Benefits of opening a fast food restaurant
As the owner of a fast food restaurant, you can provide your community with an in-demand service and grow a prosperous stream of income. Fast food is an exciting industry for people with an interest in food and advertising. Fast food restaurants have the potential to be extremely profitable and can be relatively simple to run, especially if you purchase a turnkey franchise outlet. Keep in mind, in the industry, fast food restaurants are sometimes referred to as QSR, quick-service restaurant.
Pros and cons of franchising
Before you start to gather the infrastructure for your fast food restaurant, you need to decide if you want to start an independent restaurant or an outlet of a fast food franchise. Many popular fast food chains are available as franchises, meaning you can pay a franchise fee and ongoing royalties to a parent company in exchange for the right to use their business model. Both starting your own restaurant concept and buying a franchise come with their benefits and drawbacks, differing and in a few key areas:
Level of control
As an independent fast food restaurant owner, you can design your own menu, decide on your own branding and customize your restaurant according to your own ideas. When buying a franchise location, you have to operate the restaurant according to a set of legal guidelines determined by the franchisor. Depending on the amount of freedom you want, being in complete control of your restaurant can be a benefit or a challenge.
Both franchises and independent fast food places come with a degree of financial risk because you’re investing your own money to pay for a physical location where you can serve food. Franchises tend to be less risky when it comes to risk overall because they come with a proven business plan and a support system through the franchisor.
When starting a standalone restaurant, you’ll be building a reputation and brand from scratch. If you decide to franchise, you’ll be part of the parent company’s brand and mission statement. Customers who already recognize a franchise brand may be more likely to give you their business than try a new establishment that they aren’t familiar with. Having your own independent fast food company provides you with the flexibility to refine and change your business’s image.
Opportunity for growth
Consider whether you want to eventually own more than one location before deciding whether to franchise. It can be costly to run multiple franchise locations, especially if you have to pay other managers to oversee their day-to-day operations on top of franchise and royalty fees. If your independent fast food restaurant is successful, you can retain more of the profits and invest them in opening additional locations or even license your concept to franchisees of your own.
Related: Opening a Franchise: Do’s and Don’ts
Cost of opening a fast food restaurant
The initial cost of opening a fast food restaurant tends to start at around $250,000 and increases based on the geographic location, building size and labor fees. Some popular fast food franchises can cost over a million dollars to open, including a minimum amount of assets you must have to qualify as a franchisee. Here is a breakdown of the primary costs of opening a fast food establishment:
Location and utilities
Your fast food restaurant’s physical location will likely be one of your biggest expenses. Constructing a new building from scratch, buying an existing building or renting from a commercial property owner can incur significant costs. Buying a fast food restaurant that already has the necessary fixtures to serve food is generally more affordable than building a custom space. It costs an average of $450 per square foot to purchase a restaurant space. Consider whether you want to have a dining room with servers or just a drive-thru and select a space that can accommodate your needs.
Renovating the interior and exterior of your fast food restaurant is a necessary expense for building the infrastructure of a successful fast food restaurant. If you purchased an existing building, you may need to make significant modifications to outfit it with an updated kitchen and attractive displays for customers. Make sure you have all of the plumbing and electrical work in place for a commercial kitchen. Interior decor, signage, comfortable seating, lights, an intercom and other features are necessary for creating the appropriate ambiance for customers and emphasize your company brand.
Once your space is prepared, you will need to purchase appropriate equipment for the kitchen and dining room. Your appliances alone can cost several thousand dollars, depending on whether you purchase new or used equipment and what types of cooking you need to do. You’ll also need a point-of-sale system to track orders, cash registers, beverage machines, ice machines, serving trays, menus and janitorial supplies.
You’ll need to have enough inventory on hand to cover the expected orders from your opening. Before buying inventory, you should have a good idea of how your supply chain works and how often you can place orders to re-fill inventory. If you need fresh ingredients and can only buy in small batches, your inventory costs may be higher than if you can use frozen foods bought in bulk. Initial inventory costs for a fast food restaurant include ingredients for all menu items, frying oil, condiments, cups, lids, straws, napkins, to-go bags and other packaging.
Another startup cost to consider is the overall expense of recruiting, hiring and training employees. Research the going wage in your area for key positions like fry cook, cashier and restaurant manager and calculate how much their salaries will cost for initial training and for regularly scheduled shifts. If you’re contracting an accountant to manage your finances or a lawyer to help with registering your business, estimate the number of hours you may need and use that information to update your budget.
You can use a variety of methods at various price points to advertise your new fast food restaurant. Some business owners rely on word-of-mouth, press coverage and social media interactions as their primary source for attracting customers, while others hire a public relations firm to launch full-scale advertising campaigns. If you’re opening a new outlet of a franchise, you might get free advertising from the franchisor depending on the franchise agreement.
If you decide to buy a franchise, you pay startup fees to the parent company in exchange for their business plan, operations manual and the right to use their intellectual property. Franchise fees can start at $10,000 for a fast food restaurant and rise above $100,000 depending on the company. There may also be additional charges for location scouting, insurance and other factors.
