The food industry in India sees a growth in demand year on year. Many budding entrepreneurs are pulled into the idea of opening a restaurant. If done right, it could be a rewarding venture. In this blog, we will give you a comprehensive guide on how to open a restaurant in India.
Quick Fact: Did you know that 10% Compounded Annual Growth Rate was seen in the food-service industry recorded from 2017 to 2022 in India?
Opening a restaurant and more importantly running a successful one is not an easy task. Why? Well – there are thousands of restaurants in India. And you want to start one. What would make you stand out? Why will people buy from your restaurant? What are the finer details you should know about while you go about opening a restaurant in India. Let’s take all of this step by step.
Here are the 8 headers that you should look up while planning to open your restaurant.
- Initiation and early set of considerations for opening a restaurant – Getting the answers to the first set of questions – the vision of your brand, what kind of restaurant what kind of value do you want to bring to the table for your customers, what audiences are you considering, how would you position the restaurant.
- Restaurant Costs assessment – Restaurants or as a matter of fact all businesses, come with heavy costs, In fact the overheads will almost always be a major chunk of your spends and operational profit will be needed to constantly chip away at your overheads. In this section, we will take you through all the costs – overhead costs and variable costs that you would be bearing while starting up.
- Finances and Funding of your restaurant – Many restaurants in India go bust within the first year of operations. The major reason behind this being – undercapitalisation. How do you bring in the money and how do you stay operationally afloat?
- Legal documentation check – There is a long list of documents that you need to have to run a legal restaurant. This section covers all the essential documents/licenses that you need at your restaurant.
- Kitchen Equipment you need at your restaurant – The essential equipment you need at your restaurant, both restaurant’s back and front-end.
- Restaurant Technology stack to run your restaurant – Technology is an indispensable part of your restaurant. Technology can ease all the important functions of your restaurant – be it operations or marketing or order online.
- Marketing and Promotions to get started and boost leads for your new restaurant – A big bang promotion is what you need to get your restaurant underway. Going in with a well-defined plan will help you attract people at an early stage and build a loyal customer base.
- Restaurant management tips – Managing a full-fledged restaurant is challenging. You need to take care of multiple functions – Operations, marketing, branding and more.
Initiation and early set of considerations for opening a restaurant
When you’re about to get started, your mind must be full of ideas. There will be questions aplenty. We’d recommend you to write them down and take it step by step. Here are some of the questions that could come to your mind.
- What kind of restaurant do you want to open?
- What kind of food do you want to serve?
- Is there a sizeable market in the area for your idea?
- What kind of ‘mood’ do you want to have at your restaurant?
- What kind of crowd do you want at your restaurant?
- How do you name your restaurant?
The process of asking questions could be called putting wings to your ideas. There is a big leap to be made from the ideation phase to the actual implementation phase. Let’s define your vision first.
You must have thought about opening a restaurant. Jot down all kinds of restaurants there are and zero in on a given type.
Restaurant types – QSR, Dine-in, Food Truck, Bar, and Cafe.
Keep a close eye on the budget. For example, if you have 10 lakh – you would be able to afford a select set of options (casual, fast food, food truck, etc.) or location (Tier 2-3 cities are going to be easier to afford as compared to a Tier 1 cities).
Typical costs for 2 for the following restaurant types in India are as follows:
Fast Food – 600 INR
Casual Dine – 700 INR
Fine Dine – 1600 INR
Cafe – 500 INR
Bar – 1500 INR
The kind of audience you want at your restaurant would further determine the colors you use, the images on the walls, the kind of music, the service of staff and waiters you employ and so forth.
The audience and mood of the restaurant are closely related and go hand in hand. Getting this right will determine the experience.
Location and Competition of your restaurant?
When you consider the location you should have the following in mind
- How much demand can you generate? Do a quick profile check of your audience, say, across a 5-mile radius and check out their propensity too. You could go buy your intuition or maybe float survey forms in the nearby market to gauge customer purchasing power. What costs for 2 at a restaurant are they typically comfortable with? What kind of food do they like? How often do they eat out? Do they like oriental food or fast food or Indian food and so and so forth.
