HomeGetting StartedWhy Do Most Restaurants Fail in Their First Years?

Why Do Most Restaurants Fail in Their First Years?

For many people, owning a restaurant is a dream they envision for years. But when the actual realisation of this dream starts is when they realise that it isn’t as easy as it seems. Just like all businesses, there is a lot that goes into getting a restaurant up and running. You have to locate your target audience, find an ideal location, acquire equipment and raw material, hire and train staff, finalise your menu, handle promotions… Well, these are a few of an endless list of tasks that need to be sorted. All of this can be overwhelming and hence, due to haste and indecisiveness, a lot of restaurants fail to make it past one year in the market.

According to research, 60% of restaurants fail in their first year. And not more than 80% survive past their next five years. With such a massive amount of investment going in to get the business up and running, watching it fail is heartbreaking.

The main reason that the mortality rate of restaurants is so high today is because owners are not looking at the numbers. all the answers lie in the dashboard of your Pos system.

-Pravesh pandey, Chief Instigator & Belief Officer, BYG Brewski

The high failure rate does not mean that the restaurant industry is not profitable. The restaurants which do strategically manage to sustain themselves in the market go a long way and win customer loyalty. But all aspiring restaurateurs need to understand what are the mistakes that are being made which are resulting in the shutting of restaurants. And so, this blog is for you to understand

Why Do Most Restaurants Fail in Their First Years?

1. Insufficient Market Knowledge

The most basic reason why restaurants fail is that the owners lack market knowledge. They failed to estimate the ratio of investment to profit. They splurge all their saving without proper surveys, statistical data and information. They do not understand the customers’ demand, ever-changing market trends, availability of resources, fail to train their staff or integrate appropriate technology needed to run the business. Opening a bar near a school or a bakery away from the city area would inevitably lead to losses and finally, the closing of the business.

These analysis and researches are not one-time but are evergoing. With every new entry in the market and ever slight changes in the trends, government rules, taxation policies, technological development or global phenomenon, the restaurateur must be adept to comprehend and predict the future of his/her business. For example, due to the pandemic, there was a rise in online orders. In such a case, if the restaurant does not have third party integrations and resources to manage online orders, they are losing a profitable market share.

zomato and swiggy integration with restaurant on Petpooja

2. Poor Location

Where the restaurant will be located and how its connectivity to the customers matters a lot in its growth. A cafe in the remote area of the city would not make it past one year. At the same time, being afraid of the next-door competition, the restaurant cannot miss a profitable location. Take a look around you, there are always a few specific hot spots in every city which is a hub for all restaurants, hawkers and food stalls. If you look closely, many QSRs and shopping outlets often open next to each other.

So, it should be understood that finding the location from where you can not just get more in-house customers but also have a proper network to manage online orders is essential. At the same time, the restaurateurs have to look into the rent and the maintenance of the place. If the rent is too high, then too the restaurant would fail to make the ends meet. Before making a final decision, it should be calculated how much of the percentage the rent is taking from the profit.

3. Menu and Prices

There has been a trend of globalisation in restaurants around India. More and more restaurants are opening that offer authentic cuisine from around the world. But at the same time, some restaurateurs fail to understand the customer demand. In the race of creating exclusivity, they create a menu that is confusing and incomprehensible for the customers. With the same concept, it is not feasible for the customers to pay high prices for a food item they can’t either pronounce or understand. Such authentic cuisine restaurants run on heavy investments. And so, it becomes a sticky situation for the business to make a profit and leads to the restaurant’s failure. And so there should be a proper analysis of market trends and customer purchasing behaviour before the menu is finalised.

4. Poor Staff Management

Staff plays a key role in running the restaurant. They are the ones who are the ground level for every internal and external operation running in the business. If they are not efficient in their work, then that would affect business in the long run. It falls on the owner to hire and train staff to handle the business even in his/ her absence. Employees, no matter what the industry, need to feel safe in their jobs. And this is the role of the owner. A mutual bond of respect between owner and staff helps control turnover ratio, employee theft, sloppy work, unprofessional behaviour and attention to customer service.

