- 1. Poor Concept Development
- 2. Uniqueness
- 3. Location of the Restaurant
- 4. Bad Food Quality
- 5. Bad Food Execution
- 6. Lack of Working Capital
- 7. Bad Pricing
- 8. Poor Inventory Management
- 9. Accounting Mistakes
- 10. Poor Cash Flow Management
- 11. Lack of Reporting & Analytics
- 12. Lack of Theft Controls
- 13. Inexperienced Owners
- 14. Bad Hires
- 15. Poor Working Conditions
- 16. Poor People Management
- 17. Poor Customer Service
- 18. Poor Management & Managerial Skills
- 19. Failing to Understand Competition
- 20. Bad Promotions
Many people believe that having their own business is the key to working their way up in the world – after all, being your own boss is certainly the ultimate dream. For food lovers, restaurant businesses seem to make the most sense; after all, people need a place not only to eat, but to hang out with friends and loved ones, as well.
While setting up a restaurant business seems like a very good idea, many fail to remember that it is, first and foremost, a business. Hard work and grit account for most of a person’s success, while inspiration, despite its name, plays only second fiddle. As a restaurateur, you have to be aware not only of the current economic trends, but of the current food trends as well. Any person with Facebook or Instagram accounts knows just how fickle people are becoming with their food nowadays. Food trends that range from avocado lattes to charcoal ice cream and rainbow bagels have, at some point, invaded social media.
The ebb and flow of today’s trends make it especially difficult for people to maintain a successful restaurant business. In fact, over 90 percent of restaurants fail in the first year alone, and it isn’t always because they have bad food or bad service. Sometimes, owners want to see social media influence and fail to take into account the most important restaurant metrics, which is why many of them realize too late that their business is going under.
Instead of following untested trends that could as easily fail, why not reward your best customers with the food that they deserve to eat at your restaurant? That way, you know that they will come back because of the quality of the food you serve, not because you are one of the many that has jumped the trendy bandwagon only to pull out most of your menu six months later.
Here are 20 of the most common reasons why restaurants fail within 12 months of opening their doors:
1. Poor Concept Development
Restaurant design, remodelling, and planning all form parts of your concept development, however it involves so much more, including market and competitive research, trends, and financial modeling. A compelling restaurant brand image will capture the attention of your guests and conjure emotional connections, resulting in outstanding sales performance. Concept development is essential in that it can inspire enthusiasm.
On the other side of the spectrum, however, poor development will lead to a negative reaction from customers, especially when they feel it is not thought through. With dining areas being developed everywhere, there is more competition for better concepts. With the fast-paced lifestyle of today’s digital world, as soon as a restaurant trend or format goes stale, new concepts must be developed which is why renovations, designs, and even menu variety need to be updated regularly to properly accommodate the target market.
A unique perspective can do your business good, but there is such a concept as too unique in the food service industry. With businesses going for gimmicks instead of quality, it is easy to forget that restaurants should focus on the quality of food that they serve rather than the next Instagrammable thing that they can think of. For instance, many believe that hipster bars and cafes have gone too far in their concepts by serving food in unlikely arrangements such as flower pots, shovels, and even shoes.
Your unique selling point should enable your customers to make an emotional connection with your business and enable them to remember your restaurant for the food and service that they will want to come back to, not just come in once for photos, never to return again.
3. Location of the Restaurant
Any experienced restaurateur would tell you that as with any business, it is all about location, location, location. The perfect physical venue for your restaurant is determined by a combination of concepts as well as a study on your ideal customers. If you know what kind of restaurant you want to create for a certain demographic, then you would be on the way to choosing the right location that sets up your business for success.
Among the things to consider in choosing your location include your restaurant’s concept, your style of service, the demographics of your target market, and the accessibility and visibility of the building. For instance, putting up a trendy but inexpensive cafe near the local college will make more sense than a fine dining restaurant that no average student can afford.
