Why does a restaurant fail?

[LindyChef]

Lately I've been thinking a lot about how restaurants are run and what is needed to make a successful restaurant from an operational standpoint. Although I am a cook, I come from a background that I think gives me a bit of perspective ... I graduated college with a business degree, then worked for a consulting firm creating methods and proceedures, and, before I got into the industry, I worked as a server technician and software consultant. Although it may not seem related at first, I have a good understanding of financials, I know how to create, implement and track methods and procedures, and I have lots of experience troubleshooting problems and developing creative solutions. When I turn that eye onto operations that I see, I have to scratch my head. Examples:

* Very few restaurants I have come across have had defined checklists for prep and side work, be it front of the house or back of the house. There seems to be less discipline in those that don't have check lists and it comes across in the food and service, resulting in sometimes uneven experiences.

* There tends to be an acceptance of poor facility planning. I have seen very few operations that try to work around poor design choices (entryways and allowing space for people to decompress when entering a space are a big one I've noticed). Instead of trying to work to see things from the customer's point of view and make the experience easier, they just tend to shrug and accept things as they are.

* Our POS system does not have a test environment. When any manager (who has never read the manual, let alone been trained on the system) wants to make a change, they do it on the production (i.e. live) system. Fortunately, we haven't had any catostrophic problems with it, but the other day we started getting drink orders in the kitchen on the POS tickets. Turns out that someone had been fiddling with the POS system the previous night ... if they had done something to muck up the menu, we would have had major difficulties. However, haphazard changes are made on a regular basis, not even waiting until, say, end of the evening, to try and edit the live system.

These are just examples, but they point to simple ideas and I wonder, with the restaurant failure rate being what it is, how much of an establishment's failure is a matter of a lack of formal education in the needs of the industry (which are quite large for operators - food knowledge, wine knowledge, people skills, operations knowledge, accounting and business skills, etc) or is it more of a question of talent?

For years the restaurant industry was for the hedonistic types that couldn't get jobs anywhere else (ala Bourdain's world in Kitchen Confidential), but it seems to me that there is a new generation of restauranteurs that is much more intelligent, doing it for the love of food (and the warm glow that comes from the food porn on Food Network). Is this new batch of talent affecting how restaurants are run? Are they embracing a more disciplined, MBA style of business operations? Or are even somewhat uneven operations enjoying the rising tide of a greater interest in food?

[turkeybone]

Well, I'm about to graduate from the CIA, and we are made very well aware as to how important running a /successful/ kitchen is. And yeah, its not always "if you cook it, they will come". There are /plenty/ of places where a restaurant can go awry.

It should begin with demographics and lots and lots of research. Pick a location, and develop a concept around it; pick a concept, and find a city where it hasnt been done to death. Find a city that can support the number of covers you need to break even. Then you need to develop the site, the decor, and the kitchen! Its all about space.. Do you know how much a square foot of ground floor manhattan costs? You can't afford to spend $20,000 a month for a walk-in. And then theres the floor. The struggle between comfort and putting butts in the chairs. We're talking inches. And then of course, you have to have a menu to get those butts in the chairs. A menu is ultimately a large advertisement -- it has to be well written and enticing. It has to be properly laid out, so when the eyes naturally move to the bottom third of the right hand page, you put your profitable entree there. People are likely to order more courses if the menu isn't broken down to apps on one page and entrees on the other.

As far as the kitchen, it really comes down to receiving the product, storing the product, and utilizing the product. Nothing against purveyors, but if they know they can give you 2nd rate product, many of them will. You have your lunch specials to push your past-its-prime product, the purveyors have you (if you let them). At Daniel, you cant even get in the back door without tripping over the scale. Then theres storage -- proper temps, proper humidity, etc.. I think they say fish loses 1 extra day of shelf life for each day it spends at 1 degree over 32 (or something similar).

Anyway.. I could go on and on, but Im getting kicked off the computer by my significant other. Needless to say, people who have even a small amount of training are more aware of the narrow profit margins and the effort that needs to be spent in maintaining a restaurant. Because great food, great service, and tons of covers can't guarantee a profit at the end of the month.

[turkeybone]

ps, that last paragraph is a far more interesting discussion that I'll probably hit on once I have some more free time

[KatieLoeb]

Biggest problems are:

1) Just because a chef can cook doesn't mean they understand squat about running a business or even anything that happens on the other side of the swinging doors. If fact, more often than not they don't.

