The restaurant industry is notoriously competitive and challenging. According to a study by Ohio State University, 60% of restaurants don’t make it past their first year and 80% close within five years of their grand opening. But what are the main reasons for these high failure rates? And how can you avoid them if you are planning to start or run a restaurant business?
In this blog post, we will explore some of the common pitfalls that restaurant owners face and offer some tips and strategies to overcome them. We will cover the following topics:
- Lack of vision and mission
- Not enough industry experience and knowledge
- Not enough operating capital and cash flow management
- Poor location and market research
- Not knowing the numbers and key performance indicators
- Ineffective menu pricing and planning
- Failing to adapt to changing customer preferences and trends
- Being too trendy or too generic
- High staff turnover and low employee engagement
- Inconsistent food quality and service standards
- Not enough repeat customers and loyalty programs
- Mixing family and business
By the end of this blog post, you will have a better understanding of the common challenges that restaurant businesses face and how to overcome them. You will also learn some best practices and tools that can help you run a successful and profitable restaurant business.
Lack of vision and mission
One of the first and most important steps to start a restaurant business is to have a clear vision and mission for your restaurant. A vision is your long-term goal and aspiration for your restaurant, while a mission is your short-term purpose and value proposition for your customers.
A vision and mission statement should guide every decision and action you take in your restaurant business, from your concept and menu to your branding and marketing. They should also inspire your staff and customers and create a unique identity and culture for your restaurant.
How to succeed:
- Write a clear and concise vision and mission statement for your restaurant. It should answer the following questions: Why do you want to open a restaurant? What is your unique selling point? Who are your target customers? What are your core values and beliefs?
- Communicate your vision and mission statement to your staff, customers, and stakeholders. Use it as a basis for your training, hiring, and performance evaluation. Incorporate it into your logo, slogan, website, and social media. Make it visible and memorable for everyone who interacts with your restaurant.
- Review and revise your vision and mission statement regularly. As your restaurant grows and evolves, you may need to adjust your vision and mission statement to reflect your current situation and goals. Keep it relevant and aligned with your restaurant’s performance and feedback.
Not enough industry experience and knowledge
Another common reason why restaurant businesses fail is that the owners lack enough industry experience and knowledge. Running a restaurant is not as simple as cooking and serving food. It requires a lot of skills and expertise in various aspects of the business, such as operations, marketing, finance, human resources, and customer service.
Many restaurant owners underestimate the complexity and difficulty of running a restaurant and overestimate their own abilities and resources. They may also have unrealistic expectations and assumptions about the market and the customers. This can lead to poor decisions, mistakes, and losses.
How to succeed:
- Gain as much industry experience and knowledge as possible before starting a restaurant business. Work in different positions and roles in different types of restaurants. Learn from other successful restaurant owners and managers. Attend courses, workshops, and seminars on restaurant management and related topics.
- Hire and consult with experts and professionals who can help you with the areas that you are not familiar or comfortable with. For example, you may need an accountant, a lawyer, a designer, a chef, a marketer, or a consultant. Seek their advice and guidance and follow their recommendations.
- Keep learning and improving your industry experience and knowledge as you run your restaurant business. Stay updated on the latest trends, technologies, and best practices in the restaurant industry. Read books, blogs, magazines, and reports on restaurant topics. Join industry associations, networks, and forums. Attend trade shows, events, and conferences. Seek feedback and suggestions from your staff, customers, and peers.
Not enough operating capital and cash flow management
One of the biggest challenges that restaurant businesses face is managing their cash flow and operating capital. Cash flow is the amount of money that flows in and out of your restaurant business. Operating capital is the amount of money that you need to run your restaurant business on a daily basis.
Cash flow and operating capital are crucial for the survival and growth of your restaurant business. Without enough cash flow and operating capital, you may not be able to pay your bills, suppliers, staff, taxes, and loans. You may also not be able to invest in new equipment, inventory, marketing, and expansion.
How to succeed:
- Plan and budget your cash flow and operating capital carefully and realistically. Estimate your startup costs, fixed costs, variable costs, and revenue. Include a contingency fund for unexpected expenses and emergencies. Track and monitor your cash flow and operating capital regularly and adjust your plan and budget accordingly.
