Watch which way the wind blows

In the past three years, calculates Restaurateurs Association of Great Britain chairman Michael Gottlieb, nearly 3,000 new restaurant seats have been created within a five-minute radius of his Dover Street branch of Smollenksy's in London.

With competition like this, established restaurants have a tough fight on their hands, and trading on past reputations is not enough. So what's the answer?

Value for money is certainly part of the equation. "The restaurants that have tended to stay the course are in the £20-£30 per head range," says Time Out restaurant critic Guy Diamond. "The real dinosaurs have been the very conservative restaurants that hiked up their prices but didn't move with the times."

There are three cornerstones to a successful catering operation, according to Stuart Price, food and drink analyst at chartered accountancy KPMG: how the restaurant is structured and its relationships with suppliers, customers and staff; reputation, as an employer and provider of a quality product; and innovation, adapting a format to appeal to a new customer segment.

Sources of innovation

Within the traditional restaurant market, the chef is the main innovator but, says Price, other sources are equally important. "Talk to your customers and your suppliers," he urges, "and empower your staff - they know what sells and what doesn't."

Michael da Costa, chairman of tea-shop chain Richoux, says his company's participation in the Investors in People accreditation scheme is as valuable a force for change as any. "It has had a wonderful effect on business," he says. "The staff have completely reinvented themselves."

Established at the turn of the century, Richoux has successfully traded on its cosy Edwardian image but, for da Costa, change is vital: "You can never sit back and say ‘this is good enough'."

At his Piccadilly branch in London, for example, he has just spent a six-figure sum on a restyled frontage, new lighting, new crockery, expensive Italian chairs and antique lamps and vases. The staff's frilly pinafores have been replaced by trousers and styled waistcoats. Kitchens and staff areas have been upgraded, and the menu and presentation of the dishes revamped to add value.

Takings at the Piccadilly branch since its two-week closure in February are up by 20% on last year, with more women and businessmen among its clientele.

Less successful was da Costa's attempt last year to transform the upper floor of his flagship branch in London's St John's Wood into a restaurant proper. "People said: ‘Very nice, but why should I go to you when I can go to any other restaurant?'," he recalls. "We have to emphasise our uniqueness."

And KPMG's Price warns: "If you have a customer base that has a certain level of expectation and you do something against that expectation, it will be perceived as radical. It's down to understanding your marketplace."

Personality change

Chris Turrell, proprietor of Tutton's in London's Covent Garden, knows the truth of that. Last year, he closed the restaurant for a £250,000 refurbishment. But instead of the face-lift he hoped for, Tutton's ended up with a change of personality.

The place looked too upmarket, the clientele became older ("too many fur coats") and the all-day business suffered. "We let the scheme run away from us," acknowledges managing director Louis McMillan.

New designers attempted to reduce the anonymity of the previous scheme. They took away hotel-style mirrors, changed the ceiling colour to a deep pink and created a "family" of coat pegs and other fixtures.

The main object of the exercise, evening business, is now up by 10% on the previous best, according to Turrell, with spend per head up by a similar amount to £16. "The menu has not changed that much but we have improved on the quality," he says, adding: "We set out deliberately not to reposition ourselves."

In contrast, Searcy's Brasserie at the Barbican Centre in London does want to change its image - to become a stand-alone destination, attracting more mid-evening custom. Searcy's chief executive, Richard Tear, believes he can increase turnover from £700,000 in the current year to £1m.

"Market research already showed a very high qualitative customer response," he says. "The problem for our business is growth." The Barbican, for its part, wanted a venue that would reflect its status as a provider of excellent music and theatre. "We wanted to take the restaurant forward," says the Barbican's strategic development executive, Diane Lennan, "but our concern was that it didn't change too radically and alienate regular customers."

Much of the responsibility for this rests with chef Richard Corrigan. He has changed the food from a traditional style to lighter, more inventive dishes, with an emphasis on freshness and flavour. He pays close attention to detail, such as serving organic bread. "Probably 70% of guests won't recognise it, but I like to think that it is important," he says.

Since he joined in March, average spend per head at the 110-cover restaurant has gone up by 20% to £25.85. And business is still increasing.

The restaurant will be refurbished this summer, with the aim of giving it a more distinctive ambience. A sum between £200,000 and £250,000 is being earmarked for the project, which will include new kitchen equipment and facilities.

Balancing costs

Tear is looking, he says, to have a gross profit "in the mid-60s", with the chef working to roughly 30-35% food cost. He admits that maintaining the most important price point, the fixed-price menu of £15 for two courses, means that it is not easy to keep food costs down. "It is difficult to meet those targets all the time and, quite honestly, we don't always achieve it," he says. "But the important thing is that we continue to keep the customers we have got. With the cost of a night out including the theatre, they don't want to be spending a huge amount on food as well."

Over in Charlotte Street, the Spaghetti House group brought in TV chef Valentina Harris to help develop a new menu for its flagship fish restaurant, Trattoria di Pescatori, when it was refurbished in May last year.

The £80,000-£90,000 refurbishment of the restaurant, renamed Pescatori, made the place lighter and brighter. A new seafood bar became the focal point, but it retained the marine bric-a-brac to underline the fishing theme. Crockery and linen were changed and some of the less popular menu items were dropped.

Even scampi, Pescatori's signature dish, was taken off the regular menu because, at today's prices, it is no longer good value for money. Average spend per head remains between £25 and £30 but the menu now includes more unusual regional dishes and an improved wine list.

With a new bar menu and promotions such as week-long food festivals, the work on Pescatori is beginning to pay off, attracting a younger clientele and more women diners. "We are looking for a 30% increase in volume," says Gianni Mai, in charge of operations at Pescatori.

"You have to do something otherwise people pinch your customers," he adds, "but you cannot commit hara-kiri."