|TOP TEN REASONS RESTAURANTS FAIL
January 9, 2008
By Ramy Abu-Yousef
Many people are reluctant to enter the restaurant
business, and for good reason--the numbers are
daunting. According to the most recent figures, 60% of
restaurants fail within their first three years of
operation. And, other statistics indicate that the figure
may be as high as 90%*.
Those are unsettling odds by any standard, but are
they just odds? Is the success or failure of a restaurant
just a matter of pure chance and luck or is there some
The answers might surprise you. Through extensive
market research and by speaking with both
accomplished and struggling restaurateurs, we have
come up with the top ten reasons why restaurants fail
and you can decide for yourself if there is a formula for
success as a restaurant owner.
10. LACK OF CREATIVITY
This is a major problem. Every restaurant will
inevitably encounter problems that seem to have no
solutions. The ability to come up with creative
solutions to these problems must be a routine part of
running a restaurant.
No matter what the situation is, when something goes
wrong, there is always a solution. Finding that solution
requires imagination, communication and persistence.
One of the most untapped resources for innovative
ideas is a restaurant’s employees. Don’t be afraid to
build up a rapport with your employees. They can be a
wealth of information and new perspectives.
Whether solving problems or coming up with fresh
ideas, restaurant owners should constantly challenge
themselves by asking the question at the beginning of
each day: “In order to improve my business, what am I
going to do today that I haven’t tried before?”
9. INSUFFICIENT MARKET ANALYSIS
When was the last time you have researched market
trends in your area or did a comprehensive market
study and write-up for your restaurant? Have you
ever? If not, you are not alone.
Failure to establish that there is a market for your
restaurant and the failure to stay abreast of market
trends, are two of the most tragic mistakes a restaurant
owner can make, especially because these mistakes
can easily be avoided.
Even something as simple as a stop and greet survey
on the street can establish consumer likes and dislikes,
perceptions, needs and demands.
Before opening their restaurant’s doors, restaurant
owners should establish a demand for their cuisine or
service, and an ability to capture a market share.
Once those doors have opened, restaurant owners
should analyze the direction of consumer demand and
make changes and adjustments accordingly. Without a
fact-based knowledge of the market, an informed
decision is not possible.
8. LACK OF ATTENTION TO DETAIL
Individual details of the operations of a restaurant may
appear insignificant, but collectively, these details can
have a major impact on the functionality and ultimately
the success of a restaurant.
Considered individually, clean floors and bathrooms,
polished cutlery, glasses and plates, starched napkins,
a wiped down bar, may seem insignificant/unimportant,
but taken as a whole these details determine customer
perception of a restaurant’s cleanliness.
Intensity of lighting, selection and volume of music,
choice of silverware, and consistency of uniforms are
all individually important, but together, these details
establish the general ambience of a restaurant.
Promptness of greeting customers upon entry,
availability of menus, knowledge of menu and
beverage selection, immediate placement of orders
and well-stocked and full condiment bottles are all
crucial to customer impression of a restaurant’s service.
Food temperature, timing and presentation determine
customer outlook on kitchen preparedness and the
An occasional free meal or drink to yourself, family,
friends, friends of friends and staff may seem trivial,
but can have a major impact on the bottom line of the
restaurant and can mean the difference between
turning a profit and losing money. That being said,
free items can be used as a marketing investment, but
only if you can realistically see a potential return from it.
In a restaurant setting, nothing should be left to
chance. Absolutely everything should be organized
and planned ahead of time to ensure that things run
Things have a tendency to fall apart very quickly in a
restaurant environment. Adequate planning and
organization of every detail can prevent this from
Not having the requisite funding for the first 6-12
months of a restaurant’s operations, is a sure fire way
to ensure failure.
Most restaurants will go through an initial phase with
higher costs and losses than normal while everything
gets put into place.
Unexpected costs will always arise, so you must plan
for it. You must expect that actual costs will be
significantly higher than initially budgeted and allocated
costs. Always have a cushion, so that unexpected
costs will not bankrupt the restaurant.
A restaurant that runs out of working capital before it
can start running at optimal efficiency and make a
profit, will have to shut down. Once that happens,
there is no way to make that money back.
Make sure you have allocated more than enough
money to keep the restaurant afloat for at least 12
months while it gets itself established.
