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Industry Updates

13 REAL Reasons a Restaurant Fails (And How to Avoid Them)

Written by
Ryan Karolak

Opening a restaurant requires a great deal of capital and poses a very high risk. The statistics regarding restaurant failure are staggering.

Approximately 60% of restaurants fail within the first year of operation, 80% fail within the first five years.

Sometimes, however, learning the pitfalls before you develop a restaurant business plan is the best way to avoid them. 

We have compiled a list of the 13 most common reasons for restaurant failure. In reason number two, you’ll be surprised to find out the key to success that three huge restaurateurs have in common.

Let’s dive in!

There’s (lots!) of work to be done.

13. You are not managing your restaurant’s social presence adequately.

Whoever said “any publicity is good publicity,” never owned a restaurant. This person never had to combat the enemy of all restaurant owners: the bad Yelp review.

Yelp is a great tool that virtually everyone uses to source meals, massage, hotels, a place to restring their tennis racket- you name it!

As a restaurant owner or manager, you will want to pay close attention to your Yelp page. While Yelp can seem like a curse to business owners, it can actually serve as a huge boon. This is where you will find out if your Friday night waitlist is insane, if you have an employee with a serial bad attitude or if your bathrooms are constantly running out of toilet paper.

Yelp also gives you a place to control these narratives. If your customer has a bad experience, an owner can reach out to possibly rectify the situation. Use social media feedback as a means to take control of bad situations.

12. Your restaurant menu has problems

These are a couple of the most common problems restaurants face today. A good menu requires considering how many items are too much versus offering too little. It’s best to have a smaller number of dishes, but making them really well. Typically, longer menus take longer to order from, require more ingredients, thus making you have to buy more ingredients.

Here’s some tips for your menu from restaurantengine.com:

  • Group your most profitable items together.
  • Don’t use dollar signs.
  • Let your menu be a tour guide. This can be accomplished through photos and/or creative text. Consider hiring a copywriter to craft a compelling menu.
  • Keep your menus clean – no grease and no food or water stains. Get rid of worn or torn menus.
  • Update your menu and prices at least once a year.
  • Build your menu around popular items.
  • Make sure your staff is thoroughly trained and has memorized the menu.

This trickles down into your unique selling point. What is your original offering or idea that makes you stand out above the rest? It could be a popular dish on your menu you are famous for. This uniqueness will offer your customers a feeling that enables them to remember you long after they are gone.

11. Your food quality is bad

This seems like a no-brainer, but it is an ever-present problem in failed restaurants.

As an owner, you need to be tasting your food regularly. This is the surest way to keep up with the quality. Additionally, when doing your food costing, make sure you are not sacrificing quality for price. Sure, you may be able to get cheaper bread from a new distributor and knock a few cents off each burger, but at what costs?

Remember that customers are ultimately coming to your restaurant to eat. If the food is bad, your customers will not return. They will not tell their friends to eat at your restaurant. They will not give you a good Yelp review.

Make sure your food is good.

10. Your restaurant hiring leads to high turnover

One of the unfortunate aspects of the restaurant industry is a high turnover rate in employment.

Restaurants obviously want to hire and train their staff appropriately, but sometimes you may not have a solid management structure to help everyone understand their role and responsibilities. Then things get overlooked and customers may feel the frustration on the backend of this disaster train. You may feel you don’t have enough time to adjust your current employee structure because all the other aspects of your business needs your attention. 

Try establishing a very solid management structure that your employees can follow even in your absence. Make sure they understand their responsibilities as well as everyone else’s roles.

This will provide you with a strong team where all employees can help pick up the pieces of one another.

9. Your management is disorganized

We have established that we need an owner, or at least a manager, in the restaurant at all times.

This is the most important player in the game. As a manager, you’ll need to know how to analyze your business from all angles to ensure that it runs properly and profitably.

Without an onsite manager, small restaurants can’t pay attention to the number of customers they feed per day, nor keep track of popular items ordered, or most profitable dishes, and their inventory loss. In addition, a manager keeps track of staffing, customer disputes and other shenanigans during operating hours.

If, as an owner, you cannot afford to employ a full time manager for your restaurant, see above (Absentee Owner). You will need to physically make sure everything is running smoothly and within budget.

8. Your marketing is insufficient or non-existent

Many owners fail to market enough or market appropriately.

You could avoid this by paying attention to the following:

  • Formalizing your brand across the board: restaurant mission statement, logos and graphics (good for menus and website), etc.
  • Create a marketing plan
  • Get a kickin’ cool website.
  • Social media and digital marketing are a must in this day and age.
  • Start an email database and create a customer loyalty plan.

A common misconception is that marketing is expensive. However, many marketing initiatives can be done through low budget or no budget options.

A great deal of your clients can be accessed directly through social media channels.

Test out a few social networks to see where your customers are spending their free time!

Are they posting on Instagram?

Are they following your restaurant on Twitter?

7. Your customer service is bad or inconsistent

Let’s face it: no matter how you slice it or dice it, the first impression is a memorable one. It can be pretty assumption-filled if not all questions are answered and needs met. Your food may delight the palates of your customers, but your service could drain them.

If your customers have a bad first trip, it’s not very likely that they will return for a second go.

