10 Jun 2020 | Catering Equipment

Feasibility Studies for Hospitality Businesses: Measuring The Market Potential of Your Food Business

Feasibility Studies for Hospitality Businesses: Measuring The Market Potential of Your Food Business

Before you start picking out wallpaper and mouthwatering ingredients for those brilliant dishes; you have an essential first step to complete. You need to conduct a Feasibility Study.

We also recommend you check out our complete guide to Buying Commercial Catering Equipment.

You’ve had a light bulb moment and you’re keen to either open a new catering business or renovate an existing one. Before you start picking out wallpaper and mouthwatering ingredients for those brilliant dishes; you have an essential first step to complete. You need to conduct a Feasibility Study.

A Feasibility Study is a tool for determining the feasibility or market potential of your proposed food business. It is often included in business plan templates and encourages some forward thinking.

Starting a new restaurant, café or bar is an exciting but challenging venture, and lots of first-time businesses fail due to rushing the initial research and planning stages. To make sure you give your commercial kitchen a fighting chance of success, here are some tips on how to create a solid Feasibility Study.

Hospitality Market Statistics

It’s vital to know about the demographics of your potential market; particularly regarding age and income. Is the local area mostly populated by couples and families, or is there a large student community? This will affect the type of food you serve, and the prices people will be willing to pay. You can find this type of information from the Australian Bureau of Statistics website.

It’s also important to know the geographical size of your market and think about how far customers will be willing to travel to eat your food. By picking a city like Darwin, prospective owners need to consider the limitations of the remote location and population size. It’s also valuable to consider how much this changes between Wet and Dry season.

Choosing the Right Location for Your Food Business

Getting the right location for your business is one of the top factors when it comes to success. A restaurant in a rural location will have to work much harder to attract customers compared to one in Casuarina Square. However, a rural location might guarantee more regular and loyal customers compared to one that attracts high foot traffic.

Ideally, you want to be in a highly visible location where it’s easy for pedestrians and traffic to access. Have a look at the other businesses in the area– hotels, malls and offices could create more demand for your restaurant, as could a new housing development.

Make sure you think about the balance between the most suitable location and the cost of the lease. You don't want to put added pressure on a new venture through high lease payments. However, you should also consider the additional costs associated with a remote location; such as food deliveries and more demand for storage (to help you keep food fresh for longer). These additional costs add up and you should be confident you are making the right choice that suits your budget.

Competition Analyses: Know Who You're Competing Against and Find Holes in the Market

This is a fun part of your Feasibility Study as it gives you the perfect excuse to dine out at all your competitor's establishments!

You don't just want to look at the number of restaurants or cafes in the area, but also the different styles. Can your restaurant fill a gap in the market? There’s no point opening a burger joint if there’s already three nearby.

To narrow your focus, compare those who have a similar cuisine, prices and target audience. If you’re planning on offering tasty pub grub, you won’t need to worry as much about the five-star fine dining restaurant down the road.

Find out which venues have been open the longest and look at what has made them so successful.

Find Marketing and Networking Opportunities For Your Food Business

See if there are any local hospitality or business groups you can join to get support from people who have been in the same or similar situation. These groups often review industry statistics and news at meetings, which will help keep you up to date with current trends and updates that could affect your new business.

Local knowledge is one of the best pieces of information you could have. By broadening your local contacts you can add important insights into your Feasibility Study.

Financial Projections for a Hospitality Business

You need to try to predict the sales potential of your future catering business. Once you have an idea about what food you're going to serve, you can research your suppliers and break down the cost of each menu item.

You can also work out potential restaurant sales by estimating how many customers you intend to serve each day (covers) and the average spend of these customers per bill. Don’t forget the startup and operating costs which will include things such as maintenance, equipment and furniture.

Your catering supplier should be able to help you plan the equipment needs for your business and calculate the costs.

Review your Business Feasibility Study

When you’ve finished your Feasibility Study, make sure you take the time to review your business idea and what you’ve learnt from your study. You should have all the data you need to make an informed decision about whether to go ahead with your plan and make it a reality.

If the answer is yes, great…time for action!

Use your Feasibility Study with Your Suppliers

Don’t be afraid to share your Feasibility Study with your local supplier. This is one of the best steps you can take to making sure you stick to the plan.

Your expert supplier should be able to take that information and make informed recommendations on what commercial catering equipment to buy. It’s possible they could identify some gaps in the plan and help you work through any additional considerations.

In some cases, a supplier can save you money by advising on essentials and non-essentials.

Use your supplier as an asset to help you stick to or improve your Feasibility Study. Do this, and you are on the road to success.