6. POOR INVENTORY MANAGEMENT
Food costs are one of the top three expenses a
restaurant will incur. The ability to manage food costs
is one of the most important elements of running a
Food costs can rise because of:
-wastage (spills, accidents, poor handling, food
-inconsistent portion sizes
-high ordering costs (over ordering, under ordering)
-failure to monitor deliveries for accuracy and quality
It is better to err on the side of caution and
occasionally run out of items on the menu than to have
too much food stored away. This is a hard concept for
many new restaurant owners to grasp. While food
storage can be managed by accurately calculating
food costs and predicting food wastage, running out of
items can actually be beneficial to the restaurant. If a
customer orders an item that is sold out, the customer
will usually gladly order something else and perceive
that the sold out item is popular and of high quality,
and will be encouraged to visit your restaurant again in
hopes of trying that item.
The most critical reason to monitor food costs is to
determine a proper pricing scheme. What is the
restaurant down the street charging for the same steak
or burger? Do you keep your price lower than theirs
and try to drive them out of business? Do you make
prices higher in order to attract higher spending
customers? How do you determine what pricing
scheme to use at your establishment? How can you
set a price and make it profitable?
The answers to these questions are not random, but
formulaic. Successful restaurant owners set the price
of a product as a direct relationship to the cost of
making that product. Very successful restaurant
owners can effectively increase or decrease that cost
in order to choose the price for the product.
Keeping track of how inventory is ordered and
minimizing costs so that all food that is purchased ends
up on a customer’s plate, can drastically improve the
bottom line and provide valuable flexibility in
determining a pricing scheme.
5. LACK OF DEDICATION AND TIME COMMITMENT
The only way to maintain familiarity with a restaurant’s
operations, is to spend a significant amount of time
there, both physically and mentally.
No matter how good a team of staff is, they will often try
to push the boundaries of their duties. They may want
to do things differently or their own way. It is important
to maintain control of your staff, and to immediately
address any problems that arise in order to ensure that
problems do not snowball out of control.
If an owner or other authoritative figure with a vested
interest in the success of the business is not physically
in the restaurant, structure will break down quickly, and
small incidents may escalate and jeopardize the
financial viability of the restaurant.
However, don’t confuse physical presence with micro-
management. While presence is important, it is
essential that it does not negatively impact group
morale, or interfere with the staff’s ability to carry out
Work hard and set an example. Restaurant owners
who exhibit dedication, passion and commitment to the
restaurant will often inspire those around them to share
that same commitment.
|4. INADEQUATE EMPHASIS ON HIRING AND TRAINING
A restaurant is composed of a team, not of individuals,
and everyone on the team must be working towards
the goal of running a profitable business. Employees
are the representatives of that team and of the
restaurant as a whole, and should be treated
Put a significant amount of time and effort into the
hiring process and don’t settle for anything less than
extraordinary. It is better not to open the restaurant at
all, then to open with a team of poor staff.
A restaurant has a finite amount of good will currency
that will quickly get used up by bad staff. The damage
that incompetent staff will do to your current and future
customer base will far offset any short term gains in
A team of staff may be very well qualified, and the
restaurant concept may be great, but if the concept is
not properly executed, then the entire framework of the
restaurant will break down.
In order to prevent such a breakdown, it is essential to
have proper training manuals/protocols, checklists,
goals and incentives and to make sure that they are
If you inspire in your employees the confidence to do
their jobs well, and train them properly to address any
situation that arises, then they will be more
enthusiastic and motivated to pursue restaurant goals
and adhere to the restaurant concept.
This is particularly important for the management team
because managers essentially run the restaurant and
set the example for the rest of the staff.
A manager must be able to delegate duties and
responsibility, be a personable liaison between the
customer and the restaurant, and have a complete
understanding of the restaurant’s needs as a whole.
Establishing and maintaining a solid management
structure for the restaurant team will ensure that there
is no confusion and that each team member is
prepared and performing according to restaurant
3. FAILURE TO ESTABLISH AN IDENTITY
Your restaurant’s reputation depends on your ability to
create a brand and adhere to it. Many first time
restaurateurs make the mistake of developing an
identity crisis early on, and fail to remain committed
and focused on a specific style of service or cuisine.
Successful restaurant owners are able to develop a
restaurant theme, cultivate a good reputation, and
attract customers accordingly.
It is impossible to bring every customer through the
doors, so don’t try to do too much. Establish a target
market, then create the style of food and environment
that is suitable for that market.
Creating an over-reaching menu is one of the most
common mistakes a restaurant owner can make. A
menu with too much of a selection tries to do a lot while
accomplishing very little. This often sacrifices overall
food quality, and also creates a tremendous amount of
You should ask yourself: “What experience am I
selling?” and promote that experience.
