Please note: This article was first published on The Vegan Tourist and last updated July 27, 2019.
In August 2017, I published Survival Tips for Small Vegetarian and Vegan Restaurants. I’d like to follow up today by giving you a few tips on how to choose the right location for your restaurant, and how to interpret the information provided in real estate listings. I am using a vegan restaurant as an example, which opened in Vienna, Austria, in July 2017, and closed two years later, in June or July 2019 (I’m not sure about the exact date). I won’t tell you the name of the restaurant, as it is not my intention to trash entrepreneurs who took a chance on starting a vegan business, and failed. I am telling you this restaurant’s story so you can learn from it, and avoid similar mistakes.
When the restaurant first opened in July 2017, I took notice, but didn’t immediately go and eat there. On its website and on Facebook, the restaurant presented itself as a high-class casual dining restaurant. The way it presented itself invoked images of tablecloths and cloth napkins in my mind, and I am a jeans-and-T-shirt kind of girl. I put off visiting this restaurant time and again.
In June 2018, the restaurant declared bankruptcy. Once a company declares bankruptcy in Austria, information is published in certain newspapers and magazines, and I read those listings carefully. As soon as I read the announcement about the bankruptcy filing, I dropped everything and drove across town, so I could eat at least one meal there. As I publish a vegan restaurant guide, I try to eat at each restaurant at least twice…even if it’s about to close.
Imagine my surprise, when I finally stood in front of this restaurant, and it was a small self-service burger joint. There was nothing fancy about it. During the previous year, I had walked past it several times, and hadn’t even noticed it was there. It was located at the corner of a passageway, had little signage to draw (potential) customers’ attention to it, and the take-out window was tiny, and usually closed.
These are my first two tips: make sure that your logos and signs draw attention to your restaurant, so people don’t walk past it without noticing it. And for heaven’s sake, don’t promote your restaurant as something it’s not. If it’s a self-service burger joint, promote it as such. You need to promote fancy restaurants and burger joints (or self-service restaurants and restaurants with table service) to two completely different target groups!
On its Facebook page and on its website, the restaurant promoted the freshness of its produce. I once witnessed one of its employees tearing open a plastic bag with pre-cut salad. That’s not how I define “freshness.” Again – don’t try to present your restaurant as something it’s not. Customers will take notice, if you are not 100% honest, and they will either tear into you on social media, or simply not frequent your business. In this case, people stayed away.
When the restaurant filed for bankruptcy for the first time, one of the general managers started a new company and continued to run it under the same name. The restaurant’s customers never noticed – you could only tell that a different company owned the restaurant by looking at the receipts. The business concept wasn’t changed, and the restaurant never closed after the first company filed for bankruptcy. The first company paid its debtors 3.12% of what they owed them, and the bankruptcy court finally closed this case in July 2019.
The second company filed for bankruptcy after another year, in June 2019. This time the restaurant closed for good, sometime in late June or early July 2019, I’m not sure about the exact date. The restaurant is now being offered to potential buyers, and this is where it gets really interesting.
If you want to take over this particular restaurant space, you need to pay 195.000 Euros (apparently to buy it, not just to lease the space). At this location, a restaurant failed twice within the course of two years. It has only a few tables, and provides seating for approximately 15 people. How long would it take you to recoup an investment of 195.000 Euros? How many burgers (vegan or otherwise) would you need to sell in order to recoup such a large sum of money? How many burgers (or other food items) could you possibly sell, if there’s only room for 15 customers to sit and eat their meals? I haven’t even mentioned all the other costs you would need to consider (operating costs, staff, insurance, costs for food and drink, etc.). Never, ever pay such a large sum of money for a small restaurant. You will never be able to make a profit. Hands off!
And by the way, make sure that the information contained in the real estate listing is true: this particular space is being described as a restaurant with seating for 35 customers, but it only had four tables with seating for approximately 15 people.
The restaurant is very hot in the summer (the windows can’t be opened – this is something you need to check) and hot and loud in the winter (due to the noise from the heating system – check that out, too, before you make a buying decision; turn on the heating, even in summer). There’s heavy traffic on the street outside, one of the major roads leading into the city center, opening windows or the restaurant’s door wouldn’t really be an option anyway (check that, too!). There’s no outdoor seating space.
If you consider opening a restaurant at a location where another restaurant closed down, do your research: find out who previously owned it; don’t just research the restaurant’s name, you need to find out the name of the company which owned this business. And then type the name of the restaurant, the owner’s name, and words “bankruptcy” or “insolvency” into your search engine – Google will usually get you first results. But don’t stop there: in most countries, bankruptcy information is published in an official government journal or on a website by the relevant authorities. You absolutely must find out why the previous owners closed their restaurant. Unless a very old restaurateur retired, chances are the business filed for bankruptcy. Consider this relevant information, and proceed very carefully!
So why did this particular business fail? On paper, the location sounds appealing. It’s located at one end of Naschmarkt, one of Vienna’s oldest farmer’s markets, which has been in existence since 1786, and since 1916 in its present form, designed by famed architect Otto Wagner. Naschmarkt is a major tourist attraction, and the Viennese shop there as well. The restaurant is located right across the street from this market. But of course, there are many restaurants located directly at this farmer’s market – dozens, in fact. And there are many more restaurants located in the vicinity.
There’s a very popular vegan fast food restaurant – selling burgers and fries, and very similar food at cheaper prices than the restaurant which failed – located on the very same block as the restaurant which went bankrupt; however, its entrance is from another street. That other, much larger restaurant (with an outdoor seating area in a street with less traffic), Swing Kitchen, is doing very well, by the way, at this location. Swing Kitchen opened its first restaurant in 2015, and today there are five Swing Kitchen restaurants all over Vienna.
Why would you open a vegan burger joint in the immediate vicinity of a very similar vegan restaurant, which is already established at this location, has an outdoor seating area (the failed restaurant doesn’t), which has bigger vegan burgers at cheaper prices? I’m scratching my head here, because I honestly don’t understand how anyone would completely ignore the already existing competition before opening a restaurant. Before you open a restaurant (or any other business), you need to research your competition.
The real estate ad praises the restaurant’s many loyal and repeat customers (now, why did it go bankrupt again…twice?). It also claims that it is highly rated on social media – the restaurant has already deleted its Facebook page, and it doesn’t have a website. (The website was deleted after the first company filed for bankruptcy.) The real estate listing also mentions that it is very well known and an established brand (established as a twice-bankrupt brand?). The ad claims that its take-away business and delivery business make up a high percentage of its revenue. If your revenue is low, that means nothing, sorry! The real estate listing makes this restaurant space sound like a great opportunity. Do you think it actually is a great opportunity?
One other thing that irritates me in this particular case is that the general manager, who was involved in two bankruptcies of this restaurant, also runs a property management firm. He’s the one offering this space to a potential new owner. In Austria, all real estate listings must provide information about a building’s energy efficiency. This particular ad mentions that information about energy efficiency cannot be provided for this restaurant, as the real estate company has advised the owner that this is a legal requirement, but the owner hasn’t provided them with this information. Funny, don’t you think, as the restaurant’s general manager is also the real estate agent?
Don’t ever believe anything that’s mention in a real estate ad or what a real estate agent tells you – verify everything! You need to personally and independently check each and every claim that is made in a real estate ad, if you want to take over a space where another business closed down. Find out everything you can about the previous owner, the business previously established at the location, and the reason why a business closed down – or you’ll end up filing for bankruptcy yourself.