According to Statista, the Indian restaurant industry was valued at approximately 4.2 trillion Indian rupees in 2019. Of this, 35% of the value was generated by the organized sector, while the remaining 65% came from the unorganized sector.
If you have ever dreamed of opening your restaurant in India, it must be a positive business venture, but you might have wondered how much it would cost to do so.
Opening a restaurant is not a simple or cheap endeavor. It requires a lot of planning, research, and investment. You need to consider various factors that influence the cost of opening a restaurant, such as the location, licensing, design, equipment, staff, inventory, utilities, marketing, maintenance, and contingency funds.
In this blog post, we will outline the major costs involved in opening a restaurant in India and provide some tips on how to finance your venture.
Initial Costs for Opening a Restaurant: A Comprehensive Overview
The initial setup costs are the one-time expenses that you need to incur before you can start operating your restaurant. These include:
1. Location selection
The location of your restaurant is one of the most important decisions you will make. It will affect your customer base, sales, rent, and competition.
You need to find a suitable location that matches your concept, target market, and budget. Additionally, you must negotiate a rent or lease agreement with the landlord, pay a security deposit, and cover any legal fees involved in the process.
Choosing a location that is consistently crowded with the public may incur higher costs. For instance, opening a restaurant in a mall, market, or busy street may result in higher rent and competition compared to opening in a residential or suburban area.
According to some sources, the average cost of purchasing space could range from 50L to 1Cr, while renting a space for your restaurant could cost approximately Rs. 30,000 – Rs. 1,00,000 per month.
However, we suggest that your rent should never exceed 10% of your total revenues, otherwise you will burden extra costs on yourself. If you’re new, adjust according to the capital you have.
2. Licensing and permits
To operate a restaurant legally in India, you need to obtain various licenses and permits from the government authorities.
These include a food license from the Food Safety and Standards Authority of India (FSSAI), a liquor license from the state excise department (if you plan to serve alcohol), and health permits from the local municipal corporation.
The cost and time required to obtain these licenses and permits may vary depending on the state, the city, and the type of restaurant you are opening.
For example, if you want to open a restaurant in Maharashtra, you will require the following licenses and permits:
- FSSAI license: This is mandatory for any food business in India. It costs Rs. 2,000 for a basic license, Rs. 5,000 for a state license, and Rs. 7,500 for a central license, depending on the annual turnover of your restaurant.
- Liquor license: This is required if you plan to serve alcohol in your restaurant. It costs Rs. 50,000 for a wine and beer license, Rs. 4 lakh for a bar license, and Rs. 12.5 lakh for a hotel license, depending on the category of your restaurant.
- Health and trade license: This is required to ensure that your restaurant meets the health and hygiene standards set by the municipal corporation. It costs Rs. 500 for a health license and Rs. 100 for a trade license, depending on the area of your restaurant.
- Fire safety certificate: This is required to ensure that your restaurant has adequate fire safety measures and equipment. It costs Rs. 1,000 for a fire safety certificate, depending on the fire load of your restaurant.
- GST registration: This is required to collect and pay the Goods and Services Tax (GST) on your sales. It is free of cost and can be done online.
3. Interior design and décor
The interior design and décor of your restaurant will create the ambiance and atmosphere that will attract and retain your customers.
You need to invest in furniture and fixtures, lighting, and decorative elements that suit your theme, style, and budget.
You may also need to hire an interior designer or a contractor to help with the design and execution of your restaurant’s interior. Cutting costs here is possible if you have a limited budget.
There are several ways to accomplish this, such as purchasing used items, but if your goal is to create a quality environment, employing a professional interior designer is necessary, if expensive.
Hiring a professional interior designer typically ranges from Rs. 1,000 to Rs. 2,000 per square foot, depending on the complexity and quality of the design.
Alternatively, choosing second-hand options or employing DIY methods like painting and decorating walls yourself can reduce costs to approximately Rs. 500 to Rs. 1,000 per square foot, depending on item condition and availability.
4. Kitchen setup
The kitchen setup is the backbone of your restaurant. It is where you will prepare and cook the food that will delight your customers.
You need to purchase or lease the equipment, such as stoves, ovens, refrigerators, freezers, grills, fryers, mixers, etc., that you will need to run your kitchen efficiently and effectively.
You also need to pay for the installation costs of the equipment, as well as the kitchenware and utensils that you will use to prepare and serve the food.
Read: Is the restaurant business profitable in India?
Operational Expenses: Key Considerations for Opening a Restaurant
The operational expenses are the recurring expenses that you need to incur to keep your restaurant running smoothly. These include:
1. Staffing
The staff is the face and the heart of your restaurant. They are the ones who will interact with your customers, take their orders, serve their food, and handle their complaints.
You need to hire qualified and experienced staff, such as chefs, cooks, servers, bartenders, managers, etc., to run your restaurant efficiently and effectively.
You also need to pay for their salaries and wages, as well as their training expenses. The salary range of staff, as per Glassdoor, varies depending on the position, location, and experience.
For example, the average annual salary of a chef in India is Rs. 4,11,000, while that of a server is Rs. 1,68,000. Additionally, you need to consider bonuses, tips, incentives, and benefits offered to staff, as well as payroll taxes and insurance. Ideally, labor costs should be about 18% to 21% of revenue.
2. Inventory
Inventory consists of the raw materials used to prepare and serve food and drinks to customers. Initially, you’ll need to purchase ingredients like vegetables, fruits, grains, meats, dairy, spices, as well as beverages such as water, soda, juice, beer, and wine for your menu.
You must also establish ongoing relationships with reliable vendors for a steady supply of inventory and maintain proper storage facilities for safety and hygiene. Ideally, the food cost should amount to about 25% to 40% of your food sales.
