Carefully consider what it will take to succeed before you invest in the food industry….
Food is big business in South Africa and offers tempting opportunities for entrepreneurs looking to start up. Franchised fast food and restaurant outlets are among the most active business categories locally, boasting 61 and 55 systems respectively. Fast food systems alone employ approximately 42 000 people and generate R8.9-billion in turnover, according to the 2007 Franchise Factor survey.
“The South African food industry is an exciting sector to operate in and industry knowledge is easily transferred ensuring that entrepreneurs with the right attitude can create successful businesses,” says Wendy Alberts, director of the Restaurant Association of South Africa (RASA). She does however warn entrepreneurs not to walk in blindly as it is often the small things like bad kitchen flow or poor administration that can turn the dream into a nightmare.
The food sector is not for the fainthearted. It requires long hours and excellent people. A recipe for restaurant success skills and presents a unique set of challenges. Success lies in the details and the factors outlined below should be considered and planned for, before you invest.
Be aware of hidden costs
“There’s a saying in the restaurant industry that the easiest way to become a millionaire is to start out a multimillionaire,” says Brett Dungan of Fedhasa (The Federated Hospitality Association of Southern Africa). The reality is that the food industry has a lot of hidden costs and many restaurateurs don’t take these into consideration when starting up. Apart from obvious costs such as ingredients and staff salaries, consider rent, training, bank charges, a variety of levies, third-party insurance, the chemicals needed to comply with health and safety standards, laundry, maintenance and music licences. If you are looking to invest in a franchise these costs will be disclosed before you sign on the dotted line, but then you also have to keep in mind that you have to pay a royalty on your turnover.
“There is a huge misconception in the marketplace that it is easy to make money in the restaurant industry,” says Arnold Tanzer of the South African Chefs Association (SACA). “People go out for pizza and when they see that a meal costs R60, they think ‘I can make that pizza for R20′.” “Running a successful restaurant is really a percentage game and entrepreneurs have to investigate what it is going to take to be financially successful,” says Alberts. She advises entrepreneurs to not only look at turnover, but to try and find out how much profit fellow food entrepreneurs are making. “Turnover is vanity, profit is the reality.”
Find and train the right staff
The skills shortage in South Africa is a concern across most sectors. In the restaurant industry where employees are expected to work long, unsociable hours, you have the added challenge of finding employees with the necessary abilities, as well as good interpersonal skills. Restaurant staff often have to be able to cook and deal directly with the public, so interpersonal skills are crucial. Finding and retaining the right staff is an ongoing challenge for restaurateurs in South Africa.
According to Alberts high staff turnover is a challenge would-be food entrepreneurs should be aware of and learn to work around. “In this industry you work with unskilled workers on a daily basis. The reality is that a lot of time goes into training these workers, just to see them pinched by competitors or finding alternative employment with better working conditions or at a restaurant situated closer to home.” Asked about solutions to this challenge Fedhasa confirms that there are currently a number of initiatives both public and private in process, looking at ways of retaining staff.
“In this industry it is imperative that everyone studies and train hard so that the general work pool increases their technical ability,” says Brett Dungan. In this tough industry it is also important to realise that it is the employers’ responsibility to make the working conditions as comfortable as possible whilst still making sure that the business runs profitability. Once these balances are found, you are on your way to creating a successful business.
Dungan also feels that a food business is best owner-managed and that relying on employees to manage and control the operation can land new business owners in trouble.
Manage growth so that you can either manage it yourself or will have time to recruit and train a suitable manager, he advises.
Plan for power outages
The current electricity crisis poses a serious challenge for the food industry. The fact that it is not clear what Eskom is doing to alleviate load shedding and solve the crisis means that the future is uncertain. Tanzer warns wouldbe restaurateurs that the solution is not as easy as buying a generator. “Rising fuel prices means that operating with a generator could be more expensive than anticipated,” he says. “This will inevitably influence profit margins and if your business is already struggling, it could mean trouble. “Load shedding also means that food goes off and your guests get stuck in traffic. This can be an inconvenience and also result in a loss of income as people don’t turn up or turn up too late to enjoy their lunch or dinner to the full.”
Manage food costs carefully
Managing food costs is a crucial aspect of running a successful restaurant. “Food costs control is a science and as much as one may use one’s general business acumen to decide on food costing and quantities, the one area that can not be overlooked is stock control,” explains Brett Dungan. He believes that controlling stock, portions and quality will be the single most important control if a business is to have longevity.