- Manage your cash flow and operating capital wisely and efficiently. Reduce your costs and expenses as much as possible. Negotiate better terms and prices with your suppliers and vendors. Increase your revenue and profits by optimizing your menu pricing, increasing your sales volume, and upselling and cross-selling your products and services. Collect your payments and receivables promptly and avoid bad debts. Save and reinvest your surplus cash flow and operating capital in your restaurant business.
Poor location and market research
Another common reason why restaurant businesses fail is that they choose a poor location and do not conduct enough market research. Location is one of the most important factors that affect the success of a restaurant business. A good location can attract more customers, increase your visibility and accessibility, and enhance your brand image and reputation. A bad location can do the opposite.
Market research is the process of gathering and analyzing information about your target market, customers, competitors, and industry. Market research can help you understand the needs, preferences, and behaviors of your potential and existing customers. It can also help you identify and evaluate your strengths, weaknesses, opportunities, and threats in the market.
How to succeed:
- Choose a location that suits your restaurant concept, menu, and target customers. Consider the following factors when choosing a location: traffic, visibility, accessibility, parking, demographics, psychographics, competition, regulations, and rent. Visit and evaluate different locations and compare their advantages and disadvantages. Seek professional help if needed.
- Conduct market research before and after opening your restaurant business. Use both primary and secondary sources of data, such as surveys, interviews, focus groups, observations, online reviews, social media, industry reports, and government statistics. Analyze and interpret the data and use it to make informed decisions and strategies for your restaurant business. Update and repeat your market research periodically and adapt to the changing market conditions and customer demands.
Not knowing the numbers and key performance indicators
Another common reason why restaurant businesses fail is that they do not know the numbers and key performance indicators (KPIs) that measure and evaluate their performance and progress. Numbers and KPIs are the quantitative and qualitative metrics that show how well your restaurant business is doing in terms of profitability, efficiency, productivity, quality, and customer satisfaction.
Numbers and KPIs are essential for the management and improvement of your restaurant business. Without knowing the numbers and KPIs, you may not be able to identify and solve the problems and issues that affect your restaurant business. You may also not be able to set and achieve your goals and objectives and track and monitor your results and outcomes.
How to succeed:
- Identify and define the numbers and KPIs that are relevant and important for your restaurant business. Some of the common numbers and KPIs for restaurant businesses are: sales, cost of goods sold, gross profit, net profit, food cost percentage, labor cost percentage, prime cost, break-even point, inventory turnover, table turnover, average check, customer retention rate, customer satisfaction score, and online ratings and reviews.
- Collect and record the numbers and KPIs for your restaurant business accurately and consistently. Use reliable and efficient tools and systems, such as point of sale (POS) software, inventory management software, accounting software, and customer feedback software. Train and educate your staff on how to use and update these tools and systems correctly and regularly.
- Analyze and report the numbers and KPIs for your restaurant business clearly and effectively. Use charts, graphs, tables, and dashboards to visualize and summarize the numbers and KPIs. Compare and contrast the numbers and KPIs with your benchmarks, targets, and industry standards. Identify and explain the trends, patterns, and anomalies in the numbers and KPIs. Communicate and share the numbers and KPIs with your staff, customers, and stakeholders.
Ineffective menu pricing and planning
Another common reason why restaurant businesses fail is that they have ineffective menu pricing and planning. Menu pricing and planning are the processes of designing and pricing your menu items and offerings. Menu pricing and planning can affect your food cost, revenue, profit, customer perception, and satisfaction.
Menu pricing and planning are not as simple as listing and pricing your dishes. They require a lot of research, analysis, creativity, and testing. They also require constant review and revision to keep up with the changing market and customer demands.
How to succeed:
- Design your menu items and offerings based on your restaurant concept, vision, mission, and target customers. Choose dishes that are consistent with your theme, style, and cuisine. Offer dishes that are unique, appealing, and delicious. Balance your menu items and offerings in terms of variety, quality, quantity, and price. Include dishes that cater to different dietary needs, preferences, and occasions.
- Price your menu items and