3 Major Reasons for Restaurants to Fail
A restaurant’s failure rate ranges between 60%-80%. Pretty high, but that does not mean that the Restaurant Industry or the Food Business is not profitable. People who generally plan to enter the restaurant industry do not overcome THE THREE MYTHS due to which, their restaurant venture usually fails. There is a very limited number of restaurants that have been going on for years and are successful and highly profitable. Their secret lies in their perfectionism and their attention to detail, which others fail to achieve.
We do not intend to discourage anyone planning to open up a Restaurant or a Food Business or targeting anyone who is already in the industry. We are just stating the patterns that we found by researching some of the restaurants that closed pretty soon. We are just trying to enlighten the new and the existing players to be aware of committing such mistakes in your restaurant. Most people are fascinated by the turnover and the revenue in the restaurant business but fail to research, how to build a sustainable and profitable restaurant business.
Based on our research, usually, people have certain myths about the restaurant business. Because of these myths, people often are fascinated to enter the restaurant business, but fail miserably, these myths are mentioned below:
- The restaurant business is the EASIEST
- It is highly PROFITABLE
- One of the BEST industries to work in
1. The restaurant business is the EASIEST:
People who enter the industry are mainly from 2 genres, One who already runs an existing business or comes from a different background, while the others who have either studied hospitality or have a family background. Those set of people who come from different backgrounds mainly have a thought that the Restaurant will directly run on auto-pilot mode right from day 1 and they mainly have to just monitor things and everything will get sorted. However, this is not true. Like any other business thing, don’t fall into place right from day 1 but one needs to take care of small things and has to work at ground level to make things fall in place.
People who don’t come from a hospitality background, do not have a clear mindset of bifurcating their total investment. Their major capital investment is spent on creating the interiors, getting expensive cutlery, showpieces, and heavy kitchen equipment that might not be required at that point in time. What they don’t have, is a plan about how are they going to recover the capital expense. Spending a good amount of money on Interiors or ambiance is not a problem, after all, it is your vision and your intention that what you wish to give to your guest, only good food or good food plus a great ambiance.
However, here one needs to understand that whatever amount you channelize in setting up the restaurant, one should also have a substantial amount to meet the running expenses for at least 6 months as the major problem or expense with the Restaurant is the heavy rentals. Here, people fail to do so, and because of which they are not able to survive the gestation period. This often leads to the closure of the restaurant.
2. It is highly PROFITABLE:
A Weekend is that part of the week which gets some guests even for the slowest running restaurant in the town and this is where it makes it interesting for people to start their own restaurant.
Any Tom, Dick, and Harry just think in 1 direction, and that is they see the price of the Item in the menu and start calculating its cost by checking what all ingredients are used in making that dish. They do take into consideration the rentals, salaries, and other expenses, however, they mainly extrapolate the sales figures by seeing the rush on the weekends but never consider those times which are slack times for the Restaurant and there are days where it sometimes becomes difficult for the restaurant to even reach 10 orders in a day.
These calculations are always misleading and always make the person feel that the Restaurant Industry is highly profitable and has huge margins.
The industry is definitely profitable when you have constant foot-fall irrespective of day or time and along with that, you have tight control over your operations, your inventory, and food costs.
3. One of the BEST industries to work in:
People from other businesses often feel envious of a restaurant business because it is a cash business and you either pay before placing the order (In case of a Quick Service Restaurant) or you pay after having your meal (In case of a Dine-In Restaurant), however, you need to pay at that time and there is no credit available while in other B2B business, no matter how much you sell, the payment comes after 30 days, or 45 days or even more than that. This also makes it more lucrative for someone to get indulged in a Restaurant Business.
However, apart from other challenges like competition, there are a lot of other challenges like Human Resources. The attrition ratio in this industry is enormous.
Hence, people who have been viewing this industry as an observer have a disparate point of view than those who have stepped in and faced the challenges. These myths often lead the wrong people with wrong beliefs into the industry creating unnecessary competition for everyone around.
To summarize that due to inexperience in the field, insufficient research, poor judgment, a one-track mindset, poor allocation of resources, no organization of activities, lack of restaurateur involvement, no standardization of taste, and many other factors, restaurants fail miserably.
One can definitely make a mark, but with proper due diligence, planning, efficient use of funds, and getting involved at ground level.
The factors listed here are an overall perspective of the industry and its working, not necessarily, it is applied in the same manner.