It’s a question as old as time: How much would it cost to open a restaurant? In London, the process is just as long and arduous for getting that small business going, but what are the costs involved?
With an average restaurant costing somewhere between £3 and £5 million to get started, future restaurant owners would surely like to know how to bring these numbers down.
Barring any unforeseen circumstances (because they always happen), here’s how much you’ll end up spending on the most vital aspects of your food business:
1. Equipment Costs
Equipment is likely to account for 13 percent of your total expenses. You will need to purchase the equipment to make the food and beverage items on your menu, process them in some way to prepare them for your customers, store them appropriately until they are served or packaged, and properly clean everything once you’re done with it.
These items include:
- Kitchen equipment, such as ovens and stoves, refrigerators and freezers, pots and pans
- Bar equipment such as taps and mixers
- Tables and chairs
- Smallware such as cutlery, plates, glasses, and cups
- Janitorial supplies such as linens for your tables, mop heads, brooms, and cleaning chemicals
- And possibly other items depending on how you choose to design your restaurant.
However, some of these costs might not be immediately obvious if you choose to lease equipment because the lease might cover those items as part of a package with labor, supplies, and other miscellaneous expenses.
Even if you decide to buy all these, you can still spend less through a capital allowance asset claim. Capital allowance refers to a deduction a business can claim for the capital expenditure it incurs by buying or leasing assets.
2. Rental and Location Costs
In the UK, land is a premium commodity. And in London, it is both scarce and pricey. The capital has the highest rental cost for office spaces in all of Europe, according to Statista.
As a restaurateur, expect that your rental will make up 40 percent of your total expenses. If you want to spend less on that, stay away from the West End, whose retail spaces command a whopping £112.5 per square foot.
Usually, these spaces need remodeling to fit with the concept of the restaurant you have in mind. That could set you back to £1,200 per square foot. However, you can also claim the renovation costs as capital allowances.
You can also explore the concept of ghost kitchens while you’re still building your capital or testing your menu. Ghost kitchens are facilities where you can prepare food for delivery-only meals.
These places already come with complete pieces of equipment. Depending on the package, they may also include help who works with many restaurant business owners.
3. Labour Costs
Probably next to your rent, labor costs will be around 24 percent of your monthly restaurant expenses. The average salary of a chef in London is around £23,000, but it can also go as high as £35,000 a year. The more experienced they are, the more you need to pay for their labor.
Besides their salaries, they may also be entitled to other forms of compensation and benefits. Training is an expense too, and considering the high turnover rate in the industry, this is likely to be a regular cost for your business.
Fortunately, you can consider some ways to lower your labor costs. First, you can increase your productivity and efficiency. It means your restaurant can accommodate more customers in a day, which can boost your revenue. You can hire part-time, temp, or seasonal staff to do this.
Second, you can delegate some of the tasks to robots. Ordering kiosks, for example, allow customers to place their orders themselves and collect them when they are ready. More restaurant owners are also installing self-ordering devices in their kitchens to help chefs prepare food more efficiently.
4. Marketing and Advertising Costs
When you don’t have a restaurant yet, this will be one part of your capital expenditure. Once you’re ready to open the doors, however, this can become a variable expense, in which case you can allocate at least 5 percent of your revenue.
Marketing in London has its pros and cons. The biggest advantage is it’s a densely populated city with people who like to eat. The downside is you have a lot of competitors. It is a crowded market with many established brands that claim a significant portion of consumer spending every year.
One way to get around this is to leverage tech for marketing. Make sure your restaurant’s site is fully optimized. Use social media to help establish your brand, engage with your target market, and drive people to your restaurant.
In the end, it all boils down to your funding strategy. You can find a way to start a restaurant by spending less or making more through smart investments and cost-saving strategies. Just make sure you have a plan before going out there and buying inventory for your business.