Feasibility Study for New Hospitality Venture

1. Studying The Market:

If you have a clear vision of where and what your hotel/restaurant/club will be in the future, you have a much better chance of survival. Why? You know where you are going and have thoroughly researched potential advantages and pitfalls. In determining the potential success of your concept, we have to see if it will:

Work in the particular location you have chosen Generate sufficient sales to realize a profit. Have a certain amount of “staying power” no matter what the economy does Any potential investor will most definitely want to see the proof that you have thought through these items thoroughly and put them in writing. The written document is your feasibility study, the research you have done to justify the implementation of your concept.

There are two basic types of feasibility studies, and you should do them both. A market feasibility study defines the target customer, analyzes the competition, and also looks closely at the trade area around the hotel/restaurant/club. A financial feasibility study covers the money matters—income versus outgo—plus the costs of getting started.

2 . Market Feasibility Study:

How you go about this research depends on whether you have a site in mind already, or whether you have a concept and are searching for the best place to locate it. Site-specific research will focus on data for the immediate and nearby neighbourhoods; research to pick a location will probably include data for an entire city, to be narrowed down as your site choices narrow.

3. Potential Customers:

If you have decided on your concept first, this is the time to define it so well that you can convince investors it is worth financing. The study’s goal is to pinpoint who the average, a most frequent guest at your proposed hotel/restaurant/club will be. To do this, you need demographics on these folks: their age, income per household, level of education, number of kids, ethnic group, religious affiliation, and so on. Categorize them by lifestyle and see how much you can find out about them. Also, consider the life cycle of the potential population.

Singles marry and have children, or not. Traditional families may end up as two single-parent households after divorce. Empty nesters eventually retire and become affluent, middle-, or low-income senior citizens, active or inactive. Gauging these life cycle trends can help you fine-tune a concept that won’t lose its appeal because its primary group of customers is dwindling.

This type of research can be time and labour-intensive, and it may be easier to purchase data on some topics, so build a modest budget for it. Most investors understand that market research is an investment that will not pay off for many months. However, they also understand that it is absolutely necessary.

Where do you find demographic information? Think about which government agencies in your city or county would want to know these same things, and ask if they’ll share their statistics with you. You will find information not only about the customers themselves, but much about the area in which you want to locate.

The public library is another promising place to start. If nothing else, look for a reference book there called The Insider’s Guide to Demographic Know-How, which lists more than 600 sources of demographic information and tells you how to analyze the data when you get it.

In addition to numbers, the personal habits of your guests are key, especially their eating and spending habits and family structure (empty nesters, single parents, etc.). This kind of information is known as psychographics, and it can be harder to dig up than demographics. Your area or state hotel/restaurant association may be a good starting point. Also, in your own school campus, there may be a marketing or advertising department with students who are willing to help research.

Present them with a specific project or need, and ask if they will assist you in exchange for school credit or for a small fee. Demographics and psychographics have multiple uses for the restaurateur. First, you can use them to determine if a project will be continued or scrapped. Then, if it is continued, this information will help determine how to price, how to provide service, what atmosphere will please the customers you have targeted, and so on.

4. Trade Area and Location:

Research into trade areas and locations begins after site selection is well underway. Can the location support your concept? Here we evaluate the strength (or weaknesses) of the local economy. How much industrial, office or retail development is going on? In what shape are nearby houses and apartments, and what is the vacancy rate? How much is the property worth? What’s the crime rate? How often do businesses and homes change hands? In short, you’re learning about the overall stability of the area.

This part of the study should also include details about a specific site: its visibility from the street, public accessibility to the driveway or parking lot, availability of parking, city parking ordinances or restrictions, and proximity to bus or subway lines. Ask about your ability to change the structure, if you decide to add a deck, a porch, or a second floor.

Don’t forget to add details about your proximity to a museum, park, hotel, sports facility, college, military base—anything that would serve as a regular crowd generator for you. Starting from the potential location of your hotel/restaurant, the five-mile radius around the site is your prime market for customers. For QSRs, the radius is a little smaller; for table-service restaurants, a little larger. You’ll want to get to know this five-mile circle as well as you know your own home.

5. Competition:

You will be eating out a lot to do the research for this section! In your five-mile radius, you must find out, in great detail, what other types of restaurants exist. Classify them as self-service or table-service; then zero in on any restaurant that has a concept even remotely similar to yours. These will be your direct competitors. Take notes as you observe their seating capacity, menu offerings, prices, hours of operation, service style, uniforms, table sizes, décor—even the brand of dishes they use is valuable information. Will your concept stand up to their challenge? In your market feasibility study, you might classify the competition in one of two ways:

  1. The existing direct competitors seem to have more business than they can handle, so there’s room for you.
  2. Even though they’re direct competitors, they have distinct weaknesses—outdated décor, overpriced menu, limited parking—that give you a viable reason to enter the market. If their concept is poorly executed, test your own skills by figuring out why.