Pointers and pitfalls when opening a second location
Few restaurants last more than a few years, but for those that turn a healthy profit, expansion is a sensible next step. Opening a second location is easier said than done, though.
Between hidden costs, new crews and slow openings, unforeseen problems can quickly put a damper on your long-term plans.
Fortunately, there are plenty of steps you can take to successfully transition to multiple locations. For many, these steps require a change in mindset — from a chef, foodie or pizza enthusiast to an entrepreneur. A passion for pizza may fuel the rise of your first location, but you’ll need solid business skills and a well-developed plan to keep multiple shops afloat.
Location, Location, Location
The basics of picking your plot are simple enough: high visibility, proximity to the competition and the right demographic for your brand and price point. Do these principles differ when picking a second spot? “No, and if you pick a great location you can even get away with messier systems,” says Brewer Stouffer, founder of Roman Candle Pizza. Smooth operations are ideal, but great foot traffic can make up for shaky operating procedures when you open up.
Still, there are a couple considerations specific to a second shop. First, don’t open up too close or too far from your first location. “It should be fairly close, so you can run around and perform triages if needed,” says Marc Cosentino, founder of Goodfella’s Brick Oven Pizza. At the same time, Stouffer notes that, “With a pizzeria, you can’t just open up a block over. You have to go further away to make an identical restaurant make sense.”
Next, it’s best to establish the second shop in the same type of area as the first, be it a strip mall, urban sprawl, suburb or college campus. “You’re not going to take the friendly neighborhood mom-and-pop store and put it in a mall,” says Cosentino. The fewer new variables the better, and the types of customers who made your first shop successful will most likely patronize your second.
Location is just one of several considerations you’ll need to make as you open a second shop. From payroll to ordering to customer complaints and more, every concern requires scalable solutions. “You’ve got to build systems and come up with solutions to problems just one time,” says Stouffer. You won’t have time for one-off fixes, and your managers need to know how to patch up problems themselves.
For many restaurateurs, cash flow management is the greatest logistical hurdle. “With expansion, you have to frontload your costs,” say Casey and Sam Askar, owners of Askar Brands. “That includes training all the staff, and that payroll comes from the proceeds of the first location.” Even if you’re turning a great profit at your first store, you can’t assume it will be enough to fully fund a second. You’ve got to run the numbers.
In the long term, though, you also need to factor in greater revenues and lower costs. “If you have a $1 million restaurant, and you open another one across town, you should expect to have two restaurants earning $1.1 million due to greater awareness,” says Scott Gittrich, founder and president of Toppers Pizza. Economies of scale will also allow for lower wholesale costs as you expand. Overall, you’ll need to ensure a reliable cash flow on the front end to reap the advantages of expansion later on.
You may have your funds, properties and operating procedures planned out — but how should you allocate labor? “I would take my guys who are well-seasoned and well-trained and use them for the opening of the new store,” says Cosentino. “Have those people train the new hires.” The reliable crew that’s helped build your business will be indispensable during your expansion.
As important as your crew is, however, they can only run your shops if you adopt the right role. “If you’re the kind of person who’s always putting out fires, it might be a better decision to expand your hours or add delivery or takeout,” says Stouffer. Running a multi-store business requires delegation, top-down thinking and a big picture focus. If those aren’t your strengths, you’ll need to develop them or partner with someone whose skills complement your own.
Getting the Word Out
The U.S. pizza market is more or less flat, and you’ll have to fight for market share early on at your new location. “You have to create awareness beforehand,” says Askar. “You have to do a great job of communicating your story from one community to the next.” Your employees, current customers and prospects should be able to tell your story and describe your products before the new store’s grand opening.
To accomplish that goal, a combination of social media, flyers, newspaper ads and radio spots will do the trick, and the industry average for ad spend is between two and five percent of gross sales. “That may seem like a lot, but you absolutely have to invest in marketing if you want to grow your sales,” says Stouffer.
The method is more important than the medium, however. Before you fret over Facebook ads, Twitter posts and other minute marketing details, you need to identify what — and who — made your first shop successful. “You’ve got a certain number of critical customers who already love what you do,” says Gittrich. Ultimately, the success of your second shop will be a matter of communicating and replicating the product quality and customer appeal of your first.
David LaMartina is a Kansas City-based freelance copywriter who specializes in the finance, food and health industries.