double taxation– Choice of limited or general partnership

11


Partnership (cont’d.)• Disadvantages

– Same problems of legal liability as sole proprietorship

– Partner may create debts for the partnership

– Difficult to divide assets if business fails– Death, disagreement, and/or ill health can

make perfection into a nightmare– In bad times partners always see the other

as at fault12


Partnerships

13


Restaurant as a Corporation• Legal entity similar to a person

– Can borrow, buy, conduct business, and must pay state and federal taxes on profits

• Deciding whether to incorporate– Often depends on insurance coverage

• If available, a restaurant may decide not to incorporate

• Insurance will cover and limit sole proprietor’s liability, which might cause financial ruin in the event of a mishap or lawsuit

14


Restaurant as a Corporation (cont’d.)

• Advantages– Limited liability– Ease of availability and affordability of

insurance through group plans– Corporate fringe benefits are available– Can sell and distribute stock– Investor friendly

15


• Disadvantages– Double taxation– Takes a lot of money to set up– Usually requires legal and accounting

advice• Can be costly

– Can lose control if too much stock is distributed

16

Restaurant as a Corporation (cont’d.)


Corporate Form

17


S Corporation• Permits business entity to operate as a

corporation – Allows it to avoid paying corporation taxes– Avoids a double tax upon liquidation

• Built-in gains from appreciation of assets– Useful for a family restaurant– Ideal if owners do not want to accumulate

after-tax income or if shareholders are in a low tax bracket

18


S Corporation (cont’d.)• Provides tax advantages for

dependent children or parents• Corporation taxes are avoided

– Profits from restaurant are taxed according to income brackets

– IRS requires officers draw a fair salary so company earnings are not overstated

• Benefits over two percent of annual salary cannot be deducted

19


Buy–Sell Agreement with Partners

• Preserves continuity of ownership in the business upon sale– Made up of several legal clauses that

can control business decisions• Who can buy a departing partner's or

shareholder's share of the business • What events will trigger a buyout• What price will be paid for a partner's share

20


Legal Aspects of Doing Business

• Steps required in California:– Form a business entity– Identify necessary permits and licenses– Identify local restrictions on proposed business

licenses– Obtain environmental or similar permit as

needed– Obtain state sales tax permit– Determine applicability of employer registrations– Get insurance

21


Legal Aspects of Doing Business (cont’d.)

– Comply with relevant statutes and regulations with respect to employee’s wages

– Fulfill occupational and health requirements– Assess applicability of antidiscrimination laws– Check for eligibility for government assistance– File fictitious business name– Meet posting requirements– Obtain and return tax return filings– Learn reporting and notice procedures in

event of employee injury22


State Registration• Plans to open a new business should

be discussed with the secretary of state’s office– Fees run about $100 for registering a new

business– Most states have income tax on wages– State Department of Employee

Compensation must be contacted– Cities require permit to operate a business

23


Sales Tax • New business is registered with the

state revenue– Most states require an advanced deposit

or bond

24


The Patient Protection and Affordable Health Care Act (PPACQ), and

Other Regulations

• Most important topic affecting restaurants

• Restaurants and hotels may also have to deal with other regulations and laws

25


Business Plan• Improve chances of operational

success– Assist in obtaining financing– Communicate to potential investors– Define operational purposes

• Key ingredient:– Sustainability

26


Business Plan (cont’d.)• Elements

– Cover sheet– Description of the business– Description of concept, licensee, and

lease– Market analysis and strategy– Competitive analysis– Pricing strategy

27


Business Plan (cont’d.)– Advertising and promotional campaign– Other information– Financial data– Existing restaurant balance sheet– Appendices

28


Business Plan (cont’d.)• Mission statements

– Generally do not change• Goals

– Reviewed as often as necessary– Established for each key operational area

• Strategies or action plans – Who is going to do what, when, and in

what order– Specific dates

29


Marketing Philosophy– Patterns the way to relate to guests,

employees, purveyors, and the general public• Fairness, honesty, and moral conduct

– Finding out what guests want and providing it at a fair price

– Asks would-be operators:• Who will be my guests? • Why will they choose my restaurant? • Where will they come from and why will they

come back?” 30


The Difference Between Marketing and Sales

• Marketing– Broad concept– Includes sales and merchandising– Determines who will patronize the

restaurant and what they want in it– Ongoing effort– Gets into psyche of present and

potential patrons– About solving guest problems

31


The Difference Between Marketing and Sales

(cont’d.)• Sales– Part of marketing – Focuses on seller needs– Activities that stimulate the patron to want

what the restaurant offers– Sales mentality exists when seller thinks

about only of his or her needs • Pushes an item on a customer

– Closely related to advertising, promotion, and public relations

32


Marketing Planning and Strategy

• Marketing plans – Must have realistic goals while leaving a

reasonable profit margin • Guest satisfaction, market share, sales, and costs

• SWOT analysis– Strengths, weaknesses, opportunities, and

threats• Strengths and weaknesses: internal factors and

can, over time, be controlled by management• Opportunities and threats: external factors

33


SWOT

34

© John Wiley & Sons, Inc.