Choosing your fast food niche
Select your restaurant concept and develop a menu based on the niche you want to serve. It is important to serve food that can appeal to your target audience as a fast food restaurant. To find a fast food niche that will work for you, consider these strategies:
Exploring existing niches
Some fast food restaurants, like drive-thru burger joints, aim to target a wide audience by using popular themes, while others try to capture a more specific niche with a certain type of cuisine or a unique ordering system. You can create a new niche by choosing a new type of menu that isn’t available as fast food in your area, or use one of the most popular concepts for fast food:
- Fried chicken
- Ice cream
- Hot dogs and corn dogs
- Coffee and breakfast
Doing market research
To narrow down your choices on the niche to pursue, perform market research to learn what kinds of fast food is in-demand in your area. Some niches might succeed in one place and fail in another based on regional food preferences. Make note of any local competitors and what kinds of restaurants have succeeded or failed. Gather demographic information about your location’s population and research what niches appeal to your ideal customer persona.
Developing a menu
Brainstorming different menu items can provide guidance toward an overall theme. Consider what main dishes you want to serve and how you could link them with a cohesive theme. A common strategy for fast food restaurants is to use a few key ingredients in different combinations to create a customizable menu. Think about what other dishes you can prepare with a few staple ingredients and consider using them to create your restaurant concept.
Using thematic branding
In addition to the type of food you serve, your restaurant’s theme, decor, logo and mascot can all add to your fast food restaurant’s niche. Using a theme for restaurant decor and menu item names can create a unique brand niche that makes you memorable to customers.
Writing your business plan
Before you can secure outside funding and start executing your new restaurant, develop a business plan that you can reference to keep your fast food restaurant on track during the starting phases. Your business plan can help you anticipate your income and expenses, make sales forecasts and use data-driven strategy to increase traffic to your new restaurant. The main parts of a fast food restaurant business plan are:
The executive summary contains a review of the key details involved with launching your fast food restaurant. The purpose of an executive summary is to show investors and business partners that your restaurant has a plan to be successful. This section should include a basic timeline and budget for launching the restaurant, an overall mission and value statement, a summary of market research and the core strengths that will help the restaurant become profitable.
The company description summarizes the day-to-day operations of the fast food restaurant. It includes basic information on the management structure and overall concept. The company description also lists information about the fast food restaurant’s branding and any marketing materials that are already prepared to sell the restaurant’s concept to customers and investors.
Concept and menu
Provide an in-depth discussion of the fast food restaurant’s menu and overall concept. This section should feature a sample menu complete with the menu’s visual design and recipes you plan to use. Explain the service structure, such as counter or table service, and plans for the design scheme you’ll decorate the space with.
Management and ownership structure
Go into detail about who will own and manage the business. Explain whether the company is an LLC, a partnership or a sole proprietorship and include details on who will manage the daily operations of each part of the restaurant.
Related: How to Hire a Restaurant Manager
Employees and staffing needs
Make note of how many employees you anticipate needing to successfully launch the requirement. In this section, detail your hiring process and create basic job descriptions for key roles. Your employee handbook and training materials should also be included in this section of the business plan.
Market and competitor analysis
Detail your relevant market research to give an idea of the existing market and opportunities for building a customer base. Include demographic information about the income level, age and buying habits of the local market. You should also review the competing fast food restaurants in the area and how their menu, concept and prices compare to yours.
Advertising and marketing strategies
Explain how you plan to attract diners to your new fast food restaurant. Include strategies for initially attracting customers and convincing them to return and make repeat purchases. Identify the basic reasoning for choosing various advertising channels and how you expect marketing to impact sales.
Your business plan should be a repository for all of your company’s financial data, including projected costs, break-even point and expected sales during the restaurant’s launch. Break down how much capital you currently have access to and how much you need to raise to cover all costs. Forecast ongoing expenses and make a timeline for when you can expect to be profitable and self-sustaining.
Tips for selecting a location
People visit fast food restaurants for a convenient meal, so choosing the right location is essential to your success. Some franchisors will scout locations on behalf of their franchisees and assign you to a particular territory, but you’ll have to do your own research to open an independent fast food location. Consider these key factors when choosing where to place your fast food restaurant:
- Visibility: Choose a location with good visibility from the street to generate interest from people driving by. Make sure you have space for prominent signs to direct customers towards the restaurant.
- Accessibility: Select a densely-populated area with other nearby businesses to ensure your restaurant is as convenient and accessible as possible.
- Labor and supply costs: Research the cost of operating in different neighborhoods or cities so you can maximize your profits.
- Competition: Look for an area that doesn’t have many direct competitors so you can capture a high percentage of potential customers.
Registering a fast food business
Before you can begin officially operating as a business, take care of the legal elements of opening a fast food restaurant:
- Register as a business. Submit the necessary paperwork and fees to register as a business with the IRS. Your registration ensures you can legally operate as a business entity.
- Get the appropriate permits and licenses. Apply for permits to serve food and beverages, post signs at your location, resell products and collect sales tax.
- Read up on regulations. As a restaurant, you’re obligated to meet health code standards and other safety regulations. Read up on your local health and safety laws to ensure you can pass inspection.
How to hire fast food employees
Follow these steps to start hiring employees for your fast food restaurant:
- Create job descriptions. When hiring employees for your fast food restaurant, write clear job descriptions for each position and post them on job boards.
- Post signs to attract applicants. Post signs in your fast food restaurant’s windows during renovation and direct them to an online application for easy processing, or have paper applications on-hand.
- Schedule in-person interviews. During the interview, look for friendly candidates with excellent customer service skills to be the face of your company.
- Develop standard training materials. Use a consistent guide to train your new employees on company policies and procedures.
Related: How to Hire a Restaurant Server
Best ways to market your fast food restaurant
There are several methods you can use to market your new fast food restaurant:
- Social media ads
- Loyalty programs
- TV ads
- Grand opening events
- Partnering with bloggers or reporters