One of the most difficult aspects of developing a restaurant and bar business plan is estimating the size of the market and forecasting the number of customers the venture requires to be profitable. The following article is an excerpt from the Restaurant Sample Business Plan marketing section, in which we provide a guideline for creating restaurant market forecasts.

Market Analysis Summary

Restaurant industry sales are expected to reach a record $476 billion in 900,000 restaurant locations in 2005, according to the National Restaurant Association's 2005 Restaurant Industry Forecast. The projected annual sales would mean a solid 4.9 percent increase over last year. On a typical day, the industry will post average sales of $1.3 billion. The restaurant industry in the United States reaped the benefits of the robust economic growth in 2004. Steady gains in indicators such as personal disposable income and jobs continue to bode well for restaurants in 2005, despite the anticipated challenges of higher energy and food costs.

Among the major segments, sales at full-service restaurants are projected to reach $164.8 billion in 2005, an increase of 5.0 percent over 2004, for a real growth rate of 2.2 percent. Full-service operators are optimistic about the economy, as a strong 75 percent of fine-dining operators indicate that they expect their sales in 2005 to be higher than in 2004. Economic growth is expected in all nine U.S. regions, with all regions also projecting job growth in 2005. The five top regions in terms of sales growth remain in the South and the West. These regions continue to have the fastest growth in local economies, disposable income and population. Specifically, the Mountain region will again lead the nation with a projected sales growth of 6.5 percent. The state posting the highest restaurant-sales volume in 2005 will be California, with projected restaurant sales of $51.5 billion.

Market Survey

The restaurant's customer profile represents two segments: residential customers (families and singles) and business customers. The following analysis is a breakdown of this customer base that supports the restaurants projected sales revenue.

The restaurant is located in an area that has a large residential population of higher-than-average household income. Based on US Census statistics for the county, the region has an overall population of 770,723, with 329,700 households in the county. Each household has an average of 2.3 people, with a higher-than-average median income of $55,221 per household, and eat out an average of 2.5 times per week. This data supports the restaurant's pricing position of charging a slightly higher than average price per meal. The population is increasing at a rate of 1.9% annually. Individual residential customers are forecasted to contribute 33% of the lunch sales and 67% of dinner sales.

The business community within a 10-mile radius of the restaurant has a population of 448,669 individuals. These individuals eat out approximately 4.3 times per week. The per capita income (in dollars) is $34,556. The median income is $46,260 for males and $40,049 for females. The 10-mile radius is home to over 14,000 businesses, including several large corporations with more than 1,000 employees each. The business population is increasing at a rate of 2.3% annually (US Census).

Customer Forecast

The restaurant will compete with all food establishments and has targeted 2.5% of the total potential customer base as a fair representation of the market. The combined total population of potential residential and business customers is 1,219,392 people. The target customer base is expected to frequent the restaurant two times per year. Individual business customers are forecasted to contribute 66% of lunch sales and 33% of dinner sales.

The population is broken down into lunch sales and dinner sales. Lunch sales are projected to have an average revenue per person of $17.00, including beverage. Dinner sales are projected at $25.00 average revenue per person, including beverage. Bar sales are projected to generate an additional 22% sales revenue. During the week, the owners anticipate 33% of lunch sales attributed to residential customers, and 66% to business customers. Weekday dinner sales are expected to consist of 66% residential customers and 33% business customers. During the weekend, both lunch and dinner customers are expected to be 100% residential.

(This article is excerpted from the Restaurant Sample Business Plan)