2) A lot of non-chefs think that just because they eat they can run a restaurant. Like a hobby. As if any of us would take up brain surgery or criminal litigation or whatever as a hobby.

3) Good food needs good management on the other side of those swinging doors to make the guests feel welcome, handle the reservations and seating, babysit the staff, babysit the customers, interview hire and train staff, schedule the staff, act as liason between the staff and the kitchen, watch the payroll and liquor costs, keep the physical plant clean and safe, etc. etc., etc. ad nauseum.

4) There have to be three dozen things no one thought of I could name just off the top of my head that are either recurring expenses or occasional expenses that no one budgeted for. And then there's the expensive crisis du jour that will rear it's ugly head with some frequency like the AC system blowing out during the hottest week in July or the dishwasher backing up or a shelf falling down and breaking lots of expensive china or stemware.

And that's just the tip of the iceberg...

[johnsmith45678]

My impression is that the MBA-types are more attracted to franchises, because they have a much higher guarantee of success.

[Ross.ucf]

I have worked for several restaurants, some large corporate driven and others small family run operations. All restaurants fail for one reason: not holding on to enough profit. This can come from many different areas, but in my experience it usually is bad managment. With bad management comes cheap cooks that can't cook, handle the food properly, work efficently, ect. Each one of these small (or large) errors leads to the failure of a restaurant.

For example, a good restaurant accounds for EVERY single source of food. Almost every cook will at some point in the day, eat something. If you are smart, you allow for this in a family meal. If not, management should have some system for tracking this. Five cooks eating $2 worth of at cost food (if you factor what you could sell that food for, its even worse) 365 days a year = $3650. Every penny counts, and that is just pure food cost loss.

Secondly, the ability to motivate your crew to work 24/7. If you have time to lean, you have time to clean. A lot of restaurants allow workers to sit around waiting for a ticket, or talking so much they can't get work down. This also cost money. Also, I have noticed that some people are just naturally lazy. Instead of looking for new cooks who are not lazy, they keep these other cooks on. This also makes your good cooks leave in search of something better. You work to the level around you, nothing more.

Another example, would be waste. In corporations I have seen a lot of food waste. Using prep sheets with par, they do not adjust the pars. They do not seem to understand that just because you sold 34 of a dish last year, you will sell 34 of a dish this year. Some systems I have seen are better than others, but a must in a restaurant is a Product Mix sheet. This can easily be handled with or without a PoS system, but it needs to be in every restaurant. Record every dish you sold and the amount every day for as long as you have a restaurant. Excel can then break this down and help with predictions. But weather, economy, new business, ect. can all fix this, so a good manager is also needed.

There are many more areas that a restaurant can fail at. In my experience it is more management and staffing than the food itself that seems to fail. For God's sake, McDonalds is still the #1 food concept in the world and it sure is not for the quality of the food. It is for the great training and management systems they have in place as well as consistency.

Hope this opens up this forum a little

[Shalmanese]

Until very very recently, good restaurants had real problems scaling. Once a good chef tries to create an empire, it's very hard to keep up the same quality. What this means is that it's hard to leverage talent. There might be 1000 chefs who have the business side of things done really well. But they are only managing 1 or 2 restaurants each which means the majority are probably sub-optimally managed. This is unlike, say, retailing where you only need 1 Sam Walton to drastically change the entire landscape.

[Ross.ucf]

Until very very recently, good restaurants had real problems scaling. Once a good chef tries to create an empire, it's very hard to keep up the same quality. What this means is that it's hard to leverage talent. There might be 1000 chefs who have the business side of things done really well. But they are only managing 1 or 2 restaurants each which means the majority are probably sub-optimally managed. This is unlike, say, retailing where you only need 1 Sam Walton to drastically change the entire landscape.

←

Yes I also noticed this. Corporations do well for restaurants but they are still corporations. They fail to hold up the quality that a great restuarant needs. I wonder if one day we will have a corporation that can hold its own in the fine dinning sector. So far Darden's Season 52 and the Cheescake Factor seem to do pretty well, but they are far away from four star status.

[johnsmith45678]

I have worked for several restaurants, some large corporate driven and others small family run operations.  All restaurants fail for one reason: not holding on to enough profit.  This can come from many different areas, but in my experience it usually is bad managment.  With bad management comes cheap cooks that can't cook, handle the food properly, work efficently, ect.  Each one of these small (or large) errors leads to the failure of a restaurant.