3. Utilities
The utilities are the essential services that you will need to operate your restaurant, such as electricity, water, and gas.
You need to pay for the consumption of these utilities, as well as the installation and maintenance of the meters and connections.
You also need to ensure that you have backup generators and water tanks in case of power cuts or water shortages.
4. Marketing and advertising
Marketing and advertising are the strategies and tactics that you will use to promote your restaurant and attract new and repeat customers.
You need to invest in launch promotions, such as grand opening events, discounts, coupons, etc., to create a buzz and generate interest in your restaurant.
You also need to invest in ongoing marketing campaigns, such as flyers, banners, posters, billboards, radio, TV, etc., to increase your visibility and awareness in your target market.
You also need to create and maintain a digital presence, such as a website, social media, online reviews, etc., to showcase your menu, your offers, your testimonials, and your contact details. Ideally, marketing costs should amount to about 3% to 6% of your revenue.
5. Maintenance and repairs
The maintenance and repairs are the activities and costs that you will incur to keep your restaurant in good shape and working order.
You need to perform regular upkeep of your equipment, such as cleaning, oiling, servicing, etc., to prevent breakdowns and malfunctions.
You also need to perform repairs to your facilities, such as fixing leaks, cracks, holes, etc., to ensure safety and hygiene.
You also need to hire a pest control service to eliminate any insects or rodents that may infest your restaurant.
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Securing Contingency Funds: Ensuring Financial Resilience for Your Restaurant Venture
The contingency funds are the extra funds that you need to set aside to cover any unexpected expenses or emergencies that may arise while running your restaurant. These include:
- Unexpected expenses: These are the expenses that you did not anticipate or budget for, such as fines, penalties, lawsuits, theft, vandalism, etc. You need to have enough cash reserves to pay for these expenses without affecting your cash flow or profitability.
- Economic fluctuations: These are the changes in the economic conditions that may affect your sales, such as inflation, recession, competition, consumer preferences, etc. You need to have enough financial cushion to withstand these fluctuations without compromising your quality or service.
- Emergency repairs: These are the repairs that you need to perform urgently, such as replacing broken equipment, fixing a burst pipe, restoring a power outage, etc. You need to have enough funds to pay for these repairs without delaying your operations or losing your customers.
However, all the expenses we have explained here are generic, and your specific business model can indeed vary these expenses.
Take, for example, ChocoCraft, a company specializing in customized chocolates for various occasions. Founded in 2013 with an initial investment of 10 lakhs and a team of four people, they prioritize using high-quality ingredients, innovative designs, and eco-friendly packaging in their chocolate production.
ChocoCraft operates through a website, enabling customers to order chocolates online with delivery services across India.
Additionally, they maintain a presence on social media platforms like Facebook and Instagram to showcase products and engage with customers.
Over the years, they have experienced steady growth and have successfully served more than 10,000 customers to date. This illustrates that the success of your business ultimately depends on your unique idea, strategy, and execution.
Choosing How to Fund Your Restaurant
The financing options are the sources of funds that you can use to raise the capital that you need to open and run your restaurant. These include:
- Personal savings: These are the funds that you have saved from your own income or assets, such as salary, bonus, inheritance, property, etc. This is the most common and preferred source of financing, as it does not involve any interest or repayment obligations. However, it may not be sufficient to cover all the costs involved in opening a restaurant, especially if you are starting from scratch.
- Bank loans: These are the funds that you borrow from a bank or a financial institution, such as a term loan, a working capital loan, an overdraft, etc. This is the most accessible and convenient source of financing, as it provides you with a large amount of money at a reasonable interest rate and repayment period. However, it also involves a lot of documentation, collateral, and credit checks, as well as the risk of default or foreclosure if you fail to repay the loan on time.
- Investors: These are the funds that you receive from an individual or a group of people, such as a family member, a friend, an angel investor, a venture capitalist, etc., who are willing to invest in your restaurant in exchange for a share of ownership or profits. This is the most attractive and lucrative source of financing, as it provides you with a lot of money and expertise without any interest or repayment obligations. However, it also involves a lot of negotiation, valuation, and dilution, as well as the loss of control or autonomy over your restaurant.
- Crowdfunding: These are the funds that you raise from a large number of people, usually online, who are interested in supporting your restaurant idea or concept. This is the most innovative and creative source of financing, as it allows you to reach a wide and diverse audience and generate a lot of publicity and feedback for your restaurant. However, it also involves a lot of marketing, communication, and fulfillment, as well as the risk of failure or fraud if you do not deliver on your promises or expectations.
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Conclusion
Opening a restaurant in India is indeed a challenging yet rewarding venture. The India Quick Service Restaurant Market size is estimated at 25.46 billion USD in 2024 and is expected to reach 38.71 billion USD by 2029, growing at a CAGR of 8.74% during the forecast period (2024-2029).
However, it requires a lot of passion, dedication, and hard work, as well as a significant financial investment. Understanding the costs involved in opening a restaurant and planning your budget accordingly is crucial.
Exploring various financing options available is also essential, allowing you to choose the one that suits your needs and goals best. But even with limited funds, successful ventures are possible.
For example, Saravana Bhavan, a chain of vegetarian restaurants that originated in Chennai and has expanded to over 20 countries, is a testament to this.
The founder, P. Rajagopal, started the business with a small loan of 5,000 rupees and a rented space of 10 feet by 10 feet.
The chain is renowned for its authentic South Indian dishes and affordable prices, showcasing that with dedication and strategic planning, even ventures with modest beginnings can flourish in the competitive market.