Opening a restaurant is not easy, but when your sales exceed their targets, your customers are happy, and you have resources to invest (both time and money), it only seems natural to consider opening a second restaurant location.
Branching out is a great opportunity to boost your restaurant’s success. However, this is not a decision you should take lightly. You may experience the pressure of matching or overtaking your first restaurant’s success with a second location. There are also a lot of external factors adding a layer of uncertainty this year: inflation, ingredient shortages, and worries about a potential recession.
To ensure that your second branch will be as successful as the first, we’ll help you measure the risks and rewards by explaining where your current success can take you.
Signs It’s Time to Open a Second Restaurant Location
1. Your Restaurant Shows All Signs of Success
If you’re thinking about opening a second restaurant location, your first restaurant must show every sign of success: a healthy income report, high visibility on social media and the press, good word-of-mouth within the community; maybe investors have come up to you and offered to finance your next venture.
Restaurants set these goals upon startup. So if you already reached them, it’s safe to say that you’re ready to expand your business. A healthy income gives you capital, allowing you to skip getting an expansion loan. While you shouldn’t dismiss taking out a loan, you may attract more support—especially from venture capitalists (VCs)—if you have readily available capital. VCs are focused on growing businesses, so if they sought you out to propose a venture, take it as a sign that your restaurant has potential in a second location.
2. Your Restaurant Has Good Publicity
Continuing on the point above, if your restaurant has high visibility on social media and the press, people from different locations will be curious about your offers. Maybe many of them have already traveled far to experience your restaurant.
You can verify your restaurant’s publicity by checking out PR news websites, food blogs, and hashtags on social media. You should also see if your restaurant has made headlines and for what reason.
If your restaurant’s concept isn’t sensitive enough to draw strong opinions, you can check for potential negative feedback about your menu, prices, or customer service. Google reviews and personal posts on social media will help you spot this feedback. It’s important to get constant positive attention from your audience before opening a second restaurant location because it proves that your concept clicks with your target market.
3. Your Desired Second Location is as Good or Better than the First
Even though your first location has been a major reason for your restaurant’s success, your research may show better-than-expected restaurant results in your new location.
Before finalizing any plans, take time to set goals and identify the issues that stop you from reaching those goals. For example, how do you increase foot traffic or cut long lines? If low foot traffic is a problem in your current location, try re-evaluating your marketing strategy first. Low foot traffic may indicate a problem with market awareness.
If you have high foot traffic but long lines, do you think simplifying your menu can help improve turnover? You could also optimize your online ordering system to encourage customers to have their food delivered to their doorsteps instead.
It’s important to consider these solutions before setting your sights on a second location. Moreover, check with mall and property owners about the potential appeal of your concept in a few test locations. Consider the scale of your kitchen operations as well. Choose the location that can support your ideal kitchen and dining room design and layouts because customers will expect a near-replica of your first restaurant in the branch near them.
4. You Have the Resources For an Expansion
The resources that make an expansion possible may vary between owners, but in general, they almost always include: new markets, sources of funding, a good supply of talented employees, access to technology, and access to capital.
Your sources of funding want to see growth potential, so if you clearly define your target market in your second location, they will gladly help you.
Easy access to human resources is also important. While digital solutions like a Kitchen Display System (KDS), QR menu, and Customer Relationship Management (CRM) can let you hire fewer employees, the front- and back-of-house staff will always be the backbone of your restaurant, so it’s best to choose a new location with a talent pool.
Having startup capital on top of all these resources can make branching out turn into an easy transaction. But again, consider your decision carefully. The ongoing costs in the second location, such as rent, utilities, and labor, can present new financial challenges. You may need to revisit your current restaurant’s sales projections to ensure that you follow a growth trajectory.
Steps to Opening a Second Restaurant Location
So, are you ready to open a second restaurant location? If all signs point to yes, we’ve outlined the steps to help you get started.
1. Look Up Zoning Laws
Just like you did with your first restaurant outlet, review where your restaurant is most likely to operate successfully without running into trouble—usually high-traffic areas like business or school districts. You may encounter restrictions around residential areas or places of worship.
