When does a restaurant reach break-even

Short Description
Higher operational costs derive from saving money on low-cost infrastructure. It takes about six to seven months for a new brand to break even, excluding capital costs.
  • Nusra Deputy Features Editor
Restaurant

Due to a variety of factors, restaurant margins have been gradually reduced. Getting a restaurant started in India is a great opportunity. However, it is not an easy business to enter because there are many different types of restaurants to choose from, depending on the menu, preparation techniques, and pricing.

To mention a few, there's multicultural, fast food, simple casual, casual dining, fine dining, fast service, family-style, barbecue, cafe, restaurant, and cooking table top. India's food sector, which is equipped with technologically advanced food operations, offers vast market and investment opportunities. The brick-and-mortar restaurant sector can be difficult to scale effectively. It necessitates an initial capital investment, ongoing operating expenditures (especially rent), and other issues. Keeping a restaurant afloat for four or five years is quite challenging.

How difficult is it to reach Break-Even?

It is critical for each firm to attain break-even within a given timeframe in order to be successful. Regardless of the type or scale of your restaurant, do not expect to break even in the first six months of business. It is unrealistic to expect a return on investment in the first year of operation. Top line will never reach magical levels in the first quarter of a company's existence. It takes time and effort to do it right.

No matter how thorough your financial analysis is, there are a slew of hidden costs to consider. We planned to break even in four to six months, but due to the lockup, your BEP isn't always correct, so if you're relying on loans or borrowed funds to invest, you might want to reconsider. When establishing a food and beverage business, you must be financially prepared.

Is the Restaurant Industry a High-Return Venture?

Owners must be aware of the distinction between investment and expense. Higher operational costs derive from saving money on low-cost infrastructure. It takes about six to seven months for a new brand to break even, excluding capital costs.

Also, in order to achieve larger profits, the company model must be re-engineered on a regular basis. People buy concepts rather than products. In today's world, growing the value of a company or brand is critical, which is why, rather than focusing on being a local favourite, one should consider establishing their brands throughout numerous locations. The higher the company's valuation, the higher the long-term gains.

Important Considerations

Real estate has traditionally been the most significant issue determining the restaurant industry's bottom line. The restaurant industry has been severely hampered by sky-high renting costs. Another reason restaurants fail is a lack of at least a year's worth of working cash.

Incompetent labour and inadequate infrastructure also hinder business growth, as consistency and hospitality are essential for success. Quality and skill set of staff, whether cooks and chefs, delivery partners, or even packaging partners, are major variables. These days, every little thing counts and is a factor in deciding a company's success.

Other factors that contribute to profitability include food consistency, timely payment of vendors, innovation, and the monitoring of pilferage. Staff must be taught in sanitizing processes and social distancing; relying solely on delivery will not suffice.

Taking Care of the Reduced Margin

Due to a variety of factors, restaurant margins have been gradually reduced. Popular third-party platforms such as Swiggy, Zomato, and UberEats have entrenched the concept of discounts and freebies in the minds of all customers in order to penetrate the market by acquiring new clients.

The days of dialling a restaurant and placing an order over the phone are practically gone. Giants like Swiggy and Zomato have monopolised the delivery space. Restaurants partner with online food aggregators to boost awareness and expand swiftly.

To their credit, they've increased the overall market cap, but they've also made it more difficult for a traditional or legacy restaurant to deliver on its own. Depending on the delivery partner and agreement, commissions might consume anywhere from 10% to 30% of revenue (and consequently profits).

It's a business, after all, and you need to know your figures. It's critical to be in the appropriate market, at the right pricing, and with the right audience.

 

About Chef Stephen Gomes: Meet Stephen Gomes, the corporate chef at Barcode café Lounge and Bar in Dwarka, Delhi where everyone is raving about his menu food! As his key strength is Indian Cuisine includes Continental and European Cuisine with strong analytical and logical skills, after the success of Barcode Café Lounge & Bar.

Not Sponsored
Live: People Reading Now
RECOMMENDED FOR YOU