2. LACK OF CONSISTENCY
Once you have created an identity for your restaurant,
it is imperative that you consistently preserve that
identity. Every time customers enter your restaurant,
they should experience the same food quality and
Why is McDonald’s the number one restaurant in the
world? Why do they perform as successfully in
Barcelona, Spain as they do in Cleveland, Ohio? The
answer is simple: if you order a Big Mac at either of
those two places, you will get the exact same product.
Managing a customer’s expectations is an essential
part of running a restaurant and consistently providing
the same quality product ultimately can determine the
success or failure of your restaurant. This does not
mean that it has to be a great product, just that it has
to be the same product every time.
It should not matter which chef or server is working on
any given day. Customer experience should be the
same each time they come in.
Great dining experiences can be easily cancelled out
by one bad experience and one bad experience will
cause a customer serious hesitation when deciding
whether or not to return to an establishment.
Customers should not have to spin the food/service
roulette wheel each time they visit a restaurant.
Consistency is the key to establishing regular clientele,
and regular clients are the most important customers
to have. Maintaining regular clientele is a critical factor
in establishing a solid reputation that will attract
1. INNEFFECTIVE MARKETING AND ADVERTISING
Developing and maintaining consumer interest in your
product is, after all, the whole point of running any
business. Without customers, you have an empty
restaurant, and an empty restaurant is a failed
No matter what other problems your restaurant faces,
if you can consistently get enough people in the door,
those problems ultimately will not matter. High traffic
will always lead to high profit.
A solid marketing and advertising scheme will create
steady customer flow, but keep in mind that it is up to
the restaurant team to ensure that the customers
come back again. Top quality food and service are
the key to fostering positive word of mouth and turning
first time customers into repeat customers.
Most restaurants try the shotgun approach when it
comes to advertising, throwing money at radio stations
and newspapers without purpose in the hopes of
attracting a customer or two. This approach will never
succeed without a well thought out marketing strategy.
There is an endless supply of inexpensive, and even
free opportunities to promote yourself and your
restaurant. The average restaurant spends 3-6% of
its revenues on advertising. But without a marketing
plan, a restaurant will not maximize the value spent on
It is crucial to establish the goals of the advertising
campaign, pinpoint your target audience and develop
alternative ways to better reach your audience. It is
also incredibly important and helpful to be able to track
the source of your business.
Marketing and advertising is the first item on this list
because the rewards of effective marketing and
advertising will work wonders for a well-run restaurant
and can even offset some of the effects of a poorly-run
We have conspicuously omitted from this list one
traditional item – location. Contrary to popular belief,
our research has strongly suggested that location,
while an important factor, is not a major factor that will
determine the success or failure of a restaurant.
Several of us have traveled through alleyways in some
of the worst neighborhoods in the city to dine at some
of the best quality dining establishments. We have
seen restaurants in prime dining spots fail, while we
have seen others thrive in less than ideal locations
and even create their own premier location through the
power of their reputation alone.
The bottom line is that prime location comes at a hefty
price. The rent, lease or purchase price paid for such
a location is directly proportional to the extra walk-in
traffic you are likely to generate as a result of being in
that location. This cost will most often offset any profit
you will be able to make from the extra traffic. But at
the end of the day, if you fail to run your restaurant
successfully, it will not make a difference where your
restaurant is located.
If your restaurant faces one or two of the problems
listed above, don’t panic just yet. Some
establishments encounter a few of the above
problems, but still enjoy great success. Why?
Because a great marketing scheme, consistent
product, and solid identity can ensure that a restaurant
stays afloat. But, could these restaurants operate
more successfully, and generate significantly more
profit by addressing and remedying all problems? Of
If you look at the above list and find that your
restaurant faces several of these problems, it is time to
take immediate action and begin to remedy those
problems because ignoring them can spell disaster for
the success of your restaurant.
Ramy Abu-Yousef is the CEO and founder of
Restaurant Innovations (www.r-innovations.com), a full
service restaurant consulting company. He has been
featured in Entrepreneur Magazine and on MSNBC
and is currently working as chef and general manager
of The Bathhouse (www.bathhouse.co.nz), one of the
most prestigious restaurants in New Zealand.
*In the restaurant industry, it is common to quote a
90% failure rate, but a widely cited recent study by H.
G. Parsa, associate professor of hospitality
management at Ohio State University, indicates that
this statistic may be as low as 60% over 3 years.