How to Start Restaurant Business in India

The restaurant business is one of the best options for Indian entrepreneurs as it is one of the biggest service sectors in India. The restaurant business comes under the scope of the retail food segment. Different types of restaurants are available in India, depending on the preparation methods, menu style, and pricing. The word restaurant includes a cafe, fine dining, casual dining, ethnic, fast-casual, fast food, quick service, barbeque, family-style, tabletop cooking, pub, etc.

The highest growing restaurant segments in India are casual dining, quick service restaurant, fine dining, and cafe. Apart from these the bar, pub, sports bar, lounges and clubs are also getting popular these days.

Restaurant Industry In India

The Indian restaurant industry sector is one of the fastest-growing markets in the world. As per the National Restaurant Association of India (NRAI) report, the restaurant market is expected to reach Rs.5.99 lakh crore by 2022-23, growing at a compounded annual growth rate of 9%. Despite the challenges and hardships that the restaurant owners faced due to the Covid-19 pandemic, opening a restaurant would bring new opportunities for budding restaurant owners.

Process Involved in Starting Restaurant Business

The following process is involved in starting a restaurant business in India:

Decide the Restaurant Concept

Before starting a restaurant, the first thing to do is to determine its concept. Determining the restaurant concept depends on the investment capacity and local demographics’ eating habits. A restaurant owner can choose any of the following types of restaurant concept depending on the vision and funding:

• Fine dining restaurants
• Casual dining restaurants
• Bakeries
• Cafes
• Food carts

Once the business owner decides on the restaurant concept, he/she must decide on the restaurant theme, interior design, cuisine and menu. The restaurant interior design, service style, menu and theme must be in sync.

However, deciding on the theme and interiors is not required when a business owner starts a dark kitchen. Dark kitchens are online restaurants only with no establishment. In dark kitchens set up, an individual prepares meals in a kitchen and sells them online. Opening a dark kitchen is a good option as the set-up cost is less, and people prefer to order food online.

Create a Business Plan

After deciding on the concept, business owners should prepare business plans for their restaurants. A business plan will help the restaurant owner to plan the future development of the restaurant business and present it to any potential investor.

The business owner must also consider whether to initiate a franchise business or start his/her own restaurant. Beginning a franchise business is easy compared to establishing a restaurant. However, when an individual has his/her own restaurant, he/she need not share profit and spend on franchise fees. The financial analysis and business plan play a significant role in helping to decide whether to start an own restaurant or take up franchising of a restaurant. 

Evaluate Restaurant Costs

A business owner must have a good idea of the operational and set-up costs involved in starting a restaurant. Irrespective of the type of business, a business owner will have to bear the following costs: 

• Food cost – It is the cost of the raw materials used to prepare a dish. Ideally, the food cost should be about 30% of the menu price. 
• Labour costs – Labour cost is a critical restaurant cost that increases the expenditures while opening a restaurant. 
• Overhead costs – Overhead costs are expenses that are not related to food or labour. They include:
  • Rent – The rent of the restaurant premises is affected by its location. However, it should not exceed 10% of the total revenues.
  • Interiors – The restaurant owner can decide on the interiors based on the budget and concept. 
  • Kitchen equipment – Initially, the restaurant owners must bear the costs of purchasing quality equipment, but they always recover these costs in the long run. 
  • License – Obtaining the various licenses and registrations required for a restaurant business is essential for the restaurant. The fee to be paid to obtain licenses depends on the establishment type.
  • POS system – The modern technology POS (Point Of Sale) system is required to smoothen restaurant operations and payments. 
  • Marketing – Restaurant owners should ideally spend 1-2% of their revenues on marketing the restaurants. They can use offline and online marketing modes. 

Get Investments and Funds for the Restaurant 

One of the most important things to consider before opening a restaurant business is getting the required investments and funds. A restaurant owner must decide on the capital needed to start a restaurant. The set-up cost of a decent-sized restaurant may take Rs.15 lakh to Rs.1.6 crore, depending on the menu, location, and other factors. 

A restaurant owner can obtain funds to start a restaurant through the following ways:

• Self-funding – When a business owner has accumulated the required funds to open a restaurant, he/she can start the restaurant with those funds instead of taking loans. It is also a good option to open a restaurant in partnership with others since it reduces investment risk.
• Loan – A business owner can take a loan from a bank or financial institution to start a restaurant. However, obtaining a loan from a bank includes hassles as they need someone who can underwrite the loan and provide a guarantee or collateral.
• Venture capitalists and angel funding – A business owner can approach venture capitalists or angel investors in the restaurant business to invest in his/her restaurant. However, getting investors on board is difficult, especially when it is a first-time venture. Investors generally look at the restaurant’s growth potential and scalability of the business model. This option is good when the restaurant is already established and is earning revenue.

Decide the Name and Location of the Restaurant

Another important aspect that a restaurant owner needs to consider is the name and location of the restaurant. A restaurant owner should give the name, logo and premises address when applying for business registrations and licensing. The name and logo of a restaurant provide the first impression to the customers. Thus, it is essential to decide on a catchy and simple name. Also, the owners need to ensure that the restaurant name is marketable and has domain availability.

Before choosing the restaurant’s location, the owner should identify competitors in that area, study their progress and understand their business model. Evaluating the competition will help owners understand the customer base in that area, preferences and pocket size. It is always better to locate a restaurant in an easily accessible and visible place. Usually, the metro city areas are the best locations to start a restaurant business. 

Get Required Registrations and Licenses 

A business owner must obtain the required registrations and licenses to run a business. The cost of obtaining these registrations and licenses varies depending on the size of the restaurant. It is better to apply for the permits early as they take a lot of time to get approved. Without obtaining the licenses, an owner cannot start a restaurant business. All the licenses and registrations applicable to a restaurant business in India are explained below in detail.

