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Reason Why Restaurants Fail

By: Munaza Kazmi

Hospitality is a quiet dynamic industry, where you face challenges and opportunities every single moment, and it’s your decision that takes your business to heights or the contrary. Several cafes and restaurants open every other day, but a few survive. However, there’s no single reason why restaurants fail, instead, it’s a mishmash of factors, such as reduced cash flow, low-profit margins, inexperience, inflation high staff turnover, and most importantly poor services, that contribute to restaurants closing.

Knowing the reasons, you can better prepare to avoid these challenges and count on prospects.

Lack of Statistics: If you don’t have data about your business or customers, you’re playing in the dark. Without data, you could make business decisions that waste time and money on marketing initiatives that don’t count. Let’s say if you open a Japanese food restaurant in the suburbs of Punjab or Peshawar it is surely a disaster. Hence, it is wise to do a feasibility study.

Location: If your restaurant location is hard to find, you won’t generate as much traffic, comparing you in a more prominent spot, which could lead to your downfall. In case if you can’t move your restaurant, invest more in marketing. Advertising to attract new customers besides implementing a loyalty program. Further, home delivery service is another option.

Turnover Rate:  Staff turnover is notoriously high in the restaurant industry. In fact, the average restaurant employee tenure is just 110 days. In the competitive industry retaining talent is yet a big challenge. Reason restaurant employees leave because of low wages, scheduling inflexibility and lack of manager recognition. Fight these issues by offering competitive wages and benefits, more flexibility around scheduling and opportunities for upward mobility.

Increasing Wages: The reason behind the high ratio of turnover is increasing wages. However, doing so can be difficult for restaurants struggling with cash flow due to high overhead costs and slim profit margins. Here you must consider putting the burden on the customer by increasing the prices which I never suggest, instead, you can reduce the number of labor and position them on multitasking along with taking help from technology, by having dine-in guests order on their mobile devices via QR codes.

Insufficient Marketing: Marketing helps you reach new customers and encourage existing guests to return. If your restaurant’s marketing efforts don’t extend past your grand opening, you could fail to attract customers.  Make marketing a regular part of your business operations. You can choose marketing automation, that can help you engage customers before and after their visit to help elevate the guest experience and boost loyalty. 

Failure in Retaining Customers: Your clients spend 31% more than the new customers. Indeed, loyalty programs can help you in cultivating loyal customer base.

Poor Services: On of the very important reason of the failure is poor quality of service, that not only cost you walk inns, but influence the loyal customers and the risk of spread of bad word of mouth and obviously it can hit you the most. This needs regular training of staff to avoid mishandling.

Compromise on Quality: I question if you feed your family low quality food?

Inflation: Rising prices of food, labor and rent costs are affecting businesses in every industry. With consumers tightening their purse strings and restaurants experiencing low profit margins and cash flow problems, inflation can shut restaurants down. Again, downsizing can help.

Competition: Hospitality is vibrant, where competition can get fierce day after day. If consumers prefer your competitors, you could run you out of business. Only alternative is to focus on generating repeat business through great service. Collect data about your customers through guest profiles in CRM to personalize every guest interaction and make customers feel special.

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