How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop

How to Open a Financially Successful

Specialty Retail & Gourmet Foods Shop

Sharon Fullen and Douglas R. Brown

How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop

Copyright © 2004 Atlantic Publishing Group, Inc.

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SAN Number :268-1250

Library of Congress Cataloging-in-Publication Data

Brown, Douglas Robert, 1960-

How to open a financially successful specialty retail & gourmet foods shop / by Douglas Robert Brown.

p. cm.

ISBN 0-910627-32-0 (alk. paper)

1. New business enterprises. 2. New business enterprises--Management. 3. Food industry and trade. 4. Specialty stores. I. Title.

HD62.5.B7623 2004

381’.456413’00681--dc22

2004008414

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Table of Contents

Chapter 1: Starting Your Own Gourmet Store

Chapter 2: Launching Your Business

Chapter 3: The Basics of Buying a Gourmet Shop

Chapter 4: How to Invest in a Franchise

Chapter 5: Planning for Success—Writing a Business Plan

Chapter 6: Launching Your Business—Pre-Opening Activities

Chapter 7: Successful Employee Relations and Labor Cost Control

Chapter 8: Your Customers

Chapter 9: Marketing Your Business

Chapter 10: Public Relations: How to Get Customers in the Door

Chapter 11: Choosing Your Sales Mix

Chapter 12: Equipping Your Store

Chapter 13: Public Areas of Your Store

Chapter 14: Back-of-the-Store Work Areas

Chapter 15: Creating a Safe and Productive Environment

Chapter 16: Your Store Staff

Chapter 17: Purchasing

Chapter 18: Cash Flow

Chapter 19: Financial Management and Budgeting

Chapter 20: Basic Cost Control for Retail Operations

Chapter 21: Controlling Your Labor Costs

Chapter 22: Leaving Your Retail Business

Chapter 23: Resources

Chapter 1: Starting Your Own Gourmet Store

The specialty (or gourmet) food industry continues to grow at a steady pace regardless of the state of the economy. In fact, budget-trimming for some folks means dining out less and creating gourmet meals at home instead. This shift of dollars means business opportunities for you!

Operating an independent retail store is hard work. Your success depends upon your entrepreneurial skills along with excellent research. Realizing your dream can be an exceptionally rewarding endeavor—personally and professionally. The ingredients for success go well beyond an elegantly appointed store or the best names in cutlery; they are a complex blend of passion, vision, risk-taking and business acumen.

Solidifying Your Vision

Your dream of owning your own business sparks your quest, but creating a solid vision of how you want to accomplish your dream is the foundation of success. Creating a vision will help you write your business plan, sell your concept to lenders and potential investors, and communicate your desires and needs to architects, contractors, designers and suppliers.

To follow are some ways to help you solidify your vision. This understanding will help you make decisions when faced with compromises, budgetary problems and unforeseen obstacles.

Ways to Explore Your Passion

Close your eyes. Can you see your dream operation? Are the glass displays filled with artfully arranged cooking utensils? Do regulars come in just to see what is new? Do people enjoy tasting your samples? These images all represent your passion.

• Take a few hours of uninterrupted time to think over your personal and financial reasons for committing your energies and nest egg, taking on a partner or tying yourself to a long-term loan. It takes time to become profitable—are you prepared financially and emotionally for this investment?

• Create a list of the positives and negatives of being in business for yourself. Every venture has risk (negatives), but the positives should outweigh them. If your entrepreneurial spirit is not dampened by the potential risks, your next step is to give your vision a voice.

• Determine what talents you can bring to the process. Do you love searching for exciting new food products, or are you more interested in selling? Do you want to let hired design professionals handle the details, or do you prefer to be consulted on every detail from the front door to the receiving door?

What Do You Want Your Store to Be?

Since you are reading this book, we can assume that you are a foodie—someone who reads cookbooks, enjoys trying new restaurants, has all the latest cooking gadgets or travels 85 miles round trip for the perfect loaf of French bread. In other words—you have the passion!

Now turn your thoughts to selling your passion. What do you want to sell and how will you go about it? Retail stores come in many different sizes, shapes and styles, and there are thousands of choices on what you could stock and how you could present it.

Before you can start developing your business and marketing plans (see Chapter 5), you need to sit down and write a thorough description of what your store will look like, what kinds of products you will carry and who will want to buy these products. Every decision from this day forward will be based upon that definition. However, because this definition is based upon assumptions and unknowns, you will be redefining and fine-tuning it along the way. If you do not revise this definition, it probably means that you have not thoroughly researched your business prospects and customer needs.