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Another parallel aspect of staff management is equipment management. If the staff is not provided and trained with the appropriate kitchen and restaurant equipment, they would fail to perform their task smoothly.

Restaurant Staff giving tissue paper to a customer. | Employee management is needed for restaurant's successful survival.

5. Overlooked Expenses and Cost Cuttings

Once the business starts, in its initial stage, it is essential for the owner to be ever-present and monitor every single penny coming in and out of the business. Overlooking expenses like high-end packaging material, overused electricity and water supply, unnecessary purchase of raw material or additional employee expenses would burn a deep hole in the owner’s pocket. There needs to be time-to-time auditing of the accounts to understand and plan the growth of the business. Even the restaurants which become an instant hit in the market, need to make self-auditing a practice to maintain and escalate their business.

6. Poor Customer Experience

Customer review can either make or break the business. In the current time, there are many platforms that connect customers and users to each other in exchange for reviews. This network is sensitive to any sort of bad reviews. This means that one bad review can cause business damage. Even though reviewing the taste of food can be subjective, the restaurant should not compromise on taste, quality of service and hygiene.

Staff needs to be trained to handle every kind of customer. Be it, elderly citizens or young kids, the staff should be able to manage all of them without discounting on quality of service and product. The customer experience should be smartly curated so that they feel comfortable and welcomed. This helps in building customer loyalty. For this, the staff should be well trained and aware of the menu to make ideal recommendations to the customers. Despite doing their best, there would be bad reviews at the restaurants and online. But they should be handled carefully and smartly without seeming abashed.

how to get good customer reviews for my restaurant

7. Lack Of Marketing

Restaurant Marketing is an essential tool that helps attract new customers and create brand awareness. During the Pandemic, almost everything became digitalized. There was a spike in digital marketing. Brands were going online on social media, creating websites, hosting webinars etc to market their products. There are multiple ways through which restaurant marketing can be done.

An essential component of marketing is creating a restaurant’s own website. There are many online tools and platform available that helps in building a website. Along with that, by integrating smart Petpooja PoS, the owners can create their own website completely hassle-free and just the way they want it to be! Along with the website, the owner should also aim to increase customer retention and maintain customer loyalty. For this, the PoS helps the owner in running customer-centric campaigns, creating special discounts and taking feedback to make the customer feel appreciated.

8. Lack of Business analysis

At the end of the day, businesses run on profit. And while working efficiently is important, understanding the flow of money and channelling it is equally important. For this, time-to-time analyses of business reports, sales reports, expenses reports must be done. For a restaurant set on the path of growing, such analysis help in mapping out the progress made and efforts needed. Vertical analyses should be done. That is, the owner should have reports on every aspect and function of the business. Inventory reports, employee reports, payment and due reports, online sales reports, all of them should be updated and kept handy to take any business-related decision.

Managing and acquiring all these reports in the traditional book-keeping method can be tiring and overwhelming. But by integrating PoS, all of these reports can be easily recorded and exported without hassle. Even in the owner’s absence with his permission, even the staff can have access to the reports and take managerial decisions within the correct time.

Every business is different. What components go into its building and what kind of outcome it produces vary from business to business. The same applies to restaurants too. But there are a few essential components that if compromised, lead to a restaurant’s failure. A lot goes into building business and every single step and decision should be taken with care and acute understanding of its repercussions. With the pandemic, the restaurant industry suffered heavy losses, but the owners are growing past that and are motivated to run their businesses.

These pointers are not to demotivate any aspiring restaurateur but advice them about what all factors should be taken care of.

Hope the blog was helpful. For more restaurant-related updates follow us on Instagram!

Ishika Tripathi
Ishika Tripathi
Ishika Tripathi is a Marketing and PR content writer at Petpooja. During her free time, Ishika is more likely to be found tucked in a quiet corner reading a book while her forgotten cup of coffee is growing cold next to her. Reach her at Ishika.tripathi@petpooja.com


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