No matter what type of business, running it is a difficult task. When it comes to restaurant business, the challenge seems tougher. You might wonder to know that nearly 60% of the restaurants shut down within the first year of operations and up to 80% of restaurants close in the first five years. The big question arises here is that ‘Why Restaurants Fail’ so often?

Due to lack of proper information of the trending industry and lack of adequate knowledge to implement technology leads to restaurant failure. 

Let’s check some more reasons that justify why restaurants fail and find the ways to overcome the problem.

Top Reasons Why Restaurants Fail?

Restaurateurs in the industry make mistakes which they are not aware of can lead to restaurants failure. There are many reasons such as poor location, high rentals, internal thefts and poor allocation of resources which are often overlooked. Some of the top reasons why restaurants fail are:-

  • Pilferage and Thefts
  • High Rentals & Poor Location
  • Poor Customer Experience
  • Poor Staff Management
  • Inappropriate Allocation of Resources
  • Complex Menu
  • No Involvement of Owner
  • No reporting and Analysis
  • No Marketing

1. Pilferage and Thefts

One of the top reasons why restaurants fail is increasing pilferage and thefts. Many restaurateurs are unaware that their restaurant is being plundered by inside thefts and pilferage. The thefts can be of many forms which can become the top reason why restaurants fail. An average fine-dine restaurant can lose up to five crores due to pilferage and thefts. The restaurateur can lose a huge amount of money due to internal thefts that can add to food cost of the restaurant.

How to avoid: 

You can use a POS with robust inventory management and an anti-theft system to keep a complete check on all business transactions and inventory. Provide unique roles and permissions to each in order to keep a check on thefts.

2. Poor location & High Rentals 

The location is one of the factors which can affect your restaurant. A poor location can turn fatal to your restaurant and can result in failure.

How to avoid: 

You need to choose a location based on your restaurant’s format. The total cost must never exceed 10% of your total revenues. Make sure that your location is close to your target audience. However if the location seems nice but has no competitors around, you can check the reason why there is no other restaurant in that particular place. Take reviews and references from various sources and go to the market a couple of times to understand the spending habits of those frequently visiting the market.

3. Poor Customer Experience

Poor customer experience guarantees that the customers will never return to your restaurant. They can also post bad reviews on social media which can extremely be damaging to your restaurant.  Many factors such as rude and hostile waiters and serving delay, weird smell or too loud music can deteriorate the customer experience and add to the reasons why restaurants fail.

How to avoid: 

Ensure that your staff is properly trained. A well-trained staff can treat the customer right and function smoothly avoiding any delays.

4. Inexperience

Usually, it is believed that anyone can open a restaurant industry however it is far from true. Though there are no industry barriers, poor business acumen, mismanagement and lack of financial planning are some of the common reasons why restaurants fail.

How to avoid: 

Do proper research and analyze. Make sure to properly plan your venture at least for the coming six months. It’s a good idea to hire a restaurant consultant if you’re first-time restaurateurs. Create a business plan in place before you open your restaurant and check that you’re not missing anything important and know how to proceed with restaurant management. 

5. Poor Staff Management

Recruiting the wrong people can affect proper functioning of the food outlet. Untrained staff can do a lot of harm to your restaurant and becomes one of the major reasons why restaurants fail. Taking care of your employees is also important as unhappy employees can damage your restaurant’s reputation and drive customers away leading to the restaurant business shutdown.

How to avoid: 

Train your staff and conduct regular meeting to maintain the transparency in the team. Make sure you provide a good environment for all your employees. You can provide team-building exercises which are important as holding staff training sessions. 

6. No Proper Allocation of Resources

Overspending on the not so important aspects of the restaurants can be a fatal mistake that you can make as a restaurateur, which can lead to a restaurant failure.  Try to avoid overspending on the furniture and the ambience if you’re running short of resources in the inventory department. Not knowing where to spend and how to spend can lead to failure of your restaurant.

How to avoid: 

Do proper financial planning to allocate the resources carefully as it plays an important role in the success of your restaurant. Take care of the basics of your restaurant and work out on a proper business plan and spend according to it. However, if you are a first-time restaurateur, be sure to seek professional help.

7. Complex Menu

A large menu with different items can be often confusing to the customers and tough to maintain as well. It can result into the wastage of the inventory items and is time-consuming for the chef to prepare a variety of dishes which can lead to customer dissatisfaction in case of delays.

How to avoid: 

Try to go for short and simple menu and serve the dishes your restaurant is good at. Design your menu in such a way that you can use the same ingredients in a variety of dishes which are also easily available. Making a seasonal menu is also a good idea to attract customers and is cost-effective for the customers as well.

8. No Involvement of the Owner

The owner’s involvement is crucial to the success of any food outlet. Just investing your money and completely depending on the restaurant manager can often turn out to be fatal.

How to avoid: 

Be aware of your restaurant business and check every detail. All the details must be evaluated well from time to time starting from sales reports to inventory reports. Proper reporting and analytics allow restaurateurs to keep track of their restaurant business from anywhere, anytime. 

9. No Reporting and Analytics

A meek attitude of reporting and analytics can often lead to your restaurant failure. Keep track of your daily business as it keeps you aware of your restaurant profit or loss. The reports help to identify the underlying reasons for the loss and how you can overcome it. Good restaurant management software provides features such as real-time analysis of staff performance and much more.

How to avoid: 

Document all the transactions and maintain the reports to avoid any issue that can lead to restaurant failure. Make sure the report is reviewed on a regular basis by the owner to keep track of the business. The report reveals the trends in the business and the analysis is critical to make informed decisions.

10. No Marketing

Right marketing is crucial for any type of business expansion and growth. When it comes to restaurant marketing, you need to choose the most effective channels for marketing your food business. Whether you have an established brand, marketing is an absolute must for increasing the customer growth and gaining their loyalty and exposing your brand. Your restaurant marketing software can help you build new marketing strategies for your customer data which actually works.

How to avoid:

Maintain a budget for marketing and you can also contact a digital marketing agency to run online marketing campaigns for your restaurant. They can help set up the marketing strategies for your restaurant business.

Thus, a lot of planning and strategy can help to gain a grand success for your restaurant.