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BFS Capital Blog

Why Restaurant Renovations are Important for Growth

June 22, 2016

The Yelp! review that said your restaurant was “still living in the 90s” was the last straw.

Not that there’s anything wrong with reliving Pearl Jam and flannel in your personal life, but if your restaurant décor looks like it hasn’t been touched since the Clinton administration, it may, possibly, be time for some renovations.

But you should never get to the point where customers are commenting on it. Like with most things in business, the key is to be proactive rather than reactive. And keeping your restaurant looking fresh can be as important to your growth as your food and service.

A recent report found that a restaurant renovation can increase sales between 7% and 20%. It also found “if guests rate food higher than overall experience, their likelihood of a return visit drops by 20 percent if the difference between the scores is one point, and 38 percent if that difference is two points.” Basically, if your ambiance is blah, nobody’s coming back.

How Much Do Restaurant Renovations Cost?
Restaurant renovations can cost on average between $100,000 and $1 million. But beyond that, your restaurant, or at least portions of it, may be closed for a significant period of time, and you need to be able to sustain the reduced cash flow. Look at your restaurant’s revenue numbers and see if it makes more sense to close completely for a short time (perhaps the “low” season where you are) or just partially.

If the money doesn’t seem to be there, then you have a few options. You can look into a deferred compensation plan, where you can defer 100% of your pre-tax income and invest it in the renovations tax free. Beyond that, alternative financing sources – like we have available at BFS Capital – are an excellent way to get the funding you need to remodel your restaurant. If you are looking for funding, here is a checklist for restaurant owners applying for a small business loan.

Once you’ve figured out if a renovation is possible, you need to set a realistic budget. Sure, maybe you want the Faberge interior with LED lights and THX surround sound for your restaurant, but that’s also probably overkill. Even with financing, you’re limited in what you can do, so set reasonable goals that fit with what you can afford and never, ever go past that number. And remember, renovations almost always go over budget so make sure your budget accounts for contingencies.

What Should I Consider for Restaurant Renovations?
With your budget in mind, it’s time to figure out exactly what you need to renovate. Fun as it might be to bring in an interior designer to focus complete on aesthetics, there are more practical things to consider.

Listen to your customers: That Yelper who said you were stuck in the 90s? Listen to him. But beyond the Internet trolls, talk to your regular customers and find out what changes they’d like you to make. This is your chance to really incorporate customer feedback, and it’ll not only give you a look people like, but also make customers feel valued
Figure out where you can generate revenue: Expanding your bar is the most obvious choice here, since alcohol yields such high margins. But also look into things like private dining rooms, take-out windows, and enhanced seating.
Focus on your highest-demand areas: If the bulk of your guests sit at two-tops, and you’ve got a restaurant full of four-seat tables, then fix that. If you do crazy bar business at Happy Hour but your area can only accommodate ten people, then consider expanding that too. Same goes with outdoor seating or tables with a view. Whatever you’ve got in high demand and short supply, create more supply so you can get more people in.
Examine kitchen efficiency: Restaurant remodels aren’t at all exclusive to the front of the house. Talk to your kitchen staff, and spend a night in the kitchen yourself, to see where this area needs to be rearranged or upgraded. Kitchen remodels can be the most costly, since moving or upgrading equipment can sometimes require rewiring and plumbing. So take all of that into consideration before planning any large-scale changes to your kitchen.
Look at your demographics: Perhaps when you opened, your restaurant was in a family neighborhood and your customers were mostly people with kids. But now, the neighborhood may have skewed much younger, so you may want to cater to what millennials are looking for in a restaurant. Instead of making the changes you want, take a closer look at your customer base now, and renovate to attract them.
Go classic, not trendy: Renovations are expensive, and while you might be tempted to put everything in your place in the “latest style,” that style could be out of date in a few years. And you’ll be back to getting comments like “stuck in 2016.” Opt for looks that can stand up for a while. You might not be the coolest, but you will stay save money in the long run.
A major restaurant renovation won’t guarantee growth, of course. But it will help your restaurant stay fresh and relevant in the face of new competition. While it might cost some money up front, and you may lose some traffic, ultimately it can make your restaurant an even bigger revenue generator than it is already. And a successful renovation can introduce your restaurant to a whole new set of customers. Remodeling your restaurant is a good investment, and one BFS Capital is happy to help you make. We’re here to help your restaurant business grow.