Fact: If a restaurant is not profitable, it will not be worth the owner’s time and efforts and thus will not last for long.
But, why do restaurants fail? Yes, the restaurant business is competitive. But that is not the main reason why restaurants close their doors. The main reason a restaurant fails is because inexperienced owners and investors make many avoidable mistakes in this business. As the old adage goes, “Those who fail to plan, plan to fail.” It is as simple as that.
If we ask ourselves, why are franchises so much more successful than independent restaurants? Why would it logically be easier to manage multiple units and more difficult to keep a single unit afloat? Interestingly, it’s not rocket science to understand that franchise operators put a lot of efforts & research into site selection and concept development, and they rely on the lessons learned by earlier franchises in the same chain.
As a result, a franchise comes to the table with proven “Operating and Financial Systems.” Unlike the single unit owner who might have ventured into the business because somebody in the family is a great cook and bingo – that’s his ‘recipe for success’. ‘Cook good food and sell it’, does not work! If all you’ve got going for you is good food, invite a whole lot of friends and family and enjoy the compliments, do not open a restaurant! You are going to need much more than great food to make money and be successful in the food business.
It’s a fact that it’s not just large corporations with multiple units and staff that need systems and operating procedures to manage and grow. More than large corporations, it’s the small business owners that need systems and operations manuals, standard operating procedures (SOPs). Combine this with great food, the right location and your passion and you could be onto the secret formula of success!
It is extremely rewarding to create and launch your own concept, if you don’t want to be part of a chain! You can make your own restaurant … “successful” –you don’t have to pay part of your profits to some big corporation. Well, you don’t have to join a franchise to be successful. The good news is that you can do this on your own. You merely need the right approach, which includes comprehensive and objective market research and analysis and proper planning … just like the chains do.
Plan right! Start with identifying the problems to avoid falling into the “AH, this restaurant failed” category.
Consider the 10 most common reasons why independent restaurants fail in Dubai. Avoid the common pitfalls – learn how to open a restaurant and coffee shop in Dubai – successfully.
1. Poor choice of location – Accessibility, parking space, visibility, high footfall, high urban commercial/resident population within a one-kilometer radius. These are key factors to score your location on, if the location scores low on any one of these, be happy to say no to whatever ‘great deal’ you think you are being offered.
2. Unrealistically high rent and restaurant’s occupancy costs – Do not fall into the trap where your business supports the landlord with your profits. Your rent should not exceed 10% of your expected sales turnover annually! If its anymore than that, you are working just to pay rent!
3.Poorly negotiated restaurant lease agreement – Do take time to read through and understand in details the tenancy contracts you are about to sign! Do not be afraid to ask and understand, your tenancy terms should be supportive to your new venture, you will need that support throughout the tenancy period, so start right!
The above three reasons are on top of the list. While these are guaranteed steps towards restaurant closure, consider the other most common mistakes many venturing into the food business unknowingly make:
4. This is my favorite: Not having SOP’s (Standard Operating Systems) in place, which results to poor or inconsistent food and service. Now, that’s why the chains are successful if you ever wondered. What are SOPs? These are the ‘rules of thumb or business’ that ensure that your food business is run professionally with common direction for staff, management and owner. Daily tasks are formalized into procedures, so no matter how many times a chef leaves, the kitchen continues running smoothly! No matter how many times a ‘Cheese Burger’ is served it always tastes of the same greatness, served with the same amount of fries and cola at the same temperature, each time and every time. Procedures mean that each person working in the organization dishes out products including service at the same rate and efficiency each and every time. That’s what customers come back for: consistency and efficiency in product and service. It also means that if your company is managed with systems and procedures, you can actually take a day or week off without worrying if you will still have a business when you come back! It means your restaurant is running smoothly on systems and not human errors.
5. Poor choice of concept and menu – Do not sell ice to an Eskimo! When you conceptualize your restaurant offering, do not base it on your personal likes/dislikes or eating habits. Business is to serve the needs of consumers, create a product that is most likely to be liked and patronized by consumers, fill a niche that’s still empty and then plan your menu to deliver exactly that! A too large menu with everything to please the palate may seem very attractive but do not promise more than can be delivered. Specialize in what your concept caters to and present those products in the right size, packaging and price. Take a specialist approach to your restaurant menu engineering and kitchen equipments that compliment and support your menu.
6. Excessive investment in construction, equipment or fit out – Don’t we all just love a beautiful looking restaurant! Synergize beauty with functionality! What the consumer surveys show repeatedly is that they will keep on coming back to their favorite place loyally for a combination of good food, good service and good ambience. In that order. Invest into your product and service and support it with a cozy and welcoming ambience. Too many restaurant owners get so carried away with designing the dining room, they use up much needed capital which should have been invested into the production area. Allocate your budget keeping in mind that your production and service wins consumers, your ambience keeps them ‘comfortably coming back for more’.
7.Undercapitalization and lack of working capital – Make sure you have sufficient funds and working capital incorporated as contingency funds in your restaurant start up and business plans. You do not want to start borrowing money while in the start-up stages which are so crucial for a new business.
8.Believing you'll start making money on opening day – Like any business, a new Restaurant has a time-frame before it starts generating profits. Be patient and understand that the first 3 months may be the toughest, forget about making money, this is the ‘spend period’. After 3 months, if you have started right and operating with systems and procedures in place, you are on the way to move into the relatively stress free period of ‘break-even’, which means your business is now carrying its own weight, staff and suppliers are being paid through sales and not your contingency funds. After 6 months of opening is when a well planned food business actually starts moving towards profitability. This is a conservative study for single unit outlets, profitability and revenue is faster, some units even posting profits in the first month of opening in established multi-units expansion, where consumer is aware of the brand and flocks to outlet on opening day.
9.Absence of a well organized and implemented restaurant accounting system – An excellent yet simple system that addresses the core activities of the food business should incorporate purchasing systems, which lead to receiving systems, production, waste, man-hours, fixed costs, variable costs and prime costs of the food outlet. A well organized and well implemented accounting system can be extremely simple yet functional.
10. Poorly trained restaurant staff – when you realize and believe that your staff and management are the ambassadors of your business, you will not want to take a chance by ignoring the crucial importance of trainings and motivational growth of your key personnel, right down to the man who day in and day out cleans dirty dishes in a corner of your busy successful restaurant. Systems run the place; humans are needed to follow systems. A good motivated team that receives regular trainings and growth opportunities can be your best asset. Consumers have a wide choice of outlets to spend their hard earned money on, ensure yours is the first choice in this competitive market by providing guests with a polite and professional smile and ‘consistent’ service. A mistake often made by new restaurant owners is to invest in Staff trainings at the pre-opening stage only, but after the initial euphoria of a new place, staff tend to be the most neglected, sales go down and regular customers are lost to more competitive and well operated food outlets. Keep your staff highly motivated and well trained with daily briefs, monthly trainings and regular appraisals. Make trainings part of your procedures, don’t leave the option of ‘good service’ v/s ‘bad service’ to employee ‘moods’ that day!
"Now that you know some of the principle reasons for restaurant failure, you should have better insight into the research, analysis, and planning needed to fulfill your dream of successfully owning your own restaurant or coffee shop in Dubai, UAE or for that matter, anywhere in the world!"