Why Do Some Restaurants Fail Within Their First Year?

Vinupradha 08.10.2022

It's no secret that new restaurant startups fail at a shockingly high rate. If you're a new or prospective restaurant owner, you might notice some restaurant failure statistics and wonder if you'll be one of them. So, what are the main reasons for a new restaurant's failure? How can new business owners avoid these pitfalls? If these are your concerns, don't worry! This blog has everything you'll need.

Here, we will explore the following:

What Do General Statistics Say?

Things to Ask Yourself Before Opening a Restaurant

Top Reasons Why Restaurants Fail Within Their First Year

Quick Tips to Avoid Restaurant Failure

How to Build a Reliable Restaurant Management Software?

Key Takeaways

Let Us Get Started!

Nowadays, we see many restaurants fail within the first year of operation. In the upcoming section, we'll look at the most common reasons why restaurants fail so you don't make the same mistakes they did.

What Do General Statistics Say?

Small businesses fail for multiple reasons. According to a survey of the business analytics platform CB Insights, the following are the most common causes of startup failure:

38% - ran out of cash or failed to raise new funds
35% - there was no market requirement
20% - were outcompeted
19% - had a flawed business model
18% - regulatory or legislative changes
15% - pricing or cost issue
14% - not the right team
8% - poor product
7% - conflict among team or investors
5% - Lack of passion

According to research by Ohio State University, 60% of restaurant businesses fail within the first year.

Things to Ask Yourself Before Opening a Restaurant

Before starting a restaurant business, ask yourself the following questions:

Is it possible for me to work more than 40 hours per week?

Do I enjoy serving customers?

Can I go months without paying myself?

How long do I want to run this business?

Who will take over the company if I am no longer interested in running it in five, ten, fifteen, or twenty years?

Once you've answered all these questions and completed the necessary steps, it's time to start a restaurant business and get yourself off the ground.

Top Reasons Why Restaurants Fail Within Their First Year

If you're considering starting a new restaurant, you should understand why most restaurant businesses fail within the first year. Using the information provided, you can overcome the common mistakes that lead to the failure of many business startups.

#	Unsatisfactory Customer Service

A poor customer experience almost means that the customer will not return. They may also post negative reviews of your restaurant on social media and restaurant review sites, which could be incredibly harmful to the restaurant if not addressed immediately. Anything that makes the customer unhappy, from rude and unfriendly servers to an order delay, can constitute a poor customer experience. A strange odor in the air or overly loud music that doesn't fit the theme might also degrade the consumer experience.

#	Complex Menu

A large and diverse menu is not only confusing to customers; it is also incredibly time-consuming to manage and is frequently the reason behind inventory wastage. It becomes difficult and time-consuming for the chef to make a wide range of dishes, and delays may result in customer dissatisfaction. It is always better to keep your menu "short and simple" and to excel at what you serve.

#	Poor Location and High Rentals

When choosing a location for business, people generally make mistakes. Your restaurant may get located far from your customers, or it may be difficult for people to reach your restaurant, and if you are paying more rent than your profits, what is the use of running a business? No use, right? So, always ensure that your location should be convenient and pedestrian-friendly to avoid people walking long, insecure, and tiring distances just to come to your restaurant.

#	No Reporting and Analytics

It is something that should get done at the end of the day. Analyze the day's profit or loss; if it's a loss, try to figure out why, and vice versa. The owner should be aware of his daily earnings and work accordingly. On the other hand, it is difficult for chefs to prepare multiple dishes at once, which may result in delayed service and customer dissatisfaction. Whatever the size of the company or restaurant, keeping records of all transactions and reports is vital to avoid losses.

#	Weak Marketing

Everyone should know the importance of marketing for any business, especially in this digital age. Marketing is a lifeline for new restaurants. Imagine you've opened a five-star restaurant in a metropolitan area, but no one knows about it. Customers will not come to you based on the aroma of your dishes; you have to approach them, which is what marketing is.