- Once you shortlist a few options, the next thing would be to check up on the nearby areas. What kind of competition are you looking at? If you are a burger company, are their KFCs and MCDs in the neighborhood? It is preferred that you go unique. See the gap and hit it. Even if you choose a traditional option like Oriental food, what difference can you bring to the table? How uniquely can you position your brand?
Choosing the right location for your restaurant
Ideally, you should be looking at an area where there is a high demand for eating out and your target audience is a good chunk of the population. Remember if the top of the funnel isn’t right, you’ve lost the game even before it starts. Scope the landscape and nearby areas – Is the area frequented by people? Are there other attractive shops in the vicinity of your restaurant? Is it safe? Is alcohol permitted in the area?
How much will it cost you to open a new restaurant in India?
When you are just starting out with your restaurant, almost everything right from renting a space to hiring staff to buying kitchen equipment needs you to allocate money and budget. You need to plan meticulously to ensure your budget is utilized efficiently. In this section, we will look at some of the most elementary costs that you must have in mind when you decide to start your restaurant. Do keep in mind that there would be significant variations in the cost depending on – the type of location, brand of choice, type of restaurant and so on.
Perhaps the most important cost of opening a restaurant that you must bear in mind. The cost per unit would be dictated by a lot of factors (examples being location, the total size of the restaurant, materials and finishing, interior designs and amount of furnishing already in place). For instance, a Food Truck would take up almost no space, a QSR restaurant or a Cafe would take up little space. These are lying at one end of the spectrum. Dine and casual restaurants might even occupy multiple floors and renting them out will be way more expensive.
The average space needed for a restaurant in India will typically be in the ballpark of 1200 to 1500 sq.ft. This would obviously vary from city to city. Tier 1 cities like Delhi, Mumbai would be pricey whereas those in tier 2 cities would be easier on the pocket. Different cities would be having a different cost of land per square feet allocated. Here a restaurant owner would have two choices. One, purchase a space. Second, take it on rent. Purchasing could be expensive – It would cost around 50 Lakh INR to 1Crore INR. On the other hand, rent would be approximately in the range of 30K INR – Rs. 1 Lakh INR a month
Restaurant design and furnishing
The quality of interior designing done at your restaurant is again a function of the type of restaurant. For a fine-dine, interiors might be extremely important whereas, for a fast-food restaurant, it might be comparatively cheaper.
Restaurant design would normally refer to the colors on the wall, the flooring used, and the images on the wall.
Furnishing might be the type of furniture, bar area designs, ACs, electrical appliances in the kitchen, etc.
In a typical case, approximately 30%-40% of a restaurant’s budget is kept aside for the furniture and fixtures. QSR’s will not usually make use of expensive furniture as people do not normally spend more time here. On the other hand, fine-dines may easily spend a bomb on furniture.
The cost range of basic interiors is Rs. 3L to 5L.
Restaurant Variable Costs
A thumb rule of variable costs are those costs that are linked to the number of people (customers) coming in at your restaurant. The more the number of customers, this cost component goes up. Costs under this header would include the cost of food, drinks, salaries to employees. The inventory at your restaurant again is a part of the variable cost.
The exact amount of your variable costs as mentioned will vary with the sales of your restaurant. You can further help keep your variable costs under control by going in for more economical options for staff, the food.
Food costs take up 25% to 40% of your restaurant’s revenue.
Labor costs are usually kept in the range of 20% – 30% of the total revenue. You would need to employ managers, wait-staff and kitchen staff.
Read here to know how to hire the best team for your restaurant.
Restaurant Marketing Costs
Your job doesn’t end once your restaurant is established. You need to market your brand in order to get customers. There are two kinds of marketing, paid and unpaid. You can run paid ads on printed collaterals and social media platforms like Facebook, Twitter, and Instagram. Building your restaurant’s own website and the app helps market your brand tremendously. Designing a menu card is also a part of marketing. Depending on the agency or team you choose, restaurant marketing could cost up to 1 lakh.
