According to Ohio State University, 60% of new restaurants close within their first year, and nearly 80% close their doors before they reach five years of age. The restaurant industry is hard to enter, and many people jump in before they’re ready.
A few key reasons why most new restaurants fail: lousy location, poor management, inexperience, financial troubles, and even distasteful food.
Location, Location, Location
CNBC says restaurants fail because they choose the wrong location. A physical business does well if there’s a demand for its product in its area.
Restaurants do best in areas with consistent foot traffic, but those areas are also the most expensive to rent. If the locals don’t love your food, you likely won’t make enough money to cover your rent. Sometimes, it’s better to choose an area that’s not quite as ideal but still busy enough to bring in new customers.
Picking a location that offers lower rent does not mean your business will be successful. If you find yourself with no customers, you’ll still be unable to cover your costs.
Chef Robert Irvine of the Show “Restaurant Impossible” says many new restaurants fail because people open their businesses with good intentions but lack experience. New owners underestimate a restaurant’s demands; once they open, it’s too late.
Poor Leadership & Toxic Culture
Lack of experience can pour into leadership skills as well. Chef Robert Irvine says that the best restaurant leaders tend to be those who have started at the bottom of the restaurant industry and worked their way up.
Owners who lack restaurant experience try to manage a diverse team of employees with drastically varied skill sets, which often doesn’t work. Leaders who have worked in restaurant positions are more understanding and better equipped to manage their teams.
A restaurant is a business built on serving people food, so it makes sense that customers expect to receive great-tasting food. But Chef Irvine says that many new restaurants serve sub-par food and never even realize it.
“It’s not from lack of personal taste or quality. More often, it’s because of a breakdown in the chain of command and quality control.”
As good preparation becomes more routine, employees begin to skip steps and leave out ingredients essential to the quality of the food.
Poor Customer Service
Social media is everything nowadays, and one bad or good review can make or break a new business. Before the internet, restaurants had time to identify mistakes and correct them, says CNBC. Today, customers expect everything to be perfect instantaneously, or you’re likely to receive a bad review that drives away other potential customers.
Poor Financial Planning
Running a business takes more than just good food; you need to know how to manage your money.
Chef Robert Irvine says he commonly sees new restaurant owners who need more basic accounting skills and don’t know how to track their spending or profits.
Since it takes money to keep a business open, this is a significant downfall for new restaurants.
Click here to read about smart financial budgeting from Synergy’s Managing Partner, Danny Bendas.
COVID & Inflation Are Making Things Worse for Restaurants
It’s no secret that the onset of the COVID-19 pandemic made matters worse for restaurants, particularly those newly established. Some restaurants that closed during the pandemic may have survived had it not been for the pandemic.
For about two years, businesses were not allowed to serve dine-in food or were only allowed to operate at partial capacity. For restaurants that rely on dine-in service, these restrictions were devastating.
Today, restaurants across the United States are allowed to operate at total capacity again, but now they’re facing other problems related to the pandemic.
Learning from Restaurant Failure
Most new restaurants fail because of inexperience and lack of strong leadership. New owners choose a less than optimum location, don’t know how to lead their team correctly, aren’t sure how to manage their finances, or are serving sub-par food.
It’s harder than ever to succeed in the restaurant industry, but these causes of restaurant failures are common across the United States. Hopefully, new owners can look at these challenges and plan ways to avoid them. Luckily, there are ways to prevent such pitfalls!
We highly recommend you have your restaurant business plan evaluated by industry professionals such as Synergy Consultants. An Operations Assessment is key to ensuring your restaurant concept is viable for long-term success!