Business Opportunities in Full-Service Restaurants
BY Erin Kim
The restaurant industry will employ 12.9 million people this year, representing 10% of the total U.S. workforce, and making it one of the best industries for starting a business in this year.
By the Numbers
2.8%: Sales increase in 2011, according to Technomic
6.3%: Profit expected for 2012, according to IBISWorld
12%: Share of survey respondents who plan to spend more on restaurants in 2012, according to Mintel’s 2012 Dining Out Report
$64 billion: Projected revenue by 2016, according to Sageworks
90,493: Number of enterprises projected for 2017, according to IBISWorld
0: Number of years full-service restaurants had a decrease in sales, according to Sageworks
93%: Share of restaurants with fewer than 50 employees, according to the National Restaurant Association
Why It's Hot
Think about it: What's for dinner? Not takeout. Not fast food. And definitely not a homemade meal.
Instead, the subtle hand of the economic recovery is inspiring Americans to pull up a chair at a neighborhood sit-down restaurant. In 2009, revenue earned by full-service restaurants declined by 6.8%, reflective of consumers' having less disposable income (and therefore showing preference for fast-food restaurants or eating at home), says Nima Samadi, senior analyst at IBISWorld, a market research organization specializing in long-range forecasting of industries and business environments.
Restaurants in this segment of the industry "were the first to feel the pinch and the last to feel the recovery," Samadi says.
Barriers to Entry
Although the full-service restaurant industry is ripe for growth, Samadi notes a saturated market as a big barrier to entry.
Another barrier: the significant day-to-day costs associated with running the business. According to Sageworks, a financial information company that provides industry data, the cost of sales, including inventory, direct labor, material, and other costs directly associated with the generation of revenue, will eat up nearly 41% of sales revenue.
Samadi says success can also be contingent on familiarity with the day-to-day operations. "Especially with full-service (restaurants), the failure rates are pretty high for people that start a restaurant without any prior restaurant experience, or if they don't hire someone that has the prior experience," he says. "I think expertise plays a pretty large role, and it's a pretty good indicator of success."
Fastest Growing Segment
Need ideas for what kind of restaurant to start? Healthy eating continues to be popular, as well as offering locally sourced and locally grown foods, according to the National Restaurant Association's "What's Hot in 2012" survey. Technomic, a food-service research and consulting firm, says the biggest trend for 2012 will be meals with a twist—whether comfort food with an ethnic spin or surprising tweaks to sandwiches. So go ahead, dig in.
Industry sales-revenue has slowly recovered, growing 1.6% in 2010 and 2.8% in 2011, and it is projected to increase 4.5% this year and 5.5% in 2013. The National Restaurant Association expects the entire restaurant industry, not just full-service restaurants, in 2012 to book $632 billion in revenue and to employ 12.9 million. That would be a slight increase from 2011, and represent 10% of the U.S. work force. Plus, as the economy improves, Samadi says, restaurants should benefit from lower unemployment rates and higher levels of disposable income.