Want to know the different marketing ideas to implement in your restaurant? Read here.
For a complete list of all the restaurant costs that are needed for you to start your restaurant, give this guide a read. Costs of opening up a restaurant in India. It lists down all your expenses comprehensively and will help you plan your spends easily. We will cover the licenses and documentation in the subsequent sections.
Financing and Funding – Raising capital for opening your new restaurant
To start a restaurant business you need a sizeable chunk of capital. Opening a restaurant in India can cost you anywhere between 5 lakh to 1 crore (could be more or less depending upon the location, type of food, customers and costs that you want to undertake). If you do not want to invest your own money, you would have to raise money from an alternate route. Here are the ways in which you can raise money.
- Take an informal loan– You can raise money from your family, friends, peers. The advantages of raising money are:
a. It’s quick (almost no processes involved).
b. Limited interest rates to be paid.
c. Informal and more comfortable payback options.
d. Flexibility in kind of payback – you can pay at your speed, maybe even make them a partner.
- Secure a formal loan – You can approach a bank or a financial institution with your restaurant idea. They would help you raise money. The caveats in this are:
a. Need collateral – You would need to produce some kind of collateral (a guarantee) such as land, house. Only then will you be granted a loan – if you are unable to run a successful business, you will be at the risk of losing your collateral.
b. Background checks – the banks are usually very thorough with customer background checks. Banks constantly run into NPA issues hence to safeguard against this they put in place stringent checks.
c. Interest payments – You would have to pay high-interest rates along with the principal amount that you need to go back.
- Find investors – Apart from banks and FIs, there are a large number of investors who are constantly on the lookout of good businesses to invest their money in. They fund your costs totally or partially in return of an X stake in your business. These investors usually take care of your heavy costs and ensure you are covered from the finance aspect. A few cons are 1. You have to run your decisions by the investors (so you’ll lose autonomy and authority) 2 You will have to produce sound strategies to get funding rounds.
For points 2 and 3, you must have a sound business plan.
Business Plan – You need to produce a sound restaurant plan that includes your idea, the costs that are projected, the cash flows, profit estimations, business function details, operational value of the functions and so on. In other words, you would have to present a detailed plan in order to stand a chance at getting the needed money from a bank or an investor.
Here’s an infographic to brief you on all the costs needed to open a restaurant in India
Restaurant License and Documentations – All the essential paperwork for opening your restaurant
To legitimately (or legally) run a restaurant you must have all the necessary licenses and permits. Some licenses may depend upon the type of restaurant you run (like a bar needs a liquor license)
The cost of each license might vary. A fair number of them might also have a renewal fee attached to them that must be paid out periodically.
Here is the list of key licenses.
FSSAI license is a 14 digit registration/license number that’s given to the restaurant. You might have seen these numbers on packaged boxes you receive from restaurants on delivery. The feed of renewing this license is Rs. 7500 INR (annual charge).
Read here to know more about getting an FSSAI license for your restaurant.
If your restaurant has alcohol on its menu, you would need a liquor license. This license is pretty expensive (not to mention that you must also comply with the state govt regulations regarding alcohol). The charge for this license is 5,000 INR while submitting the documents. Additionally, you would have to also pay a sum of 50,000 INR for liquors such as gin, whiskey, rum.
The health and trade license ensures that you comply with the health concerns of the Health Department. It takes around 60 days to have this license issued post document submission. This would cost you anywhere between Rs. 500 INR to Rs. 50000 INR depending upon the state rules.
Eating house license
This license is often ignored by restaurant owners. The Eating House License is issued by the Licensing Police Commissioner of the city where you wish to open your restaurant.
The registration cost for having the restaurant eating house license is approximately 300 INR and it is usually valid for three years post which you’d have to renew.