←

As opposed to cheap cooks that can cook, or at least be trained in two weeks to follow written down recipes and the basic cooking skills with which to cook them. Teenagers, college students, and immigrants are the source of these cheap cooks who more often than not have no to little prior cooking experience, and they are behind many a successful restaurant.

Edited September 11, 2006 by johnsmith45678 (log)

[Mikeb19]

The #1 thing I've seen in restaurants that fail or are on their way down, is owners who don't know anything about the business. People who think because they have money suddenly they know how to run a business... I have yet to see a Chef-owned restaurant fail, although I know sometimes they do.

Another thing I see is that people don't take the time to do things right. They rush the opening of their restaurant, do things half-assed, and cut corners. They accept a mediocre product and make excuses for themselves... Cooks will say they "don't have enough time" to cook something properly, servers will say they're "too busy" to provide quality service... If you can't handle your load of customers, then you hire more staff or limit the amount of customers you're taking in at once... Customers will forgive you if you can't accomodate them a certain night and they need to reserve for another, they won't forgive you for a bad experience.

Bad menu planning... I've seen this time and time again. Certain menu items sell, others don't, creating a ton of waste when the product goes bad... Throwing luxury ingredients at a dish thinking that will make it taste better, there goes your food cost. Or even worse, half your menu you go way over on cost, so you go cheap on the other half...

Hiring staff... Again, look for quality, and treat them right. Happy, skilled employees = success. Don't work your skilled employees so hard that they're burnt out, and don't accept lazy employees. If you're loyal to them, they'll be loyal to you.

Too many managers... Managers don't do much actual work, and they cost the most money. You need them in a large corporation, but in a small restaurant you want people who can manage themselves. The best kitchen I worked in had no titles, there was the chef and everyone else. We all took care of our own shit, we were responsible for taking care of the product on our own station, we were responsible for ordering our own product, if the chef wasn't there we could run things without him with no worries whatsoever...

It basically boils down to this - incompetence.... Restaurants fail because the people running them are incompetent. You don't need any sort of education to run a successful restaurant, just some common-f@#$ing-sense and intimate knowledge of food, service and wine....

[jackal10]

location,location,location

Actually restauranting is really about property speculation, and running a restaurant is just a way of keeping the property warm before selling to the next sucker. The profit on a restaurant is miniscule compared to the profit on the building development.

For any business there are two sides to the equation, income and expenditure.

You can have the best systems in the world, but if the restaurant is empty you will still go broke. SO a lot of it is about marketing, which brings us back to location.

If you are in some remote place without passing trade it will take time (and consistency) to build a reputation - typically it takes 3 years to get into the guides. Meantime you have to fund the running expenses for those three years. Without a good location, you will have to spend on advertising and selliing.

Of course you still need to ensure the total cost is controlled and less than the income, and the margins are so slim that small mistakes can blow the profit.

Edited September 11, 2006 by jackal10 (log)

[chromedome]

One man I knew in Halifax, who operated a lucrative lunchtime business for the downtown trade, summed up his own prerequisites neatly:

"Fifty thousand in the bank for emergencies, and enough capital or credit that you don't need to make a profit for a year."

He was on his third restaurant at that time, having sold the previous two at an insane profit after running each one for 2-4 years.

[jtcookie]

Cornell has published an interesting paper here that debunks the "90 percent of all new restaurants fail" myth.

The study also shows little difference (4%) in the failure rate of independent restaurants compared to franchises.

Not suprising to this community, family reasons were often quoted as the reason for restaurants closing

"In fact, many restaurants close not because they couldn’t succeed financially, but because of personal reasons involving the owner or owners."

I guess they were figuring on an easy life, with a low maintenance cash flow!

John

[chow guy]

One man I knew in Halifax, who operated a lucrative lunchtime business for the downtown trade, summed up his own prerequisites neatly:

"Fifty thousand in the bank for emergencies, and enough capital or credit that you don't need to make a profit for a year."

He was on his third restaurant at that time, having sold the previous two at an insane profit after running each one for 2-4 years.

←

Bingo! Even if you're showing a porfit the first year, you need money to fall back on. I've watched several profitable places close (including one of my own), because there was not enough capital to weather the cost of an illness, a season of bad storms, a major repair bill etc.etc. Money in the bank is essential.

