Owning a restaurant is a fond life-long dream of many people, and the chance to work for themselves and control their own destinies is one of the big reasons. In addition, many people love food and cooking and dream of creating interesting dishes for their customers. However, the reality of owning a restaurant can be very different from the dream, especially for those who don’t understand the practical aspects of running the business side. Many times, new restaurants are doomed before they start, not because the owner is a poor chef, but because they don’t understand how to run a successful business, market effectively, and keep their customers and employees happy. Here are some of the reasons that many new restaurants fail:
Financial Mis-management
Poor financial management can lead to a lack of funds for operational expenses, making it difficult to sustain the business. Starting a new restaurant from scratch is a very expensive operation, requiring a lot of initial capital. New owners often underestimate start-up expenses, which can get a new business off to a very shaky start.
In addition, continuing operations of a restaurant can be inconsistent and hard to predict. Keeping track of important restaurant benchmarks as the business operates will help owners stay in touch with the financial situation. Hiring an experienced business manager can help new owners understand the financial realities of owning a restaurant and help them be better prepared to stay in business during slow seasons.
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Lack of Experience
Many new restaurant owners lack the necessary experience to run a successful business, leading to mistakes and poor decision-making. Knowledge about how to cook well or create an interesting menu is not enough to run an income-producing restaurant. As with most businesses, it is just as essential to understand business and marketing strategies as it is to understand the intricacies of the niche itself.
When starting a restaurant, marketing and business skills are paramount. If owners don’t have proven skills in these areas, they will often be more successful by hiring someone to manage the business end of things. Not only will they free up their own time to focus on the things they do best, but they will often more than make up for the expense in better marketing and higher income.
Lack of Capital
New restaurants often face challenges with securing enough funding to cover all of their expenses. The restaurant industry in general has high overhead costs and often requires a lot of start-up capital, making it hard to begin a new restaurant well. Unless a new restaurant has a lot of capital available before starting, it can be hard to make it successful. In many cases, they are out of money before they even open.
Capital improvements like building commercial kitchens, creating attractive and safe dining rooms, and purchasing food all add up to a lot of time and money spent, even before the doors have opened. Hiring wait and cook staff can be expensive and employees must be paid regularly whether or not the business is profitable.
Poor Location
A bad location can be a major factor in the failure of a new restaurant. Like many businesses, restaurants need a good location to attract the attention of new customers. While all businesses will get a certain amount of customers from marketing alone, it’s always important to be located in a central area where the business can easily be seen, as well.
A restaurant also needs to be located in an area that is easy to access. If it is too hard to get to the parking lot, customers must turn directly off a busy highway, or the parking lot is hard to navigate, repeat customers might start going somewhere else to avoid the frustration of accessing the restaurant.
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Inadequate Market Research
New restaurants that don’t conduct proper market research risk offering products and services that don’t resonate with their target audience. New owners may also end up over or underspending on things like dining room aesthetics and wait staff if they don’t have a good understanding of what the local market desires and expects.
Poor Menu Planning
A poorly planned menu can lead to a lack of customer interest, and even a failure to attract customers at all. A well-planned menu will be designed to appeal to the local customer base. The foods should be attractive, seasonal, and delicious, and be made in a way that helps the restaurant stand out in the community.
In addition to making sure that the menu items appeal to the local customers, new owners should also make sure that each dish is served with sufficient side dishes and garnishes to look complete and attractive. If plates look partially empty when they are served, customers often feel like they have been cheated out of their money. Side dishes, such as mashed potatoes, steamed vegetables, or salad, are usually cheap and can be made in large amounts, so adding them alongside main courses is a good way to make sure customers are pleased with their meal.
Lack of Differentiation
New restaurants that offer the same products and services as their competitors risk losing customers to more established businesses. While it is true that many areas of the country have specific food preferences, it is also true that people like variety. Offering a type of restaurant or food that is not otherwise available in town can seem like a risk because owners cannot be sure how well it will be received. However, there can also be a huge reward for providing a service that has been lacking.
Poor Brand Image
A weak brand image can lead to a lack of customer recognition, and even cause customers to choose competitors over the new restaurant. All businesses need a recognizable brand that people can learn to trust. If a restaurant can build brand recognition in the community and can advertise with a consistent brand image, they are more likely to be successful. Restaurants should strive to be the brand that comes to mind when people think about delicious food and a good night out. If they can achieve this brand recognition in their community, they are much more likely to be successful.
Inconsistent Quality
Inconsistent quality of food, drinks, or service can cause customers to avoid the new restaurant and choose competitors instead. When repeat customers don’t find the quality they expect on return visits, they feel betrayed and as if they’re wasting their money. Experienced managers work hard to maintain the style and taste of food that their customers are accustomed to, and when change is necessary, such as a change in ingredients or menu items, it’s well-advertised and framed in a positive light.
It is equally important for the quality of service to have a consistent standard. Customers come to expect repeat wait staff and often get to know and enjoy seeing their favorite servers. While it’s inevitable for staff to come and go or for shifts to change, the overall quality of service should remain consistent for the best customer experience.