There is no magical potion that generates happy and loyal customers – it really does take the entire village to create a great experience. From management to busboys, every contact made to your customers has to be delightful and accommodating. Customers can get easily turned off at any point in the dining experience, so paying attention to their needs and creating a welcoming service is essential.

6. You have huge cash misconceptions from the beginning

It takes a whole lot of cash to open a restaurant. Beyond renovating a space, buying expensive refrigeration and food supplies, you will need to be equipped with enough capital for the first three months, at least

Beyond tangible supplies, a restaurant will need to have cash flow to cover salaries, bills and any taxes for the first three months in operation.

Make a plan well before you open your doors. Plan your budget according to what you need to buy, how you need to staff and with the assumption that you will not see a cent of actual profit until after your first one hundred days in business.

5. You have inefficient payroll

Buckle up, because this is a big one. Payroll is a hot topic. With wage increases across the country, many small business and restaurants are trying to keep up with their payroll.

Keeping your restaurant payroll in line requires keen attention from an owner or manager. Keep an eye on sales in regards to how many servers, cooks, hosts and bussers you have working at a time. A Tuesday afternoon requires different staffing than a Saturday night. Even so, when a Saturday night isn’t the blockbuster night you thought it would be, cut your staff. Somewhere out there, a server is raising her fists in the victory of being cut free at 8pm on a slow Friday night. 

In short, a manager or owner needs to learn the best way to efficiently staff the restaurant on the busiest of nights and on the slowest days. With the knowledge and adaptation of your scheduling, your restaurant will save hundreds (or thousands) of dollars a month.

4. You are an absentee restaurant owner

An owner typically completes a huge workload before a restaurant ever opens its door.

An owner typically puts in the work to create a concept, hire a staff, design a space, implement systems and allocate money. The owner offers a smiling face and a firm handshake at the soft opening.

Some owners think that once the doors open, the restaurant can run on autopilot. While it is true that the owner has already done an incredible amount of work before the ribbon is cut, the job goes on beyond that.

Especially in the first year of operation, it is crucial for an owner to be at the restaurant. Furthermore, the owner should probably be at the restaurant every day.

3. You underestimate the full scope of running a restaurant

Before you even think about opening a restaurant, you have to measure out the scope. A restaurant is not a quick way to funnel money into your pocket. A restaurant is like a human infant, especially in its first year. It needs to be constantly monitored, fed (literally) and changed.

You will need permits, people skills, accounting expertise and a penchant for dealing with crises. Before we go into the nitty gritty, know that opening a restaurant requires a commitment on par with caring for a newborn.

2. You have no experience in the restaurant industry

Anthony Bourdain, Thomas Keller and Hugo Ortega have something in common. Sure, they are all successful restaurateurs and they have published a few books apiece. However, the most interesting thing they have in common might surprise you- and is key to their great success.

They all started out as dishwashers.

Opening a restaurant without experience or guidance is a huge mistake. Some of the most successful restaurateurs did not start out as a manager. They did not even start out as a host or a server. Learning from the ground up is the only way to learn the ins and outs of the entirety of a restaurant.

Before opening a restaurant, an owner needs a good understanding of all that goes into the operation, to the best of his ability.

Not everyone is going to experience what it is like to be a dishwasher, a host, a server and a bartender. However, doing your best to understand the nuances of all operations will set you up for success. Do not go into this business blindfolded. Arm yourself with a team of experienced team members. Learn the pain points of a seasoned manager. Talk to veterans of the business. Running a restaurant is hard, yes. However, there are plenty of stories, both of failures and successes, to learn from.

1. Your restaurant location (location, location!) is not ideal.

There is a reason we repeat location times three. It’s that important. There are many things to take into account when choosing a location. Unless your restaurant is in the heart of midtown Manhattan (and sometimes even if it is) you will need ample, accessible parking.

Speaking of accessibility, you will want your brick and mortar restaurant to be easy to find. You will want your restaurant on a main thoroughfare, off an exit of the highway or an area with heavy foot traffic.

Aside from visibility and accessibility, you will want to make sure your location is serving an active population. Make sure you know your demographic and how they are currently being served. In short, do your research.

Restaurant Survival FAQs

What percentage of restaurants fail in the first year? Five years?

60% of restaurants fail or change ownership within the first year of business. Additionally, the same study from Ohio University states that 80% of restaurants fail within the first five years. 

How long does the average restaurant survive?

Restaurants that make it past the tough five year mark have a 90% chance of surviving for ten years.

What is the failure rate of all small businesses?

According to this report, only about 30% of small businesses will make it to a ten year mark of survival.

What is the perceived #1 reason that restaurants fail?

The number one perceived reason that restaurants fail is location.

In Conclusion

Opening a restaurant is no easy feat. Even if an owner does everything right, there are always unexpected variables.

An attention to detail, strong work ethic, monitoring to spending and constant presence can safeguard against the most common pitfalls.

We all could use more time, more capital, more training, and more marketing towards our business. Don’t get let yourself get lost in the mayhem.

By downloading the free BlueCart app today, you can save so much time in the back of the house leaving you with more time to manage and enjoy the front of the house.

Cheers to that!

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