[larousse]

Having never owned my own place or been that involved in the numbers to know other wise I'll stick to what I know. Location. I worked at a (seasonal) popular place, over 500 covers friday and sat, with an incredible team of 18-20 actors...I mean waiters, totally inept, 1 compitant (I cant spell) manager (and 3 others), an absentee chef/owner, and a chef de cuisine that barely did the ordering let alone manage. The blame fell to me and a co-worker as sous chefs to run the show. When I signed on the food was supposed to be the focus, not covers and the FOH was supposed to have some idea what was going on (the restaurant had beeen open for 20 years). That wasn't the case, the service was horrible, the food was mediocre at best (due to the shear numbers and number of cooks) and no matter how many people walked out (and it was a lot for any restaurant) we were full every night. Why? We were right on the main drag, visible, with a HUGE parking lot and a clientelle that ahd other things to do. Basically the parking lot was the biggest factor. Location helps make the place forgivable...it may not be perfect but at least its easy.

Most chain reataurant, with their nice track records, have great locations because they can afford to. Ive never driven out of the weay to go to an outback steakhouse...their meat sucks by the way.

[Michaeltheonion]

I think concept is becomming a very important factor in restuarant ownership. I find that some of the mot successful places in town are the places that are doing what no one else is. If youf opening a steakhouse in a town that already has an established reputation than your going to have a very hard time sucuring their patrons. There is an old buddhist saying "everything that arrises also passes away so strive for that which has not yet arrisen."

In my neighbourhood there is this places that changes concept every year. I think curently they are doing wraps, pizas and dips. When they opened they were trying ot be a nice community restaurant, now they are trying to cater to the box restaurant crowd in a upscale neighbourhood, Ive never seen them full. You need to nail down what your going to try and accompish and then exploit that market.

Ive also foudn that it is important to "hit the pavement." Having the restaurant opne to the pblic is not enough. What if a movie opened without trailers or adds in the paper, no one would know about it. This can be applied on a smaller scale of course. I organize a not for profit kitchen on my campus. We serve vegan cusine, that is well prepared for free! This includes say some bread a stew, a vegetable side dish some spreads, a cake or pie and as many aples as you want to take. The food was free folks. At the beginning of the year we were serving 40 people. I found alot of people in the demographic that we were catering too and found they hadnt heard of the service, or if they had they didnt knwo where to find it or the hours of operation. We decided that we would take one person out of the kitchen and have them walikng around cmapus handing our fliers and bringing people in that way. We even went around handing out hot break with hummus one day. After a few weeks of this we were serving close to 200 people the only trouble we had ws keeping up with the demand.

Putting a face on your business, showing that you actually care, and marketing are for me the most important things. Because its customers that drive the business.

[Joisey]

I've had big problems with owners giving away the place, whether it's meals for themselves or comping food/wine/booze to all their friends. It's all gotta come from somewhere, and most don't realize that it's not just the cost of the food that they're losing. In a resto, EVERYONE is accountable, right up to the person whose name is on the lease.

[froggio]

running a kithen is one thing, running a restaurant ie business can be a vastly different thing. some chefs are not so much concerned about food cost or any cost control ingeneral but as a business owneryou should.

you need a few basic things to have afair chance.

1-location,location,location. if your name is thomas keller or david bouley -10 years ago for him- then you can open in the boondocks but the rest of the crowd better keep this age old adage in mind

2-no undercapitalization, sounds obvious but i can speak from experience having managed a restaurant that went south after 6 months coz lack of funds

3-strong vision. clear identity. don,t call your restaurant zen club and serve beef wellington for instance

4-business plan with financial forcast. do i need to explain this one

[Qwerty]

There are no clearcut answers. It is seemingly inexplicable why some restaurants are successfull and others aren't. There are places that serve mediocre food with medoicre service, but still somehow manage to be at full capacity nearly every night. And there are fabulous places that do everything right that go under in less than a year.

There are places with business plans, and places that "just wing it" and still do great.

Sometimes people just get lucky and can do it...sometimes even the most carefully laid plans don't matter.

There is no way to tell. It's a roll of the dice every time...well, almost. Unless you are a really famous chef then you will probably be ok.

[rconnelly]

1. As I was taught in writing classes - know your audience! If you knowe who you want to attract, what you serve, how you do it and the rest will fall into place.

2. Train your staff well. And honor them. Without them you are nothing but a bunch of tables and chairs with a kitchen in the back.

3. Management has to be willing to get their hands dirty. You need to work your ass off all of the time so eventually you will be able to enjoy the business.

4. Be clear in your own head what you want your place to be.

5. And don't think just because you like to cook that you should open your own restuarant!