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Opening A Diner Once Covid-19 is Over


VTChef
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I have been working on buying an already existing diner and then Covid-19 hit and crippled the economy.  Now I'm having second thoughts on fulfilling this venture.  Is it still a good idea? Will I succeed? Do you all have any advice?

Edited by VTChef
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My advice is worth exactly what you pay for it, for I have never operated a restaurant in my life. But if most people are like me, when this thing is over there's going to be a rush to bars and restaurants the like of which you have never seen. I entertain myself thinking of which one of my favorites I'm going to first, and what my order will be.

 

Don't know how long that rush will last, but if it lasts long enough for you to get a foothold, I'd think you'd have a good shot.

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5 minutes ago, VTChef said:

It was before this all happened.

 

Then carry on.  At least now the labor pool is much larger.

 

But seriously, I would expect consumer spending to be down.  Unemployment has skyrocketed, a lot of people don't know where their next dollar is coming from.  People still want affordable comfort food, but can you do that at a high enough margin?

 

What is the clientele, does business rely on tourism?  On one hand, I worry my summer retail sales will be down due to the cruise ships not coming, on the other, maybe people will take road trips and do more regional travel.  (Not sure what the cruise ship equivalent is in VT, leaf-peeper season?)

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Assuming you have a good location etc etc, there are things about the restaurant industry that may well change after all this and change your business plan.

 

I don't know how you plan to finance it. A friend opened a place using savings and lost it all. Had he borrowed the money the bank would've looked at his plan and probably made changes. Itd be their money that was lost not his.

Edited by gfweb (log)
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My feeling as what was mentioned earlier here; lots and lots of people will Be without expendable income for who knows how long.  My advice would be that this is not the time.  I may be more cautious than you want to be but I wouldn’t bet my own money on it.

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I would also be cautious due to the reasons above, but another one as well - we still don't know exactly when things will "go back to normal" and cities/states start allowing people to go to restaurants at full capacity again.  Here in NYC, restaurants are only allowed to do takeout and delivery, and there's really no idea when this will end.  Many people believe that NY State won't allow restaurants to allow guests to dine in for at least a  couple months yet.  And once it is allowed, when will people feel comfortable enough to do so?

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Regardless of peoples' desires or ability to eat out, the economics of running a restaurant are likely to be in flux for quite some time, and prices will almost certainly have to rise.

 

Supply chains have been disrupted -- about the time suppliers get the present situation sorted out (involving everything from fresh produce to industrially packaged toilet paper), they'll have to change again, to whatever the newest normal is to be. Today's logistical mess shows that that's not likely to be easy. And even if you can source decent endive, and can buy enough paper towels from a bodega, will dining rules change? Imagine that your business model assumes 200 covers a night in the dining room plus a significant profit bump from bar sales. Can you survive, let alone flourish, if post-pandemic regulations require 1) you to space patrons twice as far apart; 2) servers to wear face masks and gloves (and change the gloves every 10 minutes); and 3) tables, chairs and bar counters have to be sanitized between turns? 

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3 hours ago, pastrygirl said:

 

Was it ever a good idea?

 

I think this pretty much sums it up, not necessarily for the op, but in a philosophical sense.

Edited by weinoo (log)
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I worked in restaurants / bars for 5 years. I don't have experience in the numbers side of the business. I do know that staffing issues always seemed to be a problem. Restaurant work involves some quirky people, to say the least: drama, flakes, stealing, drug users, etc.

 

@VTChef Is the price still negotiable? Maybe you can now negotiate a lower price.

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4 hours ago, KennethT said:

I would also be cautious due to the reasons above, but another one as well - we still don't know exactly when things will "go back to normal" and cities/states start allowing people to go to restaurants at full capacity again.  Here in NYC, restaurants are only allowed to do takeout and delivery, and there's really no idea when this will end.  Many people believe that NY State won't allow restaurants to allow guests to dine in for at least a  couple months yet.  And once it is allowed, when will people feel comfortable enough to do so?

 

Yes. Most restaurants here have reopened after three months of closure, but very few customers are in them.

Edited by liuzhou (log)
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10 hours ago, VTChef said:

Will I succeed?

 

If you want the personal challenge of having your own place and the satisfaction of creating your vision, then you may very well succeed.

 

Financially, that's harder ...

 

https://www.thedailybeast.com/top-chef-host-tom-colicchio-warns-coronavirus-could-kill-75-percent-of-restaurants?ref=scroll

 

 

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As has been noted I would not risk anything you are not willing to lose. No way to determine long term effects I ran post 9/11 and recession businesses. Stress levels off the charts. If partners involved make sure nobody's head is in the clouds. 