Sometimes, municipalities allow you to build a restaurant but will regulate your menu items. For example, in Dubai, you are prohibited from serving alcoholic beverages in public areas. You may experience the same rule in Singapore, where bars and pubs aren’t allowed in mixed commercial and residential developments. So if you’re eyeing one of those locations, expect to pay for specific local licenses before being able to serve alcoholic beverages.
2. Do a Second Market Research and Competitive Analysis
No two locations are the same. So even if you used market research and competitive analysis for your first location, you need to do this again for your next potential location—and for every future location that you might consider.
If you get a loan or find investors, they will ask for the results of these studies, so it’s wise to be prepared. You can use your research data to justify why you’re opening your second restaurant in a specific location. Showing a gap in the market that you can fill indicates that a new restaurant may be what the location needs.
A competitive analysis is equally important because it can show how your restaurant may perform against the existing restaurants in a second location.
If you run a vegan restaurant, for example, and all potential competitors sell non-vegan food, your analysis may show two things: a market gap you can fill, or the market isn’t looking for a vegan restaurant. Determining which of these assumptions is accurate will help you learn if your restaurant has growth potential in your chosen second location.
3. Update Your Cost Assumptions
Research ongoing market rates to determine the average rent in your desired second location. It would also be helpful to talk to other restaurant and commercial property owners in the area to get a more accurate figure.
If you’re eyeing an out-of-town location, chances are good that rent will be cheaper. You may incur higher inventory costs, however, if you get your supplies from the same vendor. Delivering your replenishments will require them to travel longer, so you’ll have to recoup their excess spending on time and gas.
Update your labor cost projections. Another location may have a different minimum wage or average salary. But overall, consider your new location’s staffing needs and the caliber of talent your restaurant needs to uphold your current standards.
Ingredient sourcing and costing are creating a lot of uncertainty for restaurateurs this year, so you may have to review your food cost assumptions carefully. You may have to consider whether you will have to change your sourcing strategy compared to last year and how this will affect the menu you have in mind.
4. Consider Upgrading Your Offers
A second restaurant location opens the possibility of expanding your offerings. The market in the location you’re considering could want special menu items, like a local delicacy, for example. In that case, you can add that local delicacy to your menu or create a new menu section containing variations of that dish.
In addition, restaurant diners are getting used to new ordering technology. If contactless ordering is the norm among restaurants in your desired second location, see if implementing your own QR code menu suits your restaurant concept. If you can, it would also be beneficial to offer table-side ordering apps that send orders straight to your kitchen. This upgrade reduces waiter intervention when customers order, possibly helping you save on labor.
5. Create a New Restaurant Proposal
Whether you’ll take out a loan, seek investors, or use your available capital, creating a restaurant proposal for your second location is essential.
A restaurant business proposal for your second location has one goal: to convince investors that your restaurant business is worth replicating and has the potential for success in its targeted location. So you may have to compare and contrast what made your first outlet successful and why you are confident the market is ready for a second outlet.
Your new restaurant proposal will also help you identify potential issues before they happen, giving you time to address them.
For instance, suppose your research indicates demand for your food in a new location, but not many customers are willing to dine on the premises. In that case, perhaps you plan to market this location more proactively for takeout business and reduce the size of dine-in customers you want to accommodate. That way, you can focus on reducing and offering only your most in-demand menu items and save on significant labor and inventory costs.
Prepare for Success the Second Time Around
Developing a business plan for a second location may be easier than your first restaurant’s business plan, because many aspects of the business are familiar to you and easier for you to navigate.
But many challenges, either specific to your location or related to the current business environment, are causing many investors to choose with greater caution, so you may need better research and data on hand to convince them the second time around.
Review and re-review your business plan, accounting reports, and marketing research. Don’t hesitate to get advice from other restaurant owners and industry experts. Their valuable insights can help justify your decisions or help you back out if your plan turns out to be unworkable.
Don’t take any initial rejections as a sign to give up, but rather as helpful feedback. Gather more information if needed, and try to locate other potential investors who are as passionate as you about your restaurant business’ future.
Just like your first restaurant venture, finding the right partners for a second restaurant location is a matter of fit: it takes a lot of work and a bit of luck to find the perfect match.