It had that same authentic taco taste as my hometown in Texas. It was by far the best tasting taco in all of New York and became the place to go with friends after a night out. One Friday night, however, we were greeted with a sign on the door that read, “Out of Business.” The feeling I had was not that of disappointment but rather of curiosity. How can a restaurant with such good-tasting food close for business?” At AUTEC, we provide value by solving these five issues I have written about and-after working with countless restaurant owners-I can answer this question of why restaurant businesses close down.
Labor (or the lack thereof)
This issue does not only pertain to restaurant businesses but rather all business entities-and that is labor, or the lack thereof. There are many things that can go wrong with finding the right person. The first problem is trying to find people in general. I will say that it is much easier to find people in major cities around the US. However, I visit customers who live in rural areas that are next to impossible to find people to work at their business. Even if you find someone, it is another story to retain the employees and keep them happy. Waiters and waitresses tend to stay at a job for only a couple of months, and so it becomes an unending process to find employees. If this is not figured out initially, you will be battling this for everyday that you are in business. Talk about a headache! My advice is to have a clear idea of how you are going to find new employees and ways to keep them long-term.
This next issue is an extension of the labor challenge. We work with many retail restaurants operated by Universities and, by law, they are required to hire students. You can imagine how unreliable these students can be. However, most managers never fault these students because it is inevitable when you employ young and inexperienced students. The challenge arises due to high turnover rate of student-workers where tenure can range from a couple of months to even a couple of days. The difficult part of this is not finding people to work there but training all the new students that are hired. If no training system is in place then there can be mishandled equipment, poor quality products, unsatisfying customer service and the list goes on. It is extremely important to know how you are going to systemize the on-boarding process. Are you going to have a designated person train the new hire? Are you going to have one person responsible for taking care of expensive kitchen equipment so they don’t get lost or broken? Are you going to produce an instruction manual to determine staff responsibilities for each day? All things to consider before you start your restaurant business!
You may have heard that margins are what makes or breaks a business and it is especially true in the food industry where products tend to be priced on the lower-end of the pricing range. This makes it especially important that you systemize the operation in order to cut unnecessary costs. If I had to pinpoint one reason for failed businesses, it would be not making enough margins off of the revenue. In the marketplace today, it is difficult to control the margins. For example: Seamless, Uber Eats, Grubhub, and DoorDash are setting new standards in the restaurant industry to deliver more foods as technology improves and thus make it easier for consumers to have access to foods. Although it may seem like it would mean more business for restaurants, it can be tough to turn a profit as these delivery companies charge a hefty commission rate for their partnership. This is a prime example of where businesses cannot control the margin because the commission is set by the delivery companies and are, in most cases, non-negotiable. The solution to this is to control what you can internally. How can your staff be more efficient? Can you use automation to automate and lessen operational costs? Can you mass produce your food so that you can save money in the long-run? Can you source recurring purchase products at a cheaper price point? These are some of the questions you need to ask yourself in order to be successful in the long term.
Trends exist in every industry and the food industry is no exception. Businesses quickly adopt these trends in hopes of a successful venture, however, after the trend has faded, not many survive. There are no set lengths for food trends therefore making it difficult to pinpoint how long one will be profitable. It is important for aspiring restaurant owners to weigh the cons of following food trends as well as the pros. Catching a trend is a very tricky subject because I find that inexperienced business owners can catch a good break and become successful. The take-away from this topic is to be objective about what decisions you make when adopting a trend because they do not have numbers you can grasp. Just remember it can be a success, but there’s a big chance that it remains as elusive. The next topic I will cover will help neutralize the problem of trend catching for businesses.
The concept of differentiation is especially important if you are saturated with competition. In my opinion, there are two ways restaurants differentiate themselves from their competition. The first is when the restaurant has been in business for a long time and has built a good reputation. It takes an owner’s commitment, dedication and years of staying in business to achieve this status. The second is to create something special that can’t be re-created by others which in my experience tends to give successful results fast. However, differentiation is the key factor in both cases in terms of how long it takes to establish your restaurant in the marketplace.
When I talk about differentiation, it simply means that the customer comes to your particular restaurant because no other restaurant can provide that product (food) or service (experience). For product differentiation, you can get very creative with this. For example, keep your current menu but make it strictly gluten-free, double your portion size with ingredients that normally go to waste, improve upon an existing ingredient (e.g. freshly made tortilla for tacos), or partner with local farms to provide the freshest dishes. As for service differentiation, think of what your target customers would expect and provide an even better experience. For example, a fast-casual restaurant that is fully automated where customers can order on a tablet and the food arrives on a conveyor belt. This adds an entertainment value that another fast-casual restaurant may not have.
I hope my knowledge has given you a bit of guidance and that great tasting food is not the end-all, be-all solution to succeeding in the restaurant business. There are many variables such as new technology, new operational processes, competition, and profit-margins. But the good news is that you don’t have go through the struggle that most restaurant owners struggle with. The reality is that these five factors are the common factors in most businesses. So if you can find a way to handle these five factors, I believe you will find great success.