“Food and fuel prices have gone up quite a bit since last year and the problem faced by restaurateurs is that it is not always easy to convince the public that you need to change the prices on your menu,” says Tanzer. “The problem is also that with interest rates going up there is less money to go around, which will directly impact restaurants in 2008 – especially the little guys in the industry.”
Be prepared to work hard
The restaurant industry can be glamorous and exciting, but like any other sector it requires some serious hard work to ensure success. “This industry impacts greatly on your social life, and weekends and public holidays are when you make your money,” Tanzer points out. But a restaurant filled with happy customers is the reward.
And when the restaurant is closed, you’ll need to turn your attention to the books, administration, ordering and everything else associated with running any business. “Bad administration is often the downfall of restaurateurs; managing cash flow is crucial. Remember that this takes time and if you don’t have the funds to employ a full-time bookkeeper you will need to keep on top of all cash flowing in and out of the business,” says Alberts. Ensure sufficient start-up funds It takes time to turn a profit when starting a business. So restaurateurs must ensure that they have sufficient start-up funds to survive the first couple of months of trading. Rentals, for instance, can be high depending on the area, so ensure you have funds to cover this.
“Also be aware of the fine print in the lease contract,” says Alberts. The landlord may have the power to add extra costs such as marketing and security fees and because of the dilution of the Competition Act entrepreneurs must also be aware of overtrading in shopping centres. “There is also no such thing as landlord contributions to renovations or maintenance any more,” she says.
Entrepreneurs operating in the food industry also have to comply with specific legislation regarding human resources, food safety and security.
Focus on your business plan
Tanzer advises entrepreneurs to spend a good amount of time on their initial business plans to ensure that all the steps necessary for success are covered. He recommends spending time in restaurants while doing the initial groundwork. Spend time working in a similar restaurant, seeing what it is like to run this kind of business and speaking to as many restaurateurs possible in order to get a balanced view of what it takes to succeed. Entrepreneurs should also investigate profit margins and decide if the food industry is what they are looking for in a business opportunity.
Build a good relationship with your bank manager or bank representative and consult industry organisations such as RASA, Fedhasa, FASA and SACA for valuable advice and support. Alberts advises entrepreneurs to sign up for a chef or hospitality management course as this will expose them to the intricacies of the industry ranging from food safety to profit margins. “Identify what it takes to be successful and if you are not 100% confident approach a consultant,” she says.
Make sure you are going into the industry for the right reasons. “Go into business because this is your passion and you know that you are prepared to do what it takes to succeed – not because there is a quick buck to be made. And whatever you do, don’t get pulled into it for the sake of 2010,” says Tanzer.
Are you suited for food?
Tanzer believes many successful business owners are Type A personalities, making them hardworking and perfectionists. Other important traits include strong organisational skills especially with regards to administration and finances. Also crucial is the ability to learn from mistakes and the capacity to be empathetic toward employees, clients and customers at the same time.
The ability to network and knowing where to get advice and support will smooth your path to success. The following organisations may be of help if you are starting up in the food industry:
The Restaurant Association of South Africa is a non-profit organisation that offers support with legal and human resource issues, health and safety regulations, liquor licence applications as well as supplier recommendations and general industry information. Contact wendy@restaurant. org.za or 011 705 2907/2897/2054.
The South African Chefs Association is a professional culinary association with over 2500 members and five established branches throughout South Africa. Members include catering and hotel company directors, restaurateurs, chefs, cooks, culinary educators, apprentices and trainees. It offers networking opportunities and general industry related advice. Contact email@example.com or 011 482 7250.
The Federated Hospitality Association of Southern Africa represents the South African hospitality industry on a local, provincial, national and global level. It offers its members assistance with legislative and governmental requirements as well as keeping them up to date with the latest industry legislation. Contact Fedhasa on firstname.lastname@example.org or 011 461 5009.
The Franchise Association of South Africa defines the business of franchising and ensure that all parties adhere to the franchise business principles adopted and accepted internationally. For further information contact email@example.com or 011 615 0359.
The food industry in South Africa offers a vibrant business environment for hardworking entrepreneurs who are passionate about food and satisfying guests. Industry specific challenges exist in all business sectors but knowing what they are and how to overcome them is crucial to ensure success.