The dos and don’ts of restaurant refurbishment
A renovation and refurbishment of a hospitality venue can cost a small fortune, so you have to know you’ll make whatever money you spend back. Tony Eldred shares advice on how to approach a refurb, and how not to go bankrupt in the process.
For this month’s Management column, one of my clients asked me to write a piece about how to successfully refurbish a hospitality business. Right well, how much room do we have?
Let’s go chronologically. First, ask yourself why you want to refurbish. Are you tired and ready for something new? Are you changing direction? Do you just want to keep in touch with the fashion of the day?
Then, the question you need to consider is how far should you go. I’ve seen businesses revitalised with as little as a coat of paint, new carpet, re-upholstered chairs and some secondhand kitchen equipment. But at the other end of the spectrum, I’ve seen people gut their entire property and do a complete re-build, inside and out, using the best designers and contractors money can buy.
Their justification is usually something like: “Ah yes, but look at the publicity we got.”
So, deciding the extent of your refurb and figuring out how to do it all boil down to one basic question: Where can you spend the minimum amount of money in your business for the greatest return?
But beware – there is a hidden trap here. If you are assuming that your venue’s decor or kitchen set-up are the limiting factors on your profitability and success, best to make sure these are not just assumptions. If you start spending money in the wrong places and these assumptions turn out to be invalid, you could end-up shooting yourself in the foot.
I’m very conscious of this because my company has been providing customer perception surveying for hospitality businesses for over 15 years. One of the main things I have learned from the results of these surveys is that the decor or environment in a hospitality business come a long way third in your average customer’s perceptions, behind the standard of human interaction and product quality. Before knocking down any walls, perhaps you would do better to investigate investing your money in these areas first.
Whatever you choose, it has to be within the bounds of commercial reality, or you will have a short and undistinguished career in hospitality. A complete refurbishment can cost a small fortune and you will undoubtedly need to sell a lot of food and beverage to pay for it. So how much are you prepared to spend and how long will it take for you to get it back?
Experienced operators recognise that refurbishment is a predictable expense that needs to be done every few years. Rather than borrow to pay for it, they accrue and put aside a set amount every month to pay for the refurbishment when it falls due. The reason some foodservice businesses look tired is that the money for refurbishment is not available when it is needed. And don’t assume the bank will be forthcoming, because they probably won’t.
It is always a good idea to get a professional to do the sums (a feasibility study) on the cost effectiveness of your plans, and establish the projected return on your investment before you begin.
Furthermore, all refurbishment projects should have a safety margin built in, because Murphy’s Law seems to be the governing factor in so many – whatever can go wrong, probably will go wrong – and your project will invariably take a lot longer and cost a lot more than what was first envisaged or provided for.
Put it this way: A much, much higher percentage of projects blow the budget and schedule, than come in on time to projected cost.
Astute renovators will produce a brilliant result on a shoestring by buying at auctions, avoiding the celebrity contractors and doing some of the work themselves. A difficult economy like we have at present means that there is a lot of opportunity to buy secondhand equipment and furnishings that are coming available from other recently deceased businesses who couldn’t afford their own fit-outs.
The main reasons why people go overboard with renovating or decorating projects is a combination of ignorance driven by ego and vanity. Sure, it’s nice to hob nob with the glitterati and be regarded as cutting edge – I’d be a fool if I didn’t recognise status as a major driving force in this industry – and it’s OK to think this way, but only if you can afford it.
Another issue to consider is that most hospitality businesses are located in leased premises, so lavishly capitalising someone else’s asset unless you’re sure you will benefit greatly from it is money down the drain. I do recognise that this is often done with the intention of staying in that location for a period of several years, but excessive expenditure on refurbishing can foreshorten the life of your business and make the term of your lease a totally irrelevant issue.
The cleverest operators keep an eye out for someone else who has spent a fortune on renovating and decorating and then gone broke (as they tend to do), then pick up the premises, equipment and so on for fire-sale prices and proceed to make some coin from the business. On the diminished cost structure they have compared with the original owner, they can make a profit.
So if you’re considering a refurb, my advice is make sure it’s done regularly, not as a one-off, haphazard blast from the cash cannon that changes everything at once. It should be a planned process, that only gets underway after the money is available. And make sure you are not refurbishing a business just for your landlord’s ultimate benefit.
This article was first published in foodservice's August 2019 issue. Read the digital magazine here.