Still, there are exceptions to these rules, including, but not limited to, featuring an out of the way location to highlight your restaurant’s concept, such as a sophisticated vineyard experience, a secret speakeasy for exclusive club members, or romantic dinners by the beach.
4. Bad Food Quality
Simply put, people go to restaurants to eat and have a good time, so they expect quality. They expect everything you serve to be good because if not, they might as well have stayed home to cook for themselves. Make sure that the quality of your food and beverages will please your customers because otherwise, they will not return. If they encounter bad customer service, they will refuse to return. If their food arrived at their table cold, they might as well have microwaved leftovers at home. Restaurant design and ambience can get customers to visit your business, but once they posted a photo on Instagram, they are unlikely to return if they think the food is not worth going back for.
5. Bad Food Execution
Bad or sloppy food execution happens when there is miscommunication or a breakdown in the chain of command. It is important to have regular food tastings in order to check that recipes are being followed, or in need of improvement. Food preparation may be monotonous at some point, but it requires vigilance in order to maintain quality control. When you cut corners for food preparation, your customers will notice and it could put them off your restaurant.
Furthermore, if your food is not presented properly on the plate, and if it looks unappetizing, it could negatively impact your customers’ appetites. With the rise of social media and people constantly uploading food photos on Instagram, you should take into consideration the importance of food presentation as part of your overall execution.
6. Lack of Working Capital
In business, working capital is your company’s current assets minus your liabilities. In this sense, current assets are those that can easily be liquified to cash within a year, while the liabilities are debt obligations that the company must repay within a year. If your business lacks sufficient working capital, it is difficult to attract investors and lenders. Your working capital will show them that your company has the capacity to pay back loans or earn sufficient profit that will give investors a return on their investments.
As for creditors, they may view companies with no working capital and a lack of investors as a risk that may affect your company’s ability to purchase necessary resources. Without a working capital, your company might jeopardize its ability to finance day to day operations including salaries, inventory purchases, equipment needs, and even for emergency purposes. This is why small business owners should learn to establish a realistic budget for company operations and research secure financing options from different outlets to ensure funding.
7. Bad Pricing
A strong menu will help increase your profitability, which is why you have to deploy smart pricing strategies. Many restaurant owners believe that restaurant pricing is as simple as knowing supply and demand, but this is not always the case. In fact, they have to be careful when offering discounts because it could actually damage the value of their brand. While many believe that discounts will draw crowds in, they end up devaluing their food and the dining experience. Customers themselves can see whether or not the discount is reasonable or desperate. If they see it as desperate, they will never pay for the full price ever again, and the discounted price becomes normal.
Significant devaluing of your menu could kill your restaurant and damage the brand. In some cases, the restaurant’s traffic even becomes reliant on discounts. The bump in traffic during these days can easily be cancelled out by the decrease in your profit margins, making you actually lose profits in the long run.
Among the biggest perpetrators of devaluing include daily deals or weekly discounts. When your customers get discounts through groupons or regular deals, you cannot guarantee that your customers would return on regular days, because why would they when they could get the discounted price?
Instead, try to learn the art of discounting. Make sure customers see it as a perk, and not an incentive, so you can give the impression that you are giving them perks out of gratitude instead of a business decision.
8. Poor Inventory Management
Your inventory will ensure that you have all the necessary items, ingredients, goods, and even equipment to run your restaurant. Managing your inventory is important, if only to avoid bad surprises when you find that your seafood restaurant ran out of seafood to serve in the first hour of dinner service. Without real-time access to your inventory, you will not be aware of how your products are moving, such as if there are thefts happening, or if there are obsolete items that you may have to rethink about. Without a proper way of tracking your inventory, you will find delivery delays and stock shortages, leading to rocky relationships not only with your providers, but with your customers as well. When you can’t provide your customers of their orders, they become unsatisfied with the business and would later refuse to return.
