Making Multiple Units & Locations Work

The Los Angeles Times Small Business section recently profiled a local small business that is facing a typical dilemma for Southern California business owners.  The dilemna of financial struggles amid biting off more than you can chew.

The mantra in business is to multiply and use scale of economy to wring out greater profits, which is how a great deal of fortunes have been made, of which IN-N-Out Burger is a great example.   People forget though, that in businesses that have a high percentage of fixed and non-scalable costs that expansion requires appropriate planning and the skill set to manage multiple locations.

Tom Mulvihill is the proprietor of two restaurants profiled in the LA Times article.   The story details Mr. Mulvihill’s daily struggle to physically manage two locations, manage marketing and social media, two sets of employees all while on a shoestring budget due to one of the locations being a drain on the profits of the other location.   Mr. Mulvihill has found that operating multiple units has created a big time and energy drain that is not leading to financial success.  His heartbreaking tale is not isolated, it is repeated ad nauseum in America.   The article features the suggestion of a restaurant consultant who suggests closing the unprofitable location, and negotiating out of the lease.  That lease negotiation is possibly going to very tough.  We agree on disposing of the non profitable location, however we suggest finding a buyer to take over the leasehold interest in the space.  We have worked with many buyers who have wanted to take over a restaurant space to re-brand to their own concept.  That way you solve a major problem for the landlord, which is find a replacement tenant.   The suggested location to close is located in Cerritos, which has a strong demographic for food consumption as the trade area is known for a plethora of international cuisines, which means the owner has a broad pool of concepts to appeal to.  We just hope that the landlord is reasonable as is the lease amount.  It is clear that Mr. Mulvihill needs to come up with an exit strategy as soon as possible.  By the way, we applaud Mr. Mulvihill for his hard work and efforts.  Kudos to taking the initiative and setting up facebook page for his business.

While the LA Times story did not delve into the details of Mr. Mulvihill’s coupon marketing, it did correctly note that regular coupon marketing affects customer habits in a detrimental fashion to the bottom line of the business.  You can read further about the pitfalls of using Groupon in another post on this website.

The food business is tough, it combines a service business with a retail business and manufacturing production (the kitchen) all into one.  Combining all three business types into one is a collection of challenges to manage.  On the Service end of the business, the ownership and management have a challenge to maintain the customer’s perception o f satisfaction, while on the Retail end of the business, it involves keeping customers happy over disputes that may be over as little as One Dollar and dealing with a seven day a week business.  On the Manufacturing Production end of the business, the product needs to be right every time, or else the occasional slip up will land you a negative review on yelp or other food review site.  Too many negative reviews and you have a bad reputation online that irreparably harm the business.

We all have seen any successful restaurant concepts multiply.  So why do we also see too often the struggling restauranteur?  Two factors, one is a restauranteur who has not honed his skills and concepts and is operating a business model that is not viable in multiple units.  The other major factor is the Rent Factor.   The key is to expand as much as possible in down retail leasing markets, and possibly taking advantage of Second generation spaces to save time and money in opening new units.  This is especially true on denser urban neighborhoods, where space is at a premium and at this time in this market, it may be available to lock at very reasonable rates.

Either way, it pays to cut your teeth working for a franchise brand in a direct management position that has P&L responsibility.  That is a great way to learn the food business and gain the experience that major name QSR brands respect that will unlock the doors to their franchise club.   For more information on how you can expand your business or gain credible experience to qualify for a major brand franchise contact our Client Care Manager Sonia Chhabra by telephone  (888) 926-9193 or email cs@justelementary.com