CHAPTER ONE INTRODUCTION Reasons to Open a Restaurant Liabilities of Restaurant Operation The History of Restaurants Buy, Build, or Franchise?

2 WHY GO INTO THE RESTAURANT BUSINESS? Money The potential for a buy-out Place to socialize Challenge Habit Firm lifestyle Opportunity to express yourself

3 LIABILITIES OF RESTAURANT OPERATION Long hours Excessive fatigue / health problems Little security for managers who work for others Family life can suffer For owner, possibility of losing investment and investors

4 REASONS FOR RESTAURANT FAILURE Starting with a lack of sufficient capital Poor management Rapid expansion and competition from other restaurants

5 FAILURE REASONS CONT’D Economy is at a downturn or recession Family problems Owner loses interest in the operation

6 THE RESTAURANT FAILURE RATE Failure rate of 59% for a three year period Highest failure during first year- 26% Second year- 19% Third year- 14%

7 HISTORY 1767: M. Boulanger, the father of the modern restaurant, sold soups called restorantes, which means restoratives –Origin of the word restaurant 1794: French Revolution caused many chefs to flee to America –Paypalt brought the term restaurant to the US 1827: Delmonico’s, the first restaurant in the US, opens

8 BUY, BUILD, FRANCHISE, OR MANAGE? Several career option in the restaurant industry: –Manage for someone else –Purchase and operate a franchise –Buy an existing restaurant and change it or operate as is –Build and operate a new restaurant

9 ADVANTAGES TO BUYING Satisfies an aesthetic personal desire High rewards if successful Risks cut with knowledge of why previous restaurant failed

10 DISADVANTAGES OF BUYING High financial losses if restaurant fails High psychological losses if restaurant fails Difficult to overcome reputation of previous operator

11 ADVANTAGES OF BUILDING Freedom for personal preferences in all aspects of creation High psychological gains if successful No previous failures on the site

12 DISADVANTAGES OF BUILDING Very risky in all aspects Extremely high amount of capital required Difficult to find investors –Millions of dollars in investment can be lost

13 ADVANTAGES OF FRANCHISING More likely to be successful Proven concept Building design, menu, and marketing plans already created and tested in market Training and management support available

14 DISADVANTAGES OF FRANCHISING Must pay franchising fee, a royalty fee, and advertising royalty No guarantee that if concept worked in one area, it will work in another Franchiser/ franchisee relations can be strained

15 ADVANTAGES OF MANAGING Least financial risk No investment needed Structured working environment

16 DISADVANTAGES OF MANAGING Psychological cost of failure is high Limited say, if any, in operating procedures, concept changes, etc.

17 BUY / BUILD / FRANCHISE / MANAGE ADVANTAGES & DISADVANTAGES

18 The End