9. Accounting Mistakes
Keeping a close eye on numbers is essential in the food service industry, especially for restaurateurs who are looking to turn their profit. However, too many make accounting mistakes, and end up paying for it greatly later on. Among the most common mistakes include invoice pile-ups, bookkeeping errors, and irregular balancing of books. Get Access to Accounting Templates.
Piling up of Invoice
While pushing vendor invoices can be tempting, the pile can grow fast and becomes even more daunting. When your invoice reports become outdated, it becomes likely that vendor payments go out late as well, so your relationship with your suppliers can suffer greatly. Take time to stay on top of things in order to make it easier to balance your books every month – and even address problems as they arise instead of putting them off until they become monsters to deal with.
Bookkeeping Delays and Errors
Bookkeeping can be a pain, especially when you’re entering data manually. Finding typos in them can be a headache, even when you’re using computer programs such as Microsoft Excel or Quick books. To avoid massive headaches, you may want to have your vendors email you your invoices to keep better track of them. You may also want to have separate folders for hard copy invoices so that you won’t confuse them with those already recorded. Forgetting to balance your books will also lead to bigger problems such as forgetting to pay the bills or failing to see your restaurant’s progress against your budget.
10. Poor Cash Flow Management
Bad cash flow affects not only the financial aspects of your business, but the non-financial costs as well. Poor cash flow can lead to increased bank charges and higher interest rates, missed opportunities that you could have otherwise grabbed such as investments or new technology, poor relationship with your suppliers and customers, as well as decrease in employee morale. More than that, it could also be a major cause of stress, which can influence all other areas in your life such as your physical and mental health, when not managed properly.
On a financial aspect, the lack of proper cash flow management could restrict the growth of your restaurant, and worse, could lead to insolvency and make you go out of business.
11. Lack of Reporting & Analytics
Effective reporting and analytics is important to implement a comprehensive business intelligence platform because it gives your company the ability to effectively interpret data in an efficient manner. This will help you get to a proactive, informed, and evidence-based decision-making process with a competitive advantage through processing of timely data.
Reporting, analytics, and information delivery can create a significant impact on your restaurant by changing the way that people perform in their jobs. It not only targets the timely delivery of data, it also increases staff productivity and satisfaction. Failure to properly report and analyze data for your restaurant in a timely manner can negatively impact cash flow and inventory, later on disrupting your service to your customers.
12. Lack of Theft Controls
Theft and fraud within a company can be difficult, especially considering that you have to walk the line between making employees feel trusted and ensuring that your business is being run honestly. Theft and fraud does occur in businesses and is often missed. However, there are internal controls and methods that you can do to take control of your business and minimize losses, such as cameras to help discourage petty theft, and even strong software security to reduce financial frauds. On top of that you can also do unscheduled audits to ensure that all the books are being updated and recorded properly.
13. Inexperienced Owners
Too many people with no experience in the food service industry think that they can run restaurants. Many think that it is easy to be in the food industry because everyone can, in some way or another, cook. However, knowing how to cook food is different than knowing a business, and many forget to account that other than cooking. There is accounting, inventory, management, and other such technical issues that need to be dealt with when owning a restaurant.
When owners start their restaurant, they tend to go around doing absolutely everything from hosting duties to food prep. However, doing all these can usually lead to them being focused on the small picture, and failing to realize the bigger issues that the restaurant might be facing. Without the ability to delegate tasks and being ill-informed about the more technical parts of business, an inexperienced owner will not have a well-rounded view of his business and lead it to failure instead.
14. Bad Hires
While not completely unavoidable, the mistake of bad hires can cost your company a lot of time and money. First, employees who are not effective at their jobs can waste a lot of time and resources. The company may invest in the same amount of resources for your staff, but a significantly less output, can impact work productivity. It can also lower staff morale in a way that a bad hire can have a knock-on effect on the rest of the workforce. More able employees will be asked to cover for a struggling one, and still receive the same salary, causing them tension and potential conflict.
