CHAPTER 1 INTRODUCTION Reasons to Open a Restaurant French Culinary History The Birth of Restaurants in America Challenges of Restaurant Operation Buy, Build, Franchise, or Manage? Starting from Scratch Restaurants as Roads to Riches

WHY GO INTO THE RESTAURANT BUSINESS? 1. Money 2. The potential for a buy-out 3. A place to socialize 4. Love of a changing work environment 5. Challenge 6. Habit 7. Too much time on your hands 8. Opportunity to express yourself There are 8 factors affecting people’s decision to open their restaurants.

1. Money The restaurant is a potential money factory. Successful restaurants can be highly profitable. A restaurant with a million-dollar sales volume per year can generate $150,000 to $200,000 per year in profit before taxes. BUT a failing restaurant, one with a large investment and a large payroll, can lose thousands of dollars a month. Most restaurants are neither big winners nor big losers.

big winners or big losers?

2. The potential for a buyout The successful restaurant owner is likely to be courted by a buyer. A number of large corporations have bought restaurants, especially small restaurants chains. The operator is often bought out for several million dollars, sometimes with the option of staying on as president of his or her own chain. The older independent owner can choose to sell out and retire.

3. A place to socialize The restaurant is a social exchange, satisfying the needs of people with a high need for socialization. Interaction is constant and varied. Personal relationships are a perpetual challenge. For many people there is too much social interplay, which can prove exhausting.

4. Love of a changing work environment A number of people go into the restaurant business simply because the work environment is always upbeat and constantly changing. A workday or shift is never the same as the last. One day you are a manager and the next day you could be bartending, hosting, or serving. Are you bored of sitting behind a desk day after day? Then come and join us in the constantly evolving restaurant world! To be honest, Personally I do not like to change work environment very often. What about you guys?

5. Challenge Few businesses offer more challenge to the competitive person. There is always a new way to serve, new décor, a new dish, someone new to train, and new ways of marketing, promoting, and merchandising.

6. Habit Once someone has learned a particular skill or way of life, habit takes over. Habit, the great conditioner of life, tends to lock the person into a lifestyle. The young person learns to cook, feels comfortable doing so, enjoys the restaurant experience, and remains in the restaurant business without seriously considering other options. That is why those people who open restaurants as habit will be more likely to go bankrupt.

7. Too much time on your hands A lot of people retire and decide to go into the business because they have too much time on their hands. Why a restaurant? Because restaurants provide them with flexibility, social interaction, and fun!

8. Opportunity to express yourself Restaurant owners can be likened to theatrical producers. They write the script, cast the characters, devise the settings, and star in their own show. The show is acclaimed or fails according to the owner’s talents and knowledge of the audience, the market at which the performance is aimed.

FRENCH CULINARY HISTORY 1767: M. Boulanger: The father of the modern restaurant. Sold soups “restorantes” (restoratives). The opening of Le Champ d’ Oiseau. 1794: The French Revolution Chefs to the former nobility suddenly had no employment. Some chefs stayed & opened restaurants, some went to Europe; many chefs went to America.

THE BIRTH OF RESTAURANTS IN AMERICA 1794: Paypalt brought the term restaurant to the United States. 1827: Delmonico’s, thought to be the first restaurant in America, opens. Closed during the early years of Prohibition.

CHALLENGES OF RESTAURANT OPERATION Long hours Excessive fatigue can lead to health problems Little security for managers who work for others Family life can suffer For owner, possibility of losing investment and investors Long working hours are very common in restaurants. Think about restaurants you guys go. The business hours of many restaurants are around 12 hours a day.

REASONS FOR RESTAURANT FAILURE Lack of management skills Lack of enough capital The expansion & competition from other restaurants Family problems Without experience, the owners of the restaurants may take a great risk. In the United States, million-dollar investments in restaurants are quite common. So if they do not run their restaurant business well, they will go bankrupt. Actually this is a major issue about the current Korea society. In Korea, almost all the employees at private companies must retire before or around 50 year old if they cannot be executives just like Ceo or vice Ceo in their companies. After retirement around 50 year old, they do not have any choice to take care of their children and spouse. So usually they open their own restaurants. However, they do not have enough management skills to run restaurant business because they have never worked at restaurant business in their whole life. So they are taking a great risk when they run the restaurant business.

Half half - regular korean fried chicken on the left, and with the sweet, spicy sauce on the right

THE RESTAURANT FAILURE RATE Results of Dr. Parsa’s study: Highest failure rate during first year- 26% Second year- 19% Third year- 14% Failure rate of 59% for a three year period So only 41% of restaurants can survive after the first 3 years.

BUY, BUILD, FRANCHISE, OR MANAGE? There are several career & investment options in the restaurant business: Manage for someone else. Purchase & operate a franchise. Buy an existing restaurant & operate it as is or change its concept. Build & operate a new restaurant.

ADVANTAGES TO BUYING Satisfies an aesthetic personal desire. High rewards if successful. Risks are somewhat reduced with knowledge of why the previous restaurant failed.

DISADVANTAGES OF BUYING Difficult to overcome a poor reputation or poor location. High financial losses if restaurant fails: A fully equipped restaurant that seats 100 people costs anywhere from $6000 to $10,000 + per seat (or $600,000 to $1 million +) in addition to the site being bought or leased. In contrast, a sandwich shop can usually be opened for less than $30,000.

ADVANTAGES OF FRANCHISING Least financial risk (other than managing). Building design, menu, and marketing plans are already created and tested in market.

BUY / BUILD / FRANCHISE / MANAGE ADVANTAGES & DISADVANTAGES Original Investment Needed Experience Potential Personal Stress Psychological Cost of Failure Financial Risk Reward Buy Medium High Build Highest Franchise (A) Ex. Subway Low to Medium Low Medium to High Franchise (B) Ex. Applebee’s Manage None

BE A COPYCAT! Analyze existing restaurants that are successful. Borrow good points & practices. Modify & improve borrowed points & practices if possible. The successful mix = one that is better than the competition!

QUALITY CONTROL Error detection, based on industrial systems, tends to be product oriented rather than service oriented. Critical in the restaurant business. All managers should carry a thermometer in their pocket so they can check that the food is being served at the correct temperature.

STARTING FROM SCRATCH Would be restaurant operators come with a mix of different experiences in the business. The industry does not have nearly enough employees & turnover rate is high. The business is highly competitive, requires a lot of energy, the ability to work long hours & the willingness to accept a low salary!

RESTAURANTS AS ROADS TO RICHES The most common reason people seek restaurant ownership is the possible financial rewards.

Here is the picture about the food of street market in Korea Here is the picture about the food of street market in Korea. Usually each menu is about 2-7 dollars per serving. Although the owners of the street market sell the food at cheap price, many of them are millionaire in Korea. Do you know why? Because they accept only cash and it means they do not need to pay tax. Also, a lot of customers buy the street food over there in Korea.

Dduk bok I is rice cake with red pepper sauce Dduk bok I is rice cake with red pepper sauce. You guys can see some fried food also in the picture.

Internationals also like to eat Korean street food. But be careful Internationals also like to eat Korean street food. But be careful!!! Some bad owners may overcharge internationals for the street food. For example, dduk bok I is about 2-3 dollars per serving BUT the bad owners will receive 10 dollars from internationals.

The End Copyright © 2008 John Wiley & Sons, Inc.