An Investment Analysis of Opening a Vegetarian/vegan Restaurant in Danville, Virginia

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At this point, it is difficult to determine which costs would be the most consuming of resources. Depending on where the food is sourced from, it could be relatively inexpensive, especially since the restaurant will not be serving meat. The rent or mortgage for the facility might be the most consuming of resources, but the City of Danville is offering financial assistance to those who wish to open a business in the River District.

Constraints

There are many economic constraints that could take place before, during, or after the vegetarian restaurant opens for business. The population constraint will be an issue to address during the formation of the restaurant plan. The area has around 90,000 residents, which may be too small to support a large restaurant. A lack of real capital could also be an issue: I do not have much in savings, getting a loan on my own would be difficult, and there may not be many investors that are interested in the project.

There are education constraints, on my part and pertaining to finding a suitable chef for the type of cuisine the restaurant will serve. The Danville-Pittsylvania County area does not have highly trained chefs. The most expensive restaurant in Danville, The Golden Leaf, has a wonderfully creative, gourmet menu; however, the food is usually not prepared correctly. There have been complaints of undercooked vegetables, under-seasoned main courses, poorly constructed sauces, and overcooked meats.

There are, also, time constraints as I work full-time and do not have the opportunity to quit my job to fully focus on this investment opportunity. Due to the capital constraints, I may not be able to hire someone else, who is properly trained, to fully manage the formation and operation of the restaurant.

The positive side of many of the constraints, listed above, is that the restaurant would have a monopoly on the “healthy eating” options in Danville. Since there would no competition from other restaurants like this one, in a 35 mile radius, perhaps the costs and constraints could be lessened or alleviated by the lack of competitors.

Effects of Technology

The effects of technology on the restaurant industry can be profound. There are many Michelin chefs that have revolutionized the way food is prepared and consumed; however, that sort of innovation does not reach the mainstream restaurateurs. Technology has the ability to increase production and productivity and decrease the level of factors of production. It, also, has the ability to increase demand by allowing the restaurant to reach new consumers and advertise in innovative ways. Technology could be the most useful when preparing the food and reducing meal preparation time.

There are always costs and constraints when pursuing a new business venture, especially in the restaurant industry. The best way to prepare for what lies ahead is to determine all of the problems that could arise beforehand. The most efficient way to do that is to include an economic analysis of the business plan that is not, necessarily, captured in a marketing or finance focused plan. Accounting for social and environmental costs is important for sustainable welfare and establishing which constraints could expend the most resources to put the situation in perspective and find another route.

Market Competition

There are several new restaurants and cafés that have opened up in the Downtown Danville area; a coffee shop, a pizza parlor, and a Japanese restaurant. There are two restaurants that have been in the area for several years that cater to the higher income individuals in the Danville-Pittsylvania County region. It seems as if the Golden Leaf Bistro and the Brown Bean would provide the most competition for the restaurant. In addition to competition from restaurants, it is also important to recognize competition from grocery stores and amateur chefs. Since there is no other restaurant, like the one discussed throughout this business plan, people who are interested in vegetarian and vegan foods have been finding other sources to satisfy their need.

There may, also, be operations running on a small scale that are not known to the public, as of late. These budding businesses may take advantage of school and local organizations’ bake sales and selling their products at the farmer’s market. There may be competition from restaurants not located in the area. Many Danvillians choose to go to Greensboro, NC, about 45 minutes away, to experience a wider variety of restaurants and dining experiences.

Another source of competition is from fast-food chains. According to the United Press International (2011):

People's consumption of fast-food becomes more common as their earnings increase from low to middle incomes. There is a correlation between obesity and lower income, but it cannot be solely attributed to restaurant choice. Fast-food dining is most popular among the middle class, who are less likely to be obese (p. 1).

Firm Strategies

One important strategy is to appeal to visitors and those travelling to the area on business. It is not only important to attract locals, but to attract those passing through the town to increase seasonal profits. Social review websites, such as Trip Advisor, will be instrumental in implementing this strategy because people rely on the activities and experiences of others when making decisions. If a restaurant does not have reviews, it is the online equivalent of an empty restaurant and lots of good reviews make the establishment irresistible. According to Luca (2011), “a half star increase in rating can increase annual revenue by 5% to 9%” (p. 13). Another study from the University of California shows that people trust other normal people more than critics or advertisements; this knowledge has been tested may times over by the popularity of consumer review sites.

In order to increase profits while a customer is in the restaurant, they will be encouraged to order more items by having a menu which changes monthly. Consumers get tired of the same foods over and over and that can reduce the number of times a customer visits a restaurant and how much they order. So many other restaurants in the area offer discounts and coupons that it would not be a feature to help attract new customers. One strategy that the Golden Leaf Bistro uses to increase profits and attain loyal customers is to host special event nights such as a set four course meal with paired wine. These types of specialty events could be a strategy to attract new customers and keep existing ones.