1 of 5
2 of 5
3 of 5
4 of 5
5 of 5
Q: You’ve watched many restaurants open and close. What are some telltale signs that a restaurant will not succeed? Tom J., St. Louis
A: For years, giving advice (both paid and unpaid) to prospective restaurant owners, I know I told no less than 50 percent of them to simply walk away and not waste their money. Very few took that advice. Many of them failed. Depending on the source, between 50 and 90 percent of restaurants fail in the first three years; the reasons why can fill a book. Since it's 2013, here are an unlucky 13 of them, in no particular order:
1. No prior experience. While not a deal breaker on its own, an owner who fails to at least hire those with successful restaurant backgrounds is cause for immediate concern.
2. No gimmick, no hook. Not that every restaurant endeavor needs to offer an entirely new experience, but if the prospective owner can't easily and clearly answer the question of "Why should I go to your restaurant versus the place up the street?" the restaurant may have trouble gaining the customer base it needs. Having a clear focus and establishing an identity is mandatory.
3. Poor hiring and training. Failing to hire properly (and thoroughly investigate the key hires) can bring a restaurant down quickly. The restaurant industry is rife with managers and workers that have, well, issues. Owners can't be blind to that reality. I can't tell you how many times I've seen convicted embezzlers and drug users get rehired because the owner didn't do even a modicum of research.
4. Poor quality control. It's simple: poor or inconsistent food quality may be the biggest reason restaurants fail. Having too many items on the menu is often a contributor. Let's toss "lack of attention to detail" under this banner, too. Collectively, all the small details matter. The place that gets them right gets it. Think about it: What do you say about places that have mastered the minutia? That they "have the secret" or "they have it all figured out."
5. Poor cost control. Maybe the second biggest reason that a restaurant fails. Controlling the costs of food and liquor require constant surveillance and a lot work. A restaurant literally lives or dies by these percentages, all which have targets that must be met for a restaurant to succeed. The same is true for labor costs: the "too many chiefs" syndrome (which often means "chefs") is a debilitating and common problem, as is "too many employees on the clock."
6. Bad leases (present and renewal)/high rent/high CAM charges. Starry-eyed owners often overlook the most black and white details, thinking future increases in business will absorb out-of-line numbers. It rarely works out that way.
7. Poor pricing. Having a proper price-to-value ratio is crucial. No one minds paying a lot for great food, but if you price yourself out of the market--or out of the neighborhood, for that matter--it will eventually spell trouble.
8. Owner ego/partner issues. An chef or owner's refusal to listen to friends, customers, or other professionals with a different perspective is all too commonplace and often spells doom. (Anybody seen Big Night?) Bickering partners kill restaurants from the inside and can do so in no time. The best advice is not to have a partner; next best advice is to have one...someone who compliments you. Then make sure there's a mutual buy-out strategy, as few partners remain so forever.
9. Taxes. As in failure to pay them. You can slow-pay to your vendors, but the government always gets its money. Even in the case of bankruptcy, it's the first in line to collect. The number of restaurants that have closed for failure to pay federal or state taxes amazes me: I thought everyone knows that Uncle Sam carries a big hammer.
10. Undercapitalization. This one happens every day. The business plan is solid. A lot of money is set aside for "contingencies." Then come the unforeseens, the construction delays, the inspections, the redesigns, the runarounds. Next thing you know, you're paying rent and the doors have yet to open. And that contingency money and your "6-month operating capital" is gone.
A few, newer ones that popped up in recent years:
11. Having a Bad Opening. The soft opening is no more: social media will see to it the world will know the minute you unlock the front doors. There is no longer a warm-up period, word of mouth is instantaneous, you're "on" from minute one, and all conrtribute to the likelihood of having a bad opening...and possibly not surviving it. The ramifications--inside your organization as well as outside--are hard to quantify. Suffice to say, places that may have survived even 15 years ago may never get a chance to gain traction today.
12. Poor marketing and advertising policies. Because quantifying results is so difficult, restaurants--both now and in the past--have taken the "try this, try that" shotgun approach, some spending more than the industry standard (4-5 % of gross revenue), some less. Establishing awareness has become both easier and harder today: easier, because of free and inexpensive tactics like social media and guerilla marketing tactics; harder, because of another new instrument called deep-discounting. In the past five years, many restaurants have fallen prey to the me-tooism of Groupons and the like, having no idea of their long-term ramifications and how to use them. Too many enlist them to cure a deeper problem, and that often results in a permanently locked door.
13. Right concept, wrong place (or vice versa). Remember that in most cases the surrounding neighborhood is a restaurant's primary customer base. Plopping a fancy place into a blue collar neighborhood is as wrong as doing the opposite. It's amazing how many restaurant planners fail to grasp this concept. A corollary here is "right concept, cursed location," to which I maintain the latter does not exist: there are no lousy locations, just a lot of lousy operators.
