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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | JANUARY 15, 2003 SMART ANSWERS By Karen E. Klein No Such Thing as a Free Lunch Taking up a no-rent lease on a failed coffee shop could mean big trouble. Never forget, more often than not, you get what you pay for
A: Anyone contemplating a new business where others have failed needs to take a long, hard look at the site's history. This is particularly true in the restaurant trade, where location is everything. If others couldn't make the venture work, what makes you think you can reverse the trend? Before taking up this opportunity, you should be thoroughly convinced that you have found the winning formula that eluded your predeccessors. FOOD FOR THOUGHT. First, do some research to learn if the building's workers actually want a lobby restaurant, and why previous operators closed up shop, says foodservice consultant Art Manask. "Who were the former operators? I would not rely on what the landlord says about them," he cautions. "Talk to some of them, and to the tenants, about what the issues were and what the tenants' expectations are." Next, spend several days in the lobby between 7 a.m. and 3 p.m. Check out what foods and beverages people are carrying to their desks, and also note where they go for lunch. Are there many visitors to the building during the hours you'd be operating? Do all workers and visitors enter through the lobby, or do some use another entrance, such as an underground garage, where they will never walk past your location? "This is critical," Manask says. "You want foot traffic past your door." Another worthwhile research effort would involve visiting a nearby office building that already has food service, spending a couple of days counting customers, and figuring out what percentage of the building's total population they represent, says Ron Paul, president of Technomic, a Chicago-based restaurant consultancy. That information would allow you to estimate your own potential customer base. STREET SMARTS. You'll be more likely to succeed if your location is visible from the street, with a street entrance and signage available, Manask adds. During the warmer months, you might even put tables and chairs on the sidewalk, which would provide great advertising for your location, especially if there are other high-rise buildings nearby that do not have competing restaurants. Find out whether the space already has adequate equipment, furniture and fixtures, or whether you would have to come up with substantial capital to build it out. If you have the net worth to install a franchised operation, Manask recommends considering that option first. "A branded coffee concept or a Subway, Quiznos, Togo's, or the like might be a possibility," Manask speculates. Even if you don't end up pursuing that particular course, making a serious inquiry with a franchiser could still produce valuable insights: At the very least, you will get free, expert advice about the location and its potential. Manask and Paul agree that opening as an independent outfit is likely to be tough going. Being dependent on 400 clients, and with little additional foot traffic, makes your potential profit margin awfully narrow. And if there is competition within driving distance, it is likely that the professionals in the building (attorneys, accountants, etc.) will get in their cars at lunchtime, leaving the support staff behind and cutting your clientele by about 50%. If you serve both breakfast and lunch items, Manask estimates a daily sales potential at no more than $500 to $750. SLIM PICKINGS. Paul crunched some numbers based on a coffee/pastry-only concept and drew even tougher conclusions. "Assume that 20% of the building's workers will stop by your store every day, spending an average of $3 on coffee and a snack," he says. "That will give you gross daily sales of $250 -- $1,250 weekly, or around $60,000 annually if you take a couple weeks' vacation. Even without rent, food will cost you about 30%," he says. "With other expenses factored in, you'll wind up netting about $30,000 a year -- not enough to pay an employee, take a salary yourself, and turn a profit." If you genuinely believe you can pull in more than 20% of the occupants daily, set a goal and figure out what kind of daily sales figure you would need to make the business profitable. Another way to raise your income would be to offer higher-priced items and add-ons that will boost your per-customer ticket. Another of Paul's ideas: Explore a sideline doing catering for parties and special events in the building. Good luck! Have a question about your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.  Karen E. Klein is a Los Angeles-based writer who specializes in covering covered entrepreneurship and small-business issues. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | JANUARY |
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