Most of all, bad hires can cost your company a lot of money because it will cost you as much to hire employees as it does to replace them. This is why it is important to create job descriptions and stick to them when carrying out interviews in order to ensure that you are hiring one with the capacity to do the job well in your company.
15. Poor Working Conditions
Studies reveal that employees who find their working conditions to be less than ideal are 15 percent more likely to think of applying for new jobs. Among the most common problems from employees regarding their workspace conditions is the size of their work space. It is important to provide the right tools for your employees as well as an environment that is free from safety issues.
Reports state that workers in the food industry have some of the lowest wages and poorest working conditions in the workforce, and poor working conditions expose both food service workers and consumers to health and safety risks. Companies who have poor working conditions for their employees will likely lose their best staff members to their competitors, leading to bad customer service from your end. Therefore, it is important to ensure that the conditions that your employees are working in fit the salary standard, not to mention sanitary and environmental requirements set forth by the government.
16. Poor People Management
Human capital remains to be the most important asset of any business, and even more so for restaurants. A single motivated manager can make a positive impact, as can an innovative thinker. On the other hand, people who perform badly can cost a company a lot of money on unproductive performance, as well as recruitment and training of their replacement staff. Research showed that as much as $105 billion a year is devoted to correcting problems associated with poor people management practices in the US alone.
The same research showed that managers in the US waste an average of 34 days per year in dealing with staff under performance, and many executives spend at least seven weeks a year managing poorly performing employees. By wrongfully matching employees with their jobs, companies compromise the productivity of their better-performing managers and employees as they correct the mistakes of the lesser-performing ones. Human capital is a key investment for your restaurant’s lifespan, so focus on your people before anything else when running your business.
17. Poor Customer Service
Customer service is among the most important aspects of running a restaurant business. In fact, in many cases, great customer service can compensate for poor marketing efforts, although great marketing cannot always compensate for bad customer service because it will not encourage customers to repeatedly visit your business.
Bad customer service will also greatly impact your business, especially in terms of your reputation. No reputable restaurant would ever treat their customers badly because they know their value. With bad customer service, your leads don’t convert to sales and your customer lifetime value drops because very few of your customers would want to visit on a regular basis.
While it is normal for mistakes to happen during service, there are some situations that are considered to be unacceptable in the restaurant business, no matter where you are in the world. Among these situations include long wait lines and response times, poor attention to detail, inexperienced and poorly-trained staff, and most especially, unprofessional and impersonal reactions.
These traits often give negative consequences for restaurants, and most of the time, they can lead to the failure of the business. However, there are ways to remedy these situation, if only you know how to handle them.
Warren Buffet noted that “it takes twenty years to build a reputation, and five minutes to ruin it.” With customers being very quick to write scathing reviews about restaurants, it is important that you take them seriously if only to make amends. Have a key figure in your company reach out to those who reviewed your restaurant, and accept responsibility for bad service. Inform people that you are making strides to solve the issues pertaining to bad customer service, then set a higher standard for your restaurant until this new standard becomes the norm. With this, you may be able to improve your reputation and even win back customers.
Bad Lead Conversions
Interactions with business prospects and other leads can also be considered to be part of customer service. Failing to follow up with leads or with slow response times from reps will lead to a negative impression. Instead, keep track of your engagements and serve them better by using smart marketing strategies that align with your leads’ marketing and sales goals.
Dropping Customer Lifetime Values
Acquiring new customers is a lot more expensive than keeping your current ones, which is why customer service remains important. The repeat visits will keep your business going – and as many as nine out of 10 customers say they’re willing to pay more for good customer service. Bad customer service can destroy your customer lifetime value, so you compensate by putting more on marketing to attract more customers. Instead, you may want to develop a strategy that will help build customer brand loyalty. Many marketers focus on customer acquisition, but keep in mind that retention generally has a higher return on investment, especially when they visit your restaurant on a regular basis.