#	Bad Food Quality

People like to go to restaurants to eat and have fun. Therefore, they expect you to deliver delicious food and outstanding service because otherwise, they would have stayed home and prepared for themselves. So, always ensure that the quality of your food and beverages is satisfactory to your customers, or else they will not return. They will not return if they are not satisfied with the service.

#	Bad Pricing

A good menu will help you boost your profits, which is why you must use effective pricing strategies. Many restaurant operators feel that knowing supply and demand is enough to determine restaurant pricing, but this is not always the case. Restaurant owners must be careful while offering discounts because it may harm the value of their brand. While many people feel that offering discounts will attract more customers, they end up undervaluing their food and the dining experience.

#	Lack of Experience

Too many people who don't have prior expertise in the food service industry believe they can run restaurants. Many people still believe that working in the food industry is easy because everyone can cook in some way. However, knowing how to make food is not the same as knowing how to run a business, and many overlook this aspect. Accounting, inventory, administration, and other technical issues must get addressed when managing a restaurant.

Do You Want to Manage Your Restaurant Business the Easy Way?

An inexperienced owner will not get a complete picture of his business and will lead it to failure if he cannot delegate work and is ill-informed about the more technical aspects of a business.

#	Lack of Knowledge About the Competitors

Many restaurant owners feel that providing good food is enough to entice customers to return. However, identifying and understanding your competition is critical to the success of your restaurant business because it helps you avoid risks and expenses. If there is cutthroat competition, it may be challenging for a new company to succeed in the market. Even established businesses invest time and resources in reassessing their restaurants with their competitors.

Quick Tips to Avoid Restaurant Failure

If opening a restaurant is a long-term goal, consider getting a part-time job in a restaurant similar to your vision and learn the challenges involved in it

A good culture is your secret weapon for success. If you can maximize your team's talent and productivity, everything else will become a piece of cake.

Take time developing each recipe on your menu until you feel satisfied. Then, test it with friends and family to fine-tune them.

Develop a multi-faceted strategic plan for advertising and marketing your restaurant, with a strong emphasis on digital media, to ensure that you embrace technology and social media.

Start focusing on lowering your costs to less than 60%. Food costs generally require careful planning and proper management to control portioning, waste, theft ordering and receiving.

Do not underestimate the value of leadership skills in yourself and anyone you choose to be a part of your restaurant's management team. A good leader never stops learning about leadership skills.

Want to Improve Your Restaurant Operations and Grow Your Business Profitably?

How to Build a Reliable Restaurant Management Software?

FrescoFud takes the time to get to know your business and your customers to create a reliable and functional restaurant management software/food delivery app, allowing you to develop specialized restaurant management system tailored to your specific business needs. And apart from that, the team is working tirelessly to create a scalable and flexible platform. As a result, you can fine-tune your app as the food delivery industry grows.

Here’s how to develop restaurant management software:

#	Define Your Success Criteria

When it comes to Restaurant Food Delivery App Development, the first step is to define your success criteria. What are your business goals? What do you want your restaurant food delivery app to accomplish? How will you assess its success? You cannot build your app until you have answered these questions.

#	Build a Prototype

Next, start building a prototype that will allow testing of several features like the UI/UX, delivery features, payment process, etc. It makes it possible to assess the app's strengths and areas for improvement.

#	Develop a Functional App

After building a successful prototype, you can start developing the functional version of the food delivery app. We convert all the information from the prototype into code. As a result, in real-world scenarios, your app performs as expected.

#	Deploy Your App

After getting a functional version of the restaurant food ordering app, you can start deploying it on your server. It entails signing up for a Web Hosting Account and installing an SSL certificate for the app. As a result, users can access it securely.

#	Test and Make Improvements

Once your restaurant food delivery app is on the server, you can test it by adding a few friends and family members as customers and start delivering food to them. You can also make improvements based on customer feedback. It will allow you to fine-tune the design of your app to make it better than ever.

Key Takeaways

Running a restaurant isn't easy, but putting in the effort makes it much easier to avoid failure. With so much competition, high staff turnover rates, and low-profit margins, it's no surprise that most restaurants fail within the first year. Fortunately, you can learn from previous restaurateurs' mistakes and avoid them to extend the life of your business.