Why Do Restaurants Fail?

Why Do Restaurants Fail?

There are a lot of risks involved when deciding to open your own restaurant. You will also need substantial capital and an understanding of the hospitality trend that goes into operating this type of business. While these might feel daunting, it doesn't mean you should give up your dream of owning a successful restaurant.

You can make successful business decisions, and create a strong restaurant business plan when you begin putting this dream into action. Another way to ensure your restaurant is a success is to look at those that came before you, and learn why their restaurant failed. Learning from their failures will ensure you don't fall into those same pitfalls.

Follow this guide on ways to avoid restaurant failure, and put yourself on the path to bar or restaurant success.

Restaurant Failures

Statistics show that approximately 60% of restaurants will fail within the first year of their operation. It also shows that approximately 80% of restaurants fail within five years of opening their doors. While these numbers may be discouraging, there are 20% of restaurants going on to enjoy and profit from long-term success and growth.

There are a number of reasons for restaurant failure, but these are the five most common reasons.

1. Inexperience

If you do not have experience in the restaurant and hospitality industry before opening your restaurant, you are making a huge mistake. It will require learning the restaurant business from the ground up, so you understand the ins and outs of the entire restaurant business. If you have no experience with opening a bar, you have to learn this system quickly as well.

Before you think about opening the doors to your restaurant, you will need to have a full understanding of everything that is involved in the operation. You can begin by:

  • Reading books of the best wines to carry and serve
  • Learn about the best bartending techniques
  • Read a guide on becoming a sommelier
  • Learn about successful bar and restaurant management techniques

The costs involved with running a successful restaurant or bar are high, and these costs have become inflated in recent years. You will have to understand the needs of:

  • Food costs
  • Liquor costs
  • Prime costs
  • Overhead costs
  • Labor costs
  • and more

Costs of operation can add up quickly and it can become overwhelming trying to reduce them. One problem many owners run into trying to reduce overall costs is to overprice their menu items.

2. Pricing

If you begin overpricing your drinks or food, your restaurant is bound to fail. You will need to learn how to use psychological pricing and menu engineering to properly and successfully price your menu items. These systems can also help your bartenders and kitchen staff focus on your best items. You will need to learn:

  • How to choose the right wine bottle price
  • How to set your beer prices
  • How to set a price on a glass of wine
  • How to portion plates and how to charge for them

3. Location

Wanting to open a bar or restaurant requires doing some research on the best location to place your business. You are going to need:

  • A study done to learn what your target market will be
  • Ample and accessible parking
  • A way to make your business easy to find
  • An active population that will ensure a good flow of customers

If your bar or restaurant cannot meet the needs of a targeted market, it will be difficult if not impossible to increase your sales and remain in business.

4. Marketing

You need to establish a means of marketing your business. Restaurant owners who fail to market appropriately or enough are bound to fail. A marketing campaign doesn't have to be expensive to be successful. There are many options out there for you on a low budget and even some that don't require a budget. You can:

  • Try new happy hour ideas
  • Use restaurant SEO in blogs, ads, or any social media inputs
  • Run promotions

5. Organization

An onsite manager is necessary for a restaurant to succeed. This position gives you someone who will pay attention to your customers and learn important information about your business. An onsite manager can pay attention to what customers are ordering the most, which dishes you offer are the most profitable, and keep track of inventory.

There are programs available for you to use in tracking inventory so you can learn each dish's profit margin to your month's cost of goods sold. These systems can also build a standard bar opening and closing checklist, restaurant cleaning checklist, keep a set of standardized recipes, and more.

Signs a Restaurant is Failing

There are signs to watch for that will indicate a restaurant is likely to fail. Some of these signs include:

  • Increased turnover rate
  • A high turnover rate in employees is an unfortunate part of the restaurant industry. You can try to reduce this rate by creating a solid management structure for your employees that all of them can follow even when you are not in the building. Make sure everyone understands their responsibilities as well as those they work with. Create a list of bartender duties, bar managers duties, and everyone else to follow and remove any confusion. 
  • Leadership
  • You will have put a lot of work and money into opening the doors of your restaurant or bar. Many owners feel because they've worked so hard to get to this point, they can allow the staff they've carefully hired to take over the day-to-day operations. This way of thinking can lead to falling profits, unhappy staff members, and eventually failure. It remains crucial for you to be a part of the day-to-day operations, especially in your first year of business. 
  • Food quality
  • As the owner of your restaurant, you need to inspect and check the quality and taste of your food items regularly. By performing these checks you can ensure the quality of your menu items remain where you expect them and where your customers expect them to be.
  • Menu
  • Creating a good menu requires an understanding of how many items you will offer versus not offering enough choices. The best rule of thumb is to offer fewer items which can all be quality dishes. The longer menu items take longer for the customer to order from, require more ingredients which leads to more operational costs. 

Failing in Your New Restaurant is a State of Mind

It will not be easy to open and successfully run a new restaurant or bar. Your best chances of becoming successful lay in how much effort you put into the business, and avoiding failures from those before you. Take the time needed to understand the workings of your business and what your customers will need and expect from you. When you have these understandings, you will react more quickly and be able to correct anything that comes your way.

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