One of the great things about the restaurant industry is its low entry barrier. Practically anyone with enough money and the right permits can open a restaurant, anytime and anywhere.
Heading to the exit door, however, can be equally as easy.
Opening a restaurant is one thing but running a successful one is a different story altogether.
Restaurant failure rates as not as high as the ‘90% of restaurants fail within their first year’ myth would have you believe. As a study published on Cornell Hospitality noted, real data aside, it’s a matter of common sense: if that many restaurants really closed for business, they would be declared extinct within a few years. The actual failure rate is still quite high, though: around 30% for the first year and 60% by the third one. And with Covid one year behind us, it would seem that restaurants should be making a comeback, right? Let's look first at the basic reasons restaurants fail, then further on I will try to explain what added insult to injury due to the pandemic.
Poor leadership and lack of experience
A lot of new restaurant owners enter the food and beverage industry with little to no knowledge of the industry, but rather a desire to fulfill a longtime dream. For the inexperienced, owning a restaurant can seem like a simple task. In fact, it’s the furthest thing from a cookie-cutter job.
Unlike most businesses, restaurants are systems made up of people with very diverse skills roles, so strong leadership is essential to make them work together. When that is lacking, everything else will come crumbling down.
The best leaders in the restaurant industry are usually those who started from the bottom and
worked their way up the chain of command. That’s not to say that a newfound restaurant owner won’t be able to handle the task, but it’s going to take a lot more work and a good dose of humility.
Out of control costs
In a typical restaurant there is more to account for financially than for other small businesses, so keeping food cost and labour cost under control isn’t optional. If you’ve been doing it wrong (or not doing it all), you may be leaking money without knowing it. Consider hiring an in-house accountant or an accounting firm to help you. This will get your finances in order and also free up more time to focus on managing the restaurant.
Bad food and service
Diners may forgive restaurants for many things, but not bad food and poor service. Once your establishment develops a reputation for this , it’s pretty much game over.
Customers who had a bad experience in a restaurant will spread the word to everyone they know (or don’t know) with online reviews. While most of the other problems can be fixed within a short time span, a bad reputation is one that takes a lot longer to repair.
How you handle a complaint is also a huge factor that determines what customers think about you. For example, instead of insisting the customer is wrong when they send food back to the kitchen, offer a complimentary dessert as an apology. A nice gesture will go a long way in the restaurant industry.
Poor service often stems from lack of a clear chain of command, or from hiring the wrong people. A few bad or demotivated employees are all it takes for a restaurant to start haemorrhaging cash.
I could add much more to this list; lack of capital, poor location, poor marketing and so on...
As far as the Pandemic is concerned, there are a number of factors that continue to plague restaurants. Rising food and labour costs, higher operating costs, NEW and INFORMED CONSUMERS. By this I mean that during the Pandemic, with restaurant closures and limited dining options. people started cooking and experimenting with "At home Dining Experience", much like what we offer at Dinner Thyme Private Chefs.
There are solutions, but they require a different way of thinking and operating. This is the NEW PARADIGM of food service operations, and at Dinner Thyme Consulting we have the solutions!
Cheers, and have a great weekend!