Hire the Required Workforce

Skilled and experienced employees need to be hired to run the restaurant properly. There are different types of staff required in a restaurant, which are as follows:

• Kitchen staff – The kitchen staff comprises the cooks, support staff, food preparation staff, etc. 
• Service staff – The delivery staff, waiters, housekeeping staff, etc., are the service staff. They need to have good communication skills since they interact with customers and must be trained appropriately.
• Management staff – The restaurant’s chef, manager, cashier, store manager, etc., are the management staff, and they need to be experienced with adequate education for the role.

Design the Menu

The restaurant’s main product is its food. The food of a restaurant can make or break the business. Thus, the menu should be carefully designed. A smartly designed menu can significantly impact the restaurant’s food costs. The menu should comprise items that use local or readily available items and food that can be prepared quickly. 

Restaurant owners must decide on the cuisine they want to serve and choose the menu items based on the audience’s demands. The menu should be designed in a way that lures customers to spend. Offering a combo or thali meals menu is very popular in India. 

Arrange for Delivery Service

A food delivery service is a crucial restaurant business component, especially after the Covid-19 outbreak. Customers now prefer to order food online rather than go out and eat in restaurants. Zomato and Swiggy, two popular online food delivery platforms in India, experienced massive growth in 2020, even during the lockdown.

Thus, a business owner must arrange and plan an online delivery strategy. A business owner can hire a delivery team or partner with an online food delivery platform. When the restaurant has its own delivery staff, the owner will have control over who is delivering the food and how and when it is delivered. 

However, partnering with online food delivery platforms helps a restaurant access a wide range of customers and visibility. It also helps restaurant businesses that cannot afford a decent-sized delivery team.

Technology and Marketing of the Restaurant

A restaurant’s digital infrastructure is a significant aspect of maintaining and operating a restaurant. A versatile POS system with a range of modern digital technologies has simplified restaurant operations. Technology also plays a vital role in marketing the restaurant. A restaurant owner can use the following marketing strategies to gain customers:

• Print media – Print media is promoting the restaurant through newspapers, pamphlets, brochures, etc. Giving advertisements in local newspapers can help to attract a crowd.
• Social media – Social media makes it easy to reach a large crowd in a short period. A restaurant owner can advertise or create restaurant accounts and post content related to the restaurant on social media handles like Facebook, Instagram, Google Adwords, etc.
• Bloggers meet – Restaurant owners can reach a large number of audiences with the help of food bloggers. It is a popular trend to arrange for bloggers’ meetups and invite food bloggers to rate dishes and write a review on their personal blogs.
• Influencer marketing – Influencer marketing is asking influencers to promote the restaurant to their audiences. There are many influencers with large audiences. Their followers engage with them regularly and trust their opinion. 

Registrations Required for Restaurant Business in India

A restaurant owner needs to obtain different licences and registrations to run a restaurant business in India. The required registrations and licences are as follows:

Registering Business Entity

To start a restaurant, the owner must first choose the business entity. Business owners must decide whether to start the restaurant alone as a proprietorship firm or in partnership with others as a partnership firm. They may also establish a private limited company. 

Instead of choosing a proprietorship or partnership firm, it is beneficial for restaurant owners to choose the One Person Company (OPC) or Limited Liability Partnership (LLP) business structure. A sole proprietorship or partnership firm does not have a separate legal entity status and thus is difficult to obtain funds compared to OPC and LLP. When the owner plans to establish a chain of restaurants or create a franchising model, a private limited company structure is recommended.

FSSAI License

The Food Safety and Standards (FSS) Act, 2006, mandates a Food Business Operator (FBO) to obtain an FSSAI license. It is required for anyone involved in the processing, production, distribution, import and sale of food products within India. The FSSAI license means that the restaurant’s food items meet the government’s food safety standards.

Thus, all restaurants, including dark and cloud kitchens, must compulsorily obtain an FSSAI registration or license from the Food Safety and Standards Authority of India (FSSAI). The turnover and manufacturing capacity of the restaurant business determines whether the restaurant needs to obtain an FSSAI registration or FSSAI licence. 

Shop and Establishment Act Registration

The Shop and Establishment Act Registration is regulated by the Department of Labour of the state. The Shop and Establishment Act regulates any premises where a trade, business or profession is carried out. Thus, all restaurants must apply for and obtain a Shop and Establishment Act Registration. It is issued by the State Chief Inspector of the Department of Labour.

Business License

The restaurant must mandatorily obtain a trade license from the municipal corporation. The municipal corporation can shut down restaurants when they do not have a trade license. Thus, restaurant owners need to apply for and renew their trade licenses every year. A business owner also needs to obtain a No Objection Certificate (NOC) from at least three neighbours. When a restaurant provides liquor to its customer, it must also obtain a liquor license from the Local Excise Commissioner. A NOC from the fire department is also a must for any food business.

Eating House License

Any place that offers beverages and food for public consumption is an eating house. Since a restaurant business is an eating house, it must compulsorily obtain an eating house license. An eating house license can be obtained from the Licensing Police Commissioner of the respective city where the restaurant is located.

GST Registration

Restaurants in India are required to register under GST mandatorily. GST registration is state-specific. Thus, if a restaurant has outlets in different states, it needs to have a separate GST registration for each state. 

Trademark Registration

When a business owner plans to open a chain of restaurants or invests a significant amount of money and time into branding, it is recommended to obtain trademark registration for the restaurant name or brand. Though trademark registration is not mandatory, it is recommended as it will protect the restaurant name or brand from third parties. Third parties cannot open a restaurant with the same name or brand that has a trademark registration. It deters the use of branding by competitors.