How Much Does It Cost to Start a Restaurant?
Keeping a restaurant profitable has never been easy. Even before COVID shutdowns dealt a major setback to the dine-in business, fewer than half of new restaurants lasted a year. Partly because a surprising number of new-restaurant managers were ignorant of accounting requirements and food cost issues.
Even starting a restaurant typically requires six or seven figures’ worth of assets, and estimating the cost is rarely a simple proposition. In the fast-food niche alone, basic franchise fee and collateral requirements range from $10,000 for Chick-fil-A to $545,000 for McDonald’s—not counting costs for staffing, marketing, maintenance, equipment, and stock, which can quadruple total investment before you even serve your first customer.
Most experts agree that total “starter costs” for any restaurant typically fall between $100,000 and $2,000,000, with the average cost for a leased location running around $275,000. Note that start costs may not be directly proportional to what customers pay per meal: other influencing factors include location; square footage; marketing (which requires a higher investment for original concepts without established brand recognition); construction/renovation costs; number of paid workers (which may well be higher at a “less expensive” restaurant where customers expect faster service); and potential delivery costs.
If all that sounds too daunting, there’s a highly affordable and profitable alternative to “traditional” restaurants.
The Age of the Ghost Kitchen
It’s possible to start a “ghost kitchen”—a food-preparation office that makes for-delivery meals exclusively—for under $50,000. And there’s never been a better time for it. Pandemic-related necessity didn’t invent the ghost kitchen, but was definitely responsible for a rise in awareness and demand that shows no sign of disappearing with the return of in-person dining options.
The economic advantages of a ghost kitchen are many:
- Lower startup costs.
- Less square footage is required.
- There’s no need for a flashy storefront in a prime location.
- Ghost kitchens can operate effectively with relatively few workers.
- For restaurant owners with multiple cuisine interests, ghost kitchens allow for establishing additional brands at the cost of a website.
You will, of course, spend proportionately more on delivery than most “traditional” restaurants. But the key budget concerns are marketing and technology: no visible storefront means no impulsive-drop-in business, so you’ll depend on virtual options for customer attraction and interaction. The most affordable ghost kitchen with the best food won’t pay for itself if consumers don’t know it exists. Or if virtual ordering proves sufficiently frustrating to drive them to a competitor.
Get Your Best Return on Investment
If you’d rather be designing new recipes than fooling with technology, don’t worry: that just makes you a typical restaurant owner. And you don’t have to steal from your food-preparation-and-design hours to develop further marketing expertise. If anything, your ghost-kitchen restaurant will reap a higher return on investment when you bring in an experienced marketing contractor to focus on promotion while you focus on cuisine.
On Demand Company is made up of professional strategists who can ensure that your ideal customers find you. We know how to create logos, organize menus, keep up with market needs, get you noticed on search engines and food-delivery apps, and handle all the other aspects of outreach. Our program can boost your sales 200% per week and help build a customer base of loyal regulars. Book a call with us to learn more.
- “Celebrity chef Robert Irvine explains the top 5 reasons most restaurants fail.” (Business Insider, 03/25/2016)
- “Did pizza chains thrive in 2020? It’s complicated.” (Restaurant Business Online, 06/29/2021)
- “How Much Does It Cost to Open a Restaurant?” (The Motley Fool, 12/16/2020)
- “How much does it cost to open a restaurant?” (Sage.com)
- “‘Normal’ Restaurant Business Operations a Year Away.” (GlobeST.com, 02/03/2022)
- “What Are Ghost Kitchens, And Are They Right For Your Restaurant?” (GlobalIndustrial.com, 04/22/2021)
- “What it costs to open 12 of the biggest fast-food chains in the US, including McDonald’s, Chick-fil-A, and Taco Bell.” (Business Insider, 03/23/2020)