Market Assessment and Market Demand

• Market assessment– Analyzes community, potential guests, and

competition – Helps to answer the all-important questions:

• Is there a need for a restaurant? • Who will be the potential guests?

• Market demand factors– Population in the catchment area – Demographic split of this population

35


Market Potential• Estimated maximum total sales revenue

of all suppliers of a product in a market during a certain period– How many people in the market area are

potential customers? – What is the potential for breakfast, for

lunch, for dinner? – Will your restaurant attract guests from

outside the immediate market area? – Who is your market?

36


Market Segmentation, Target Market, and

Positioning • Market– Total of actual and potential guests– Generally segmented into groups of

buyers• Similar characteristics

– Within these groups are target markets• Groups identified as the best for the

restaurant

37


Marketing Director

38


Typical Segmentations• Geographic

– Country, state/province, county, city, and neighborhood

• Demographic– Age, sex, family life cycle, income,

occupation, education, religion, and race• Behavior

– Occasions, benefits sought, user status, usage rates, loyalty status, and buyer readiness

39


Positioning• Once the target market is identified

– Important to position the restaurant to stand out from the competition • Focus on advertising and promotional

messages • Key to positioning

– How guests perceive the restaurant• Involves tailoring an entire marketing

program

40


Competition Analysis• Analyzing competition’s strengths and

weaknesses – Helps formulate marketing goals and

strategies to use in the marketing action plan • Comparison benefit matrix

– Shows how your restaurant compares to the competition • You choose the items for comparison (e.g., name

recognition, ease of access, parking, curbside appeal, greeting, etc.)

42


Marketing Mix: The Four Ps• Every marketing plan must have

realistic goals – While leaving a reasonable profit margin

• Cornerstones of marketing– Place (location)– Product– Price– Promotion

43


Place/Location• One of the most crucial factors in a

restaurant’s success• Ingredients for success

– Good visibility– Easy access– Convenience– Curbside appeal– Parking

45


Product• Main ingredient: excellent food

– People will always seek out excellent food• Especially when good service, value, and ambiance

accompany it• Three levels of restaurant product

– Core product: function part for the customer– Relaxing and memorable evening

– Formal product: tangible part of product– Physical aspects, décor, and a certain level of service

– Augmented product: other services– Valet parking, table reservations, etc.

46


Product (cont’d.)• Product analysis

– Covers quality, pricing, and service • Atmospherics

– Design used to create a special atmosphere• Experiencing greater emphasis

• Product development– Innovative menu items

• Added to maintain or boost sales47


Product (cont’d.)• Product positioning

– Conveys the best face/image of the restaurant • What people like most about it• How it stands out from the competition

• Restaurant differentiation– Owners usually want their restaurant to be

different in one or more ways• Call attention to food or ambiance

• Product life cycle – Introduction to decline

48


Price (cont’d.)• Cost-based pricing

– Calculates cost of ingredients • Multiplies by a factor of three to obtain a food cost

percentage of 33• Competitive pricing

– Checks competition to see what they are charging for the same item

49


Price (cont’d.)• Contribution Pricing • Method of computing a product’s selling

price so that the price contributes to the gross income

• Amount of labor cost involved with the preparation and service of the menu item

• Price and quality – Direct correlation

50


Promotion• Goals of a promotional campaign

– Increase consumer awareness– Improve consumer perceptions– Entice first-time buyers– Gain higher percentage of repeat guests– Create brand loyalty– Increase the average check– Increase sales (particular meal or time of day)– Introduce new menu items

51


Promotion

52


Advertising• Extent to which a restaurant needs

to advertise depends on several variables– In-house advertisingFilling in the Periods of Low Demand– Tie-ins and two-for-ones– Loss-leader meals– Mailing lists

53


Advertising Appeals• Six benefit appeals used in

restaurant advertising:– Food quality– Service– Menu variety– Price– Atmosphere– Convenience

54© John Wiley & Sons, Inc.


Social Media• Potential for attracting customers

– Twitter – Facebook– Pinterest– Tumblr– Instagram

55


Travel Guides for Free Advertising

• Listing can be worth thousands of dollars in extra sales– Mobil Travel guides – AAA Tour Book pages

56


Free Advertising• Yellow Pages Advertising• Local telephone director• Mailing lists• Develop guest loyalty and increase

sales by regular mailings– Newsy and informational– Photos of guests

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copyright © 2014 by john wiley & sons, inc. all rights reserved. chapter 14 restaurant business...

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