Shop and Establishment License
To run any food business (not just restaurants) in India, you must be registered under the Shops and Establishment Act. Under this act, you mandatorily need to have your restaurant registered no more than 30 days from the date of the restaurant launch. The cost of this would be between 200 – 4,000 INR per year.
For complete insight on all licenses, you can refer to this article. It comprehensively covers all the licenses and permits you’d need to open your restaurant.
The Kitchen Equipment List – A guide to all the tools and instruments you need at your restaurant
This will be a significant spends portion upfront. The equipment needs of a restaurant will usually stay the same (across different kinds of restaurants). Whether you own/manage a QSR or a cafe, you would essentially need certain tools that are of critical importance to your restaurant.
Here is the list of the basic commercial kitchen equipment categories that you must be aware of while you go looking for the tools for your new restaurant.
- Cooling Equipment – This largely refers to refrigerators or freezers. Depending on the kind of restaurant, you can choose the kind of coolant you’d require for your restaurant kitchen.
- Heating Equipment – Equipment that takes care of roasting, grilling, baking, rethermalizing. Basically the cooking processes that involve heating/reheating of food, are taken care of by the commercial equipment involved in this category.
- Washing Equipment – All the sinks, dishwashers, washing related equipment would fall in this category.
- Cooking Accessories – All the cooking utensils such as bakery utensils, cook boards, peelers, graters, are examples of the
- Tables and Shelves – When you open a restaurant you would want your kitchen to look nice, This category would include Kitchen shelves and tables to help you cluster all your equipment, raw materials and
Restaurant technology stack – Must have technology at your restaurant (by function)
A modern-day restaurant cannot function without the right technology. Technology will help you automate a lot of workflows and will make your business efficiency go up.
Here are the major functions which need technology focus when you go about opening your restaurant.
Your critical operational assignments include Billing and Accounts Management, Inventory Management, Tax Management, Invoicing and so on. Modern-day restaurant POS software is convenient for data management, data reporting, analytics. Also, data is more secure on Cloud POS systems which come with their own set of benefits (data security, better data storage, data access from anywhere, use on any device). Check out this resource for the benefits of Cloud POS systems – Advantages of a Cloud POS system.
Marketing is a way of keeping your customers engaged with the brand. SMS and Email are important pillars and automating this helps you quickly scale up your CRM.
Managing your online ordering will be next to impossible without a tool that aggregates all your orders onto a single platform. An online order aggregator tool (such as LimeTray’s Merge) helps you stay updated on all orders and gives you insights on the whereabouts of every single order through an Uber Eats or a Swiggy.
If you wish to establish your own order online platform, you can have your own websites and apps made. The latest web technologies and servers help improve the customer experience buying behavior. Web and app designs have become all the more advanced with the use of virtual assistants and chatbots that increase the likelihood of ordering and reordering.
Marketing your new restaurant – Get visible quickly
If you wish to open a restaurant and succeed, marketing is obviously an indispensable part of your strategy. Getting people on board initially, and in good numbers, will determine your long term business sustainability.
Here we will give you a few tips about how to go about your marketing that will help you make your brand more visible and get more orders.
Create your Social Media handles
Be present on all social media handles while starting out. Consumers today make many of their decisions online and you do want to ensure that you are present across social media channels like Facebook, Instagram. You might want to supplement your organic listings with ads to reach out to relevant audiences faster in the short run.
You may want to catch eyeballs with freebies when you go about opening your restaurant. They can be in terms of happy hours, first 10 orders are free, 50% offs for the first month, Buy One get one free on starters/alcohol (BOGO), and the list is endless. Promote this offline (outside your restaurant within a 5 km radius. Promote this online through your digital channels as well.
Building your Website and App
Having your own restaurant’s website is a great idea first up. Being overly dependent on online aggregators is not good as you want to get a good chunk of orders directly. Commission-free. Your own website and app will also help you brand yourself
Building a Loyal customer base quickly
When you have a new brand, it might be difficult to create a sense of recall. Brand recall. Brands like McD and KFC have done a lot of campaigning to get where they are today. One step for building a good audience is to quickly engage your audience so that they become your permanent buyers. Your loyal customers. Set up engaging CRM campaigns (using SMS, email, Whatsapp) and incentivize your customers to order more from you.