Remember, this is a definition from the heart—not based on research at this point. When you close your eyes, can you mentally walk up and down the aisle and see what your customers will see?

• Write a one-minute elevator pitch. If you found yourself in an elevator with a wealthy investor, how would you describe your vision (and secure the cash) in the time it takes to travel up 20 floors? Show your passion while emphasizing the tangible benefits.

Your Store Could Be…

Imagine what your store will look like—this is called merchandising. How you merchandise your products directly affects the crowd you attract, creates perceived values of your wares and increases your sales per customer visit.

Your store should reflect your personality and your interests. If you love home-style foods and sunflowers, your store could have a casual, comfortable feeling. If you are a dress for dinner person, perhaps the classic black and white (with a dash of red) is more like a store you would want to share with others.

When you research your ideal customer and demographics, you will need to be certain that your merchandising style suits their expectations. If your style does not connect with your potential customer base, they will not be coming in or returning to your store. You may find that your store’s appearance needs to change somewhat. However, beware that creating a store that feels alien to you may be a warning sign.

Your product offerings may demand a specific look. For example, a store featuring hot stuff begs for a stimulating red décor. (We will discuss merchandising and theme décor in Chapter 13.)

Products

Your store’s products can range from carrying a broad selection of gourmet food to featuring a single food type, such as jams, to emphasizing one genre of food, such as Cajun, or selling only small kitchen gadgets. What you sell is your store’s lifeblood.

Every industry has a sales cycle. For example, you will probably complete your winter season product ordering in late summer. By understanding this cycle, you will be able to have stock arrive when you need it and take advantage of manufacturers’ early buy programs.

Gourmet retail stores are a great blend of the practical, the trendy and the must have. Food is a necessity for life, yet no one really needs 40 different kinds of imported olive oil. Food trends may hit the coasts and never reach middle America, or they can be a fantastic new twist to a favorite food. Gourmet must haves are a merchandiser’s dream—simply point them out and they will fly off the shelves.

Niche Markets

Selling gourmet food and food-related products is a niche market, since an equivalent is probably readily available at every grocery store in your community. However, the interest in all things food continues to grow. (We will talk about niches within the gourmet category later in the book.)

As opposed to offering a huge range for food and food-related products, your store could focus on a niche market—a segment of interest to fewer people, yet with enough interest to have sufficient sales. This niche could be a wine shop, a store featuring only locally produced food items or only Oriental food products.

It is especially important when serving a niche market that you are an expert in your offering. If you are not the expert, you must have one who is a part of your management team. Your entire staff will need to be well trained and capable of working with demanding customers and newbies. The majority of customers you are attracting will be well informed and have an expectation of your knowledge and expertise. In addition, to broaden your customer base, you want to bring in people who will rely on your expert advice to guide them with their purchasing decisions.

Limiting Your Offerings

As you stock your store for the first time, you will soon realize you have to make choices and set limits. Simply walking the aisle of the annual International Home and Housewares Show in Chicago will overwhelm you with possibilities. Spend a day at a regional Gourmet Food and Gift Show or Confectioner’s Association show and you will go away stuffed and eager to buy everything! So how do you choose? By researching your competition! See what they carry and what they are missing. The better you understand your market and customer base, the more capable you will be in selecting the right items for your store.

Remember that you will be tying up the majority of your working capital on stocking inventory so it is important that you make wise decisions. Every retailer in America makes purchasing errors (remember, that’s how all those outlet malls started). They misinterpret the demand, receive merchandise after the trend passes or they don’t understand how to properly market the product. The key is minimizing these mistakes as much as possible. (Later in this book, we’ll discuss how to keep in touch with customer needs.)

Not only will you have to decide what to buy, you have to determine how much to stock of a specific item. You’ll need to factor in order/delivery times and the urgency factor. Will the customer wait for a special order, or will you lose desired sales if it isn’t in stock? A desired sale is one that is profitable and occurs frequently enough to keep inventory turning (moving in and out).

Size and Location

Your store may be a kiosk in a mall’s common area, one of many in a strip mall, a stand-alone storefront or a store within a store.¹ Your store’s size is an obvious factor in how much you can stock. Your store’s location is your connection to the customer’s you want to serve.

You’ll need enough retail space to offer sufficient products and have ample inventory turns to reap a profit. The profit margin percentage on a medium-sized, well-stocked store in a busy strip mall may actually be comparable to that of smaller store within a store operation.

Larger isn’t always better. You’ll have a larger rent to cover, need more shelving and have a larger inventory investment. You’ll need to know before you choose a location just how many egg timers or salt grinders you’ll have to sell just to cover your overhead. You’ll factor in overhead and employee costs and desired profit to determine the quantity you’ll need to stock and sell.