Losing Best Employees
Losing customers would lead you to risk losing your best employees, because they tend to be forced to pick up the slack for the bad ones. This leads to burnout and dissatisfaction on their part. In fact, if your restaurant develops a bad reputation, there is a tendency for the best workers to jump ship, especially when they realize that things are going south. In order to avoid this problem, you may want to reward your best employees and fire the bad ones. Employees tend to perform on a “normal” level in your company culture, so if your “normal” is bad customer service, they will not feel the need to pick up slack and improve their attitude. However, if your company’s normal calls for a high bar that pushes them to be efficient. friendly, and professional, they will ultimately improve their service in the long run.
18. Poor Management & Managerial Skills
Toxic and misguided leadership is bad for business in a way that it affects employee retention. In fact, as many as one in two professionals would quit jobs to get away from their boss. On the other hand, strong leaders with good management skills are good for the company as they impact in positive ways such as reducing the staff turnover rates, improving morale, and even by empowering their staff to be more productive on the floor.
Recognizing employees for their work and effort will make them feel valued at work and will push them to be at their best in the company. Good management allows employees to communicate effectively. When employees receive constructive feedback instead of criticism, they feel motivated to improve on their weaknesses.
On the other hand, they will not feel motivated or energized to do their job if they feel that they are not appreciated, or fear for their career every day. In a restaurant, unmotivated employees could translate to poor customer service.
19. Failing to Understand Competition
Many restaurant owners believe that they have great food, so they think it is enough to get their customers to come back to them. However, identifying and understanding your competition is necessary for the success of your restaurant business as it helps reduce the risks and expenses. If competition is very strong, it may be difficult for a new business to break in the market. In fact, even established businesses take time and resources to reevaluate their restaurants in relation to their competition.
Identifying and understanding your competitors, especially regarding their strengths and weaknesses can be for your own advantage because you can apply what you know. Learn as much as you can, including their daily operations, their marketing strategies, as well as the next steps they are planning for their restaurants. If you can, you may also discreetly talk to their customers about what could be done to make the business better. This way, you have all the advantage in the palm of your hand. Who knows, you just might be able to nab their customers from right under their noses.
20. Bad Promotions
Promotions are a great way to get customers to come in to your restaurant, and while tending to a buzzy, viral campaign might be effective for some companies, it is not always the right move. In fact, in the restaurant business, there is such a thing as negative attention, which will lead your restaurant to get bad press or lose money. Proceed with care when running any of the kinds of promotions below:
Happy hours and drink specials may draw in crowds, but make sure that your offers have the right permits and are legal, so make sure to check your city’s local ordinances on the matter. You may be able to bring in customers for a time, but it sure is not worth paying a hefty fine for.
These promotions can certainly draw in a crowd, but you have to take care that you are not losing money. In many cases, underestimating the amount of food that customers can consume will have restaurants lose more money than they gain. Remember to do your research before launching an eat-all-you-can buffet.
Coupons make for great discounts, but there should be a promotional strategy that comes along with each printout because distributing coupons without any other promotions would lead to customers expecting your food at a discounted price. Many times, they will no longer feel the need to pay for your food at full price after, especially if they get used to getting it at a discounted price.
When it comes to your promotions, you have to take care that you are going to get only good press. Marketing strategies that will give you bad publicity will definitely be bad for business. Make sure not to compromise customer privacy, nor take advantage of other people or animals. Make sure that your promotions are not offensive, dangerous, or cruel to animals. A PETA protest at your door may not bode well for your customers.
Depending on the kind of restaurant that you are willing to open, it is important that you are frugal with your finances, especially in the first year when a combination of problems can lead to disheartening numbers. Restaurants come and go, so it is important that you can identify and address them as early as possible and make use of different advertising strategies, including social media marketing, to maximize audience reach at minimal costs. By being aware of these common problems, you can hopefully save your business from failure in the years to come.