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Next months are going to be brutal. Social eating will be killed, both by regulations and people's fears. It's impossible for things to get back to normal before a vaccine is created and applied everywhere.
During these months there will be good chances for a part of the businesses. If a restaurant is near an office zone or similar, and is able to adapt to take-out / delivery meals, then it will have good chances to make money. People will get back working and will have the need to eat. Some of them will rely on food from home, others will seek to buy food in a safe way. If you already own a business then you should be able to get a feel of what your neighbourhood will demand in the next months. If not, like in your case, then it's a blind jump, much much riskier than usual. So better leaving the diner there. If the actual owners will be able to make profits during these brutal months, then good for them and we all hope so.
The big question is what will happen after people will be vaccinated. I think the reaction will be polarized, no in-betweens. Or people will continue to be scared as hell (so we will enter a long recession), or people will be so sick of being restrained to cause a slingshot effect (so we will enter a big progression). I'm faithful for the second: the will to live will be much stronger than the fear to die, we will learn this lesson, become better humans and lead a happier life.
If I were in your shoes, I would wait for when the vaccine will be released, then try to get a grasp of what will happen. At that point all prices will be at a minimum, if there is the slingshot effect then you will buy at the minimum and will be able to ride a huge wave. Buying before the vaccine has no sense.

 

 

 

Teo

 

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Today at noon, I walked down a street in the city centre which the locals refer to as restaurant street. The short street has around 40 restaurants. I could see into most of them. Most had no customers; a few had two and only one had three. Only two were still closed.

The one which had three customers is a hugely popular Cantonese noodle place with room for 50 and normally has a long line of waiting customers.

No time to open a new place!

Edited by liuzhou (log)
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...your dancing child with his Chinese suit.

 

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My 2 cents 1 year into a new place - How loyal and established is your existing cliente, and will they still be there in 3 months, 6 months and a year - meaning, if you're in an established neighborhood then they should be there. If you're in a business district, maybe not. All restaurants have learned in a very short period of time how large and how loyal their customers are. We've closed temporarily but I just came back from doing some work in my kitchen and saw 38 missed calls from the weekend. Some are surely marketing but that's a good sign to me that people were trying to support us over the weekend even though we've been closed a few weeks.

 

My second question, and the one that is the most important in the best of times is how much capital do you have banked? I had a year in the can before I ever opened and I'm damn glad I did. I just got my PPP loan earlier this week, and between that and my own funds, we're good for 4-6 months (hopefully). But as many can tell you, if you don't have the capital banked you increase your risk of failure and losing it all. I can say that 4 months of funds scares me, and my 6 months gives me no comfort. I sure wish I had much more especially when I'm trying to do right by my staff and keep them on payroll. (I have the "luxury" of having research work they can all be doing from home which has value to our model.)

 

And this brings me to the last point - can you create an operation with minimal staff - one that can gear up to larger menus and larger staff when the time comes, or is it an all or none operation. I have no leeway in my model because we already operated on a minimal staff, but I'd sure prefer to be a 3 or 4 person staff instead of 7 when we re-open.

 

I also wonder...not to kick a guy when he's down, but if you have a new bargaining power with the current owner. Might be worth considering.

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Rob (Gfron) has more experience of running a restaurant than I have, but I've closed a couple...for what that's worth.

I think everybody who has posted upthread has amply made the point that it's a very, very risky time to launch a restaurant venture. There's likely to be room in the market for "early mover advantage" once things loosen back up, so there's that on the positive side of the ledger. Much of the former competition for your diner's dollar will have collapsed, and people certainly *will* tire of the fast-food chains before this is all over, and even if the numbers are smaller than they were pre-COVID there'll be less competition to divide up that dollar. So for the survivors (and gutsy new ventures) the metaphorical pie may well prove big enough.

 

That in no way invalidates anything that's been said above. Deep pockets are essential, and Rob's recommendation of a full years' operating expenses in the bank on Day One is probably the best advice you'll get (lack of capital is what scuppered my two establishments). If you *do* opt to move forward, nail down every conceivable advantage you can get on your lease (or is it a purchase?) of the current diner. Most of the value of such a business applies only if it's a "going concern," which is no longer the case.

 

Remember, the industry-wide average is 5-8% retained earnings, so every dollar you save up front on your fixed costs is like $90+ in revenue.

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