You may decide that a smaller store is a better way to start. Just be sure to plan for growth. Don’t let a five-year lease keep you from a better location.

¹ The store-within-a-store concept means that you would own and operate a department within an existing store. The storeowner would receive a percentage of your sales or would sublease space to you. This symbiotic relationship is actually common in the retail industry. For example, you might own the wine concession within a large kitchenware shop or the kitchen shop within a cooking school.

Goal-Setting

Now is the time to formalize your dream and set goals. You’re probably already employed (or own another business), and you have a personal life—this means you’ll be probably become sidetracked along the way to launching your retail gourmet store. Life can get in the way, but having set goals with completion dates will help you keep on track.

Creating Your Dream Store

Building your dream store in your head is an important first step to creating a profitable business. It will help you focus your energies and activities during the hectic days before you open. When decisions have to be made, do a mental check: Does this help my dream become a reality? Does it contribute to my goals?

Now let’s talk about building a real business.

Table of Contents

Chapter 2: Launching Your Business

There are three ways to launch into business: 1) start from scratch, 2) invest in a franchise, or 3) buy an existing store. All three starting methods (scratch, franchise, existing) can be the basis for a successful retail gourmet business. The differences between each are as much emotional and psychological as they are financial. By weighing the pluses and minuses, factoring in your personality and business expectations and balancing it with your potential customers’ needs and desires, you can decide the best method for your business.

Jump-Starting a Business

Purchasing an existing business can be the fastest way to get your doors open; however, it may not be the best choice for success. Remember, if the location is a poor one, the prior business had a bad reputation or the store’s merchandise is overpriced, you may be hindering your potential. Availability is another factor when purchasing an existing business. The right business has to be on the market now or you have to make an offer that they cannot refuse.

Quality franchise organizations have market restrictions, assigned territories and other ways to keep their franchisees from competing or flooding the market. This may mean that your desired franchise is unavailable in your area. Popular franchises often require higher investments and a great personal net worth. When it comes to food-related businesses, franchises are most often of the fast-food variety, so your options are limited here.

Starting from Scratch

Starting your own retail store from the ground up gives you the opportunity to select every display shelf, put your own name on the door and create a fresh, new image—a business that most closely reflects your dream! However, the lengthy development and pre-opening period may stretch your patience and abilities (not to mention your pocketbook) beyond comfort levels.

When starting from scratch, you may be buying or building a storefront. This is the most costly investment and, unless you have a proven business track record in retail, can be a big risk. By leasing a unit in a retail mall or center, you’ll have the infrastructure suitable for your store’s needs without a significant investment.

What’s the Best Way for Me?

If you have taken the time to do some personal reflection, compared your resources to your needs and set realistic expectations, you’ll be better prepared to build, buy or lease your storefront, launch a new business and create a foundation for success and profits. The worksheet on pages 23 and 24 is a helpful assessment tool.

Don’t Know the Answers?

If you don’t know the pluses and minuses of the three ways to launch a business, you will find it helpful to immediately start researching your market, the competition and existing business opportunities. You’ll have to do this before you prepare a formal business plan because the information you gather will help you prepare.

Table of Contents

Chapter 3: The Basics of Buying a Gourmet Shop

Buying an existing retail gourmet store has its advantages and disadvantages. The prior store’s track record of success can be a good reference point for your potential in the location. As with most retail businesses, location plays a vital role in your success. Before purchasing an existing business, carefully review all financial records, have appraisals done and, most importantly, consult a lawyer.

A great location significantly influences the cost of buying a business. However, the other potential benefits can make it your best route to having your own business.

• Community recognition. People already know they can find your type of store on that street.

• Fewer building/construction issues. Typically eliminates zoning, building-code compliance and construction licensing issues.

• Restricted competition. Shopping centers and strip malls frequently have non-competitive agreements ensuring that you’ll be the only cookware store in the complex.

This chapter addresses many of the issues that are important to you—the buyer. When it is your turn to become the seller, you’ll benefit from understanding everyone’s role in buying and selling your business. (We’ll discuss both sides of the transaction here, and you’ll learn more about selling your business in Chapter 22.)

Real Estate and Its Value

Real estate is the land itself and any permanent improvements made on the land, such as utility connections, parking lots, buildings, etc. The real property of a business is often its most valuable asset. However, many businesses are bought and sold without the real property being part of the sale because the business is operated in a leased building.

An experienced business broker and/or local real estate broker can guide you through determining the appropriate value for a business that includes real property. Income property values are frequently based on the potential future income to be derived from the property. The real estate value, then, is the present value of the estimated future net income, plus the present value of the