You may want to use some traditional methods of marketing to spread the word about your brand. You can make use of pamphlets, billboards, OOH advertising in the metro stations. You might want to share your menu, your details, special offers and more through these promotions.
Do ensure that you are on every important listing when you open your restaurant. Especially the ones that are used a lot by the customers. Online order aggregators will help you increase your customer base but will limit you in terms of the margins and the branding space. Apart from Swiggy, Zomto, Uber Eats and other aggregators you should also be up on the review sites like Yelp, TripAdvisor. Make a list of all such websites and submit your details in them.
To attract eyeballs quickly you need to run ads on Google and Social. On Google, you need to run Search Ads (bid on keywords that are relevant to your niche and have them show up on Google search results) and Remarketing ADs (Ads that show up on Google’s display network once the visitor has visited your website). Remarketing is extremely useful as a lot of the customers bounce off your website without making a purchase the first time.
Restaurant Management tips – Be in control of every function from Day 1.
Managing your newly opened restaurant can always look like a big task. In this scenario, a handy checklist helps. Here we have jotted down some key points that will help you structure your restaurant management efforts.
Keep your staff happy
You might have to make your staff work long hours particularly during a period that you are starting out. It is important in this phase that you understand their needs and keep them happy and motivated. Here are some of the things that you can do.
- Listen: You need to ensure that you listen to your staff, understand what they like and what they don’t like. Hear their point of view and try to address their pain-points. Nip the staff problems at the bud.
- Incentivize: Learn to incentivize the ones that work. Money is a great motivator hence reward hard work. Your staff sure does want to see their hard work getting paid off.
- Organize fun staff sessions – All work and no fun can get boring. Help your staff rewind with fun activities every now and then.
Customer experience is key
Customers are at the heart of your business. Their experience at the restaurant will decide whether or not they’ll come back to you. It is thus critical that you take care of his interests.
Typically they care about the following.
- Great food
- Friendly staff
- Timely service
- Good ambiance
As a manager, your job is to ensure that you give your customers a complete experience.
Ask your customers if they like what you have to offer. Make use of feedback forms, face to face meetings and so on.
Bring efficiency to your operations
When you open a restaurant, operational inefficiency is one major challenge that most owners/managers feel. Managing your transactions, orders, cash, and accounts
In this scenario, you can do the following.
- Make use of a centralized restaurant management system. One in which all your data gets stored, across all your outlets.
- Hire a strong team. Check on variables like motivation, team-play, experience, while you hire.
- Get rid of old and obsolete components of your restaurant such as cash registers, excels and spreadsheets. Rather make use of POS systems, analytics dashboards and be on top of your numbers, your outlets.
Managing taxes, paperwork and everything legal
This is essential for your restaurant business while you set it up. Ensure that you have all your important papers accessible with you at all times.
Here is a quick list of the essential paperwork
Tax-related: This includes all kinds of taxes you need to
- Charge (service tax, delivery tax)
- Pay (income tax, business tax),
Ensure you have copies of your PAN Card given to more than one team member, and your tax documents (year wise carefully filed and stored online).
Company registration papers: These are the papers and documents that would have your critical restaurant details, year of inception, etc.
Property papers: You would need to keep copies of your Lease Papers or Ownership proof at all times.
FSSAI papers: This includes FSSAI license proof, certificates, and other food quality standard paperwork.
Ready to open your restaurant?
Opening a restaurant in India is surely difficult. The steps involved are many and you need to be very meticulous if you wish to have a successful business. Starting a restaurant with the above-mentioned points in mind will help you structure your ideas better and ensure you do not miss out on any point.
We hope you find the article useful and we wish you all the best with your business. Do feel free to reach out to us in case you need any information.