There are more than 965,000 free-standing restaurants in the United States. That does not include Business and Industry foodservice, Schools, Hospitals, or home-meal replacement from your local grocery store deli-counter.
Most data points to a 66% failure rate for free-standing restaurants in their first year of operation and 90% failure rate for those who manage to make it to year five.
What is most ironic is that despite these figures the number of restaurants continue to grow each and every year. When one restaurant closes, another is ready and willing to take its place.
Let’s take a moment to unscientifically evaluate why this is so:
WHY DO PEOPLE OPEN RESTAURANTS?
1. Chefs open their own restaurants (usually with another persons’ money) because it is their dream to show the world what they can do. The restaurant, to them, is a canvas waiting for the artist to paint.
2. Restaurant managers open restaurants because they believe that they have the formula for success that no one else has discovered.
3. So called – smart business people who have made their mark in other industries, open their own restaurant because: “how hard can it be”? this must be a quick and easy way to get rich – look at what they charge!
4. Family members open another restaurant because dad had his own and he was successful! It must be in their genetic make-up.
5. Some people open restaurants because they like to eat out and they really “know” food.
6. Some open restaurants because it would be great to have a place where their friends could come and have a terrific meal. (be careful of “friends” who expect something for free)
7. Some open restaurants so that they can have their own personal bar.
…and the list goes on. What many don’t realize is how hard, demanding, unpredictable and fragile this business is. To that end, here is a primer for all would be restaurateurs:
1. Location is still everything. Make sure you are visible, close to lots of foot and vehicular traffic and flush with parking spaces.
2. You will be in the service business which means that YES – the customer is right.
3. The top line drives the bottom line. SALES, SALES, SALES.
4. Quality, interesting and flavorful food is an expectation. It is the price of admission.
5. Be aware of what is trending: local, sustainable, nutritious, healthy and fresh.
6. Value is more important that price.
7. At best, restaurants can expect to make 5% profit. That is only possible if you minimize waste, theft and spoilage and continually attract enough guests.
8. Rent will kill you! A good rule of thumb is that your annual rent should not exceed 6% of gross sales and total occupancy costs should not exceed 10%.
9. Food spoils!
10. People steal! (customers and employees)
11. Free drinks will put you out of business.
12. Family members should pay for their food and drinks like everyone else.
13. Taxes must be paid on time.
14. Dining rooms generate sales and kitchens incur cost. Make your dining rooms larger than your kitchen.
15. Chefs are frustrated artists, but unlike many famous artists you want to sell product while you are still alive. Menus should reflect what people will buy.
16. Cash flow is king. Make sure it is coming in faster than it is going out.
17. Cash may be out of style but remember it costs you money for the privilege of accepting credit cards. You must accept credit, but smile when they pay you in cash.
18. Pick your vendors wisely – they are the basis for great tasting food and can even be viewed as a bank that gives you 30 plus days to pay back the loan of supplies.
19. Guests come initially for the food but return because of your service. Select employees well, train them constantly, treat them well, support them, measure their performance and reward them when you can.
…once again, the list goes on. Do you still want to own a restaurant? If so, let Harvest America Ventures help you to minimize many of those factors that lead to failure. Contact us today!
Harvest America Ventures, LLC
Restaurant Consulting and Training