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Why Do Restaurants Fail?

Why Do Restaurants Fail? Why is it that some restaurants can survive wars, recession, and catastrophic natural disasters while others close their doors during the first year? Is it the

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Why Do Restaurants Fail?



Why is it that some restaurants can survive wars, recession, and catastrophic natural disasters while others close their doors during the first year? Is it the food that keeps them going for generations or is it something else? According to a study conducted at Ohio State University, it was found that 60% of restaurants don’t make it past their first anniversary and a whopping 80% close their doors within five years of opening. Researchers at Cornell University found that the most common reasons restaurants fail are preventable. So why do only the cremè de la cremè make it? Let’s dive into the most common reasons restaurants fail and how to avoid your demise. 

  • Lack of concept and brand
Long before a restaurant owner plans their menu or signs a lease they need to have a very clear understanding of the restaurant’s brand. Who will the restaurant target? What will the atmosphere be like? Will it be casual or fine dining? These details are arguably the most important decisions you will make. Everything past this point builds from the concept of brand. Your logo, signage, menu, marketing, color scheme, and location will all depend on what your brand goals are. 

  • Economy’s effects on operating costs
The pandemic was quite possibly the most traumatic event that has ever happened to the restaurant industry. It caused restaurant owners to have to adapt and overcome on a level that hasn’t been required since the Great Depression. Restaurants that were open when Kennedy was in office, shut their doors. The economy has an effect on any business long before and long after the pandemic effects. Gas prices, food costs, minimum wage, worker availability, and the cost of living all affect what your pricing and expenses will be. Economic challenges will reflect on what people are willing to spend, how often they will dine out, and what wage your workers are willing to work for. 

  • High staff turnover
High staff turnover is the thorn in most business owner’s side. Staffing for restaurants specifically is historically a little worse than the average business. Most restaurant employees work long hours on their feet. They have to deal with customers that may be upset with something beyond their control, such as the quality of their food, the timing in which their food arrived at the table, or even the temperature of the restaurant itself. The service industry requires workers to wear many hats, and pleasing the guest is top priority. Not every Tom, Dick, and Harry is cut out to serve people. Gordon Ramsay has often said his philosophy on restaurants comes down to its people.Saying that his people make the experience of visiting his restaurants – magical. It is important to recruit skilled workers that will give your guests an experience they will remember.

  • Not enough capital
While the old adage “it takes money to make money” may not be the case 100% of the time (especially in the age of YouTube and viral videos), however in the restaurant world, there has never been a truer statement said. Operating capital plays an important part in the success of any restaurant. Keeping the lights (and stoves) on is a vital part of being able to open the restaurant’s doors each day. It will be impossible to keep your staff if you are unable to pay them their paycheck. Working capital is necessary to keep the restaurant going the first few years while you are building repeat clients and reputation.

  • Poor guest experience
This day in age, technology is needed to grow your business. Technology is required to book a reservation, accept credit cards for payment, social media posts, marketing, and for guests to visit your website. The same technology that is used for good, can also be used against your business. Technology has evolved the guest experience. Restaurants now have the ability to text you when your table is ready, tag you in a social media post, and send a special offer directly to your guests phone. However, technology has drastically altered the guest experience on another level. The guest can post pictures, negative reviews, live videos, and MUCH more all while sitting in your restaurant. Your staff can make the biggest difference in how your guest’s experience your restaurant. During his TED Talk – How Built the Number One Restaurant in America (2015), Aaron Silverman, chef and owner of Rose’s Luxury in Washington DC said “it’s not about the food – it’s all about the people.”

  • Location
The number one reason restaurants fail is often as simple as location. As the saying goes, “location, location, location” Where you decide to plant roots will determine many factors. Not only the city you choose to operate, but what side of town (and in some cases the side of the street) you set up shop will be impactful to your bottom line. Commercial lease pricing, permits, renovations, and the number of people that come through your door, will depend a lot on the location of your restaurant. How easily is the location accessible? Does your target customer live in this area? Is there adequate parking?

  • Menu planning and pricing
Research is vital to menu planning. The average customer spends 109 seconds looking at a menu, according to a recent Gallup Poll. The first step in this process requires understanding food costs. It is important to know (down to the penny) how much each item on the menu costs you to make. Not only the hard food cost number, but you also must account for the time it takes an employee to make it. For example, homemade egg rolls rolled by hand will take substantially more time for an employee to make than dropping a basket of fries in hot oil. While speaking of oil, the amount of oil and the number of times per week you change the oil will also need to be factored into food cost. Once you have the hard cost of a menu item (down to the cost of the black pepper you used), you can now know a break even point of your menu item. But wait, there’s more. Now you need to account for other costs like the building lease, utility bill, labor costs, etc. How much do you need that item to profit to keep the lights on? Oh, and how much is your customer willing to pay? Restaurant owners often go into menu pricing and planning without a clear understanding of the hard cost that each item costs to deliver to the guest’s table. 

  • Lack of or inefficient marketing
There are so many cool and efficient ways to market your restaurant. Truly the possibilities are endless. Social media marketing, billboards, text and email blasts, flyers, radio and television commercials, and coupons. Do you have a marketing firm handling your brand’s message? If not, do you have measurable analytics that will show how each marketing avenue is performing? For example, how many coupons are coming in your restaurant? Are you digging deeper into your social media to know “who” is responding to your ads? Are they make or female? How old are they? If your marketing efforts are not getting the right responses from the right people, it may be time to reevaluate your marketing plan. 

  • Lack of consistency
It has been said that consistency is more important than perfection and most successful business owners would agree. Consistency is key. Your customers have to know what to expect whether it is expecting what hours you will be open, expecting that your food quality will be the same each time, expecting the same level of customer service each time they visit, and expecting a clean and inviting atmosphere when they are in your restaurant. Brands are built on consistency. When customers can feel confident in the consistency of their experience, they will keep coming back. 

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