Industry Spotlight: Food & Beverage

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Recently, I’ve seen a surprising number of restaurants close in my area.  I know the statistics – roughly 60% of restaurants fail within the first year and 90% fail within the first five years. It’s a tough industry with an enormous amount of competition. However, in this string of recent closures, it’s most surprising that these establishments seem to have nothing in common. Some were chains, others were new concepts. Some started within the last two years and others had been in business for 15+. Some served pizza, others burgers and wings, and others frozen yogurt. Even one of my favorite restaurants fell victim.

I can’t say I didn’t see it coming. The place was always empty – any time of day, any day of the week. For me, this was a plus. We always sat at our favorite table, right next to the few arcade games that would keep my three-year-old entertained while I drank my 32-oz. mug of beer for $3.50. The food was delicious! It was fresh and there was a wide variety from which to choose. Even my 11-year-old loved it and she is somewhat particular. She only provides her stamp of approval to a select, lucky few. With all that being said, I always wondered why it was never busy. I didn’t understand. Good food? Check. Wide variety? Check. Good service? Check. Good atmosphere? Check. It was a sports bar, so they had lots of TV’s and entertaining decor. Also, did I mention 32-oz. beers for $3.50!?

So, what went wrong? I still don’t have that answer, but it led me to assume that in an industry with lots of competition, maybe having good food at good prices just isn’t enough. I’ve scoured the web researching and gathering information from a variety of sources and other than having terrible food or terrible customer service, I think I’ve narrowed it down to a top five list of reasons restaurants fail.

  1. Owner Inexperience – According to Celebrity chef, Robert Irvine, “Potential restaurateurs do not realize or appreciate the specific set of demands that come along with owning and running a restaurant. Once realized, it is often way too late.” Running a restaurant requires managing a diverse group of people with varying skill sets, talents, and personalities. There are so many moving parts. For this reason, an inexperienced owner might start to become too focused on the small picture, which can ruin a restaurant’s chances of staying open. Experienced owners know how to delegate daily tasks and can focus on managing operations and processes for long-term success.
  2. Inadequate Accounting Systems – New restaurant owners often fail to educate themselves on the basics of restaurant accounting and have no idea how to properly manage finances. They don’t know the specifics regarding food costs, labor costs, and don’t closely review their P&Ls (income statements). If you don’t know how much money you are spending, you can’t properly price your menu, staff the correct number of employees, or create a marketing budget within your means.
  3. Location – Having a “bad location” can mean one or more of the following, little to no through traffic, limited visibility or accessibility, limited parking, or neighborhood residents/visitors that are not interested in your offerings or concept.
  4. Overspending Prior To Opening – When opening a new restaurant, the urge to splurge for the best of everything, can outweigh common sense. Most restaurants don’t start making money right away and they rely on cash reserves to cover bills and employee salaries for the first few months. If you’ve already overspent on equipment, upgraded finishes, or decorating, these costs might create debt that is extremely difficult or impossible to eliminate.
  5. Inconsistency – Providing delicious food and impeccable customer service once or twice is not enough. You must create an exceptional, customer experience, every-single-time. Every time a customer walks through the door of your restaurant, they are planning to spend their hard-earned money and are choosing your establishment over the competition. In return, they are expecting a memorable experience. If you are unable to consistently, meet or exceed their expectations, they will find another restaurant that is prepared to do so.

There it is. The top five reasons restaurants fail, according to my research. But I want to hear from you. Are there others you feel should have made the list? What have you seen or experienced?

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