3 out of 10 restaurants fail in their first year.
The reasons for the stops Indices of "mortality" or closure of restaurants they are multiple and very varied. From reasons of illness of the owner-administrator or the construction of a road work in front of his establishment, to why they suffer fires, an exaggerated increase in some raw material or are closed by health authorities due to massive poisoning of their guests. However, even if these catastrophic events did not happen and all precautions will be taken to prevent them, they will continue to close. restaurants at even higher rates than in other lines of economic activity.
In good measure This is explained because, like no other economic activity, the barriers to entry to the restaurant industry are minimal or non-existent. Anyone with limited resources can establish a taco stand, an inn or a cheap kitchen service without in many cases complying with the requirements and regulations established by law, and sometimes in complicity with local authorities. This unfair competition causes large losses for formally established restaurants and increases the risk of failure.
Others, with their own or borrowed resources, and overcoming the tangle of paperwork and permits, manage to establish themselves legally with large investments in cafes, specialty restaurants and even banquet services. How good that there is the freedom to undertake. Unfortunately, they do so without any knowledge of the industry or sufficient preparation to venture into unfamiliar terrain. They also dare, because they only see the success stories and would like to imitate them. However, they do not see those who fail in order to analyze them and avoid making the same mistakes. Most likely, they too will be defeated and their savings squandered or with heavy outstanding debts. Not to mention the emotional frustration and loss of self-esteem that failure brings.
In former times there were many opportunities to successfully invest in a deals of food and drinks. There was a great unmet demand and few suppliers. The odds of success were very high. Today is no longer the same. Markets have been overwhelmed with very diverse food and service options. Diners, mostly young, have become more demanding and their tastes and preferences change at fast rates. There are national and foreign restaurant and franchise consortia with heavy investments in market research, quality systems, and marketing strategies aimed at lowering the risks of failure and increasing your chances of success. And it is not that good investment opportunities in this activity have ceased to exist. Successful restaurants are still possible, but it must be recognized that today you have to have more than some capital and a good season to succeed in the restaurant industry.
Now let's take a look at not the magic recipes for success we might find in a business textbook, but rather the main habits that lead independent restaurant owners to failure in these competitive and changing times. What we offer here is a very brief summary of these bad habits, obtained as a result of case studies in Mexico and the United States, collective analyzes with other consultants, and numerous consultancies for restaurants. The first five habits have to do with mistakes generally made when establishing a new restaurantThe other five are the most common mistakes made by restaurants with a few years of operation.
1. TO KNOW THE CHARACTERISTICS OF THE MARKET.
2. ASSUME THAT THE OFFER CREATES YOUR OWN DEMAND.
3. DO UNFUNDED ANALYSIS OF FINANCIAL FEASIBILITY.
Many times a restaurant entrepreneur bases his strategic in unrealistic calculations. First, it tends to overestimate its sales and underestimate its operating expenses. It assumes that perhaps it will take about three or four months, maximum six, to “become accredited” and that during that time it will perhaps register losses. Later, according to his optimistic calculations, he will have the place filled with two or three daily rotations and he could even buy or rent the adjoining property to expand.
However, the reality is different. The average maturation time of an independent restaurant is usually 1 to 2 years. It is not enough to open its doors for a restaurant to gradually acquire prestige and achieve its point of equilibrium, much less utilities. Daring entrepreneurs forget that sales depend largely on spending on advertising and promotions, and this is almost always spared because they assume that "the best advertising is word of mouth", also forgetting that this is a two-edged sword , bad news "fly".
Other expenses generally underestimated or ignored are taxes, financial interests, social security, occasional liquidation of personnel, unexpected labor demands, increases in raw materials, rents and services, renewal of permits, maintenance of equipment, fumigations, etc. etc. And since they do not have additional income or reserve capital to meet these expenses, they generally tend to get into debt hoping to get rid of what they think is just "a losing streak" until it is too late.
4. UNDERESTIMATE PERSONAL REQUIREMENTS.
Not everyone has the physical endurance or intelligence or emotional ability to endure 20-hour days a day with high levels of responsibility and stress. From the personal execution or supervision of daily purchases, the organization of production and payment to suppliers to the administration personnel and inventory control, in addition to quality control, service supervision, personal customer service and, in some cases, even cleaning tasks before closing at 12 or one in the morning. Few appreciate the perseverance of the owner in achieving his goals in the face of unrelenting competition and the sacrifice of himself and his family for success. And when profits begin to be generated at last, the work is even more intense. Few resist it.
5. LACKING CLEAR OBJECTIVES AND AN ACTION PLAN TO ACHIEVE THEM.
What would you think of someone who buys a car, starts it and starts it but does not really know where it is going or how to get there, and yet miraculously hopes to get there? Well, this is how many restaurants start, but with family members, workers, partners and creditors on board blindly trusting the driver. They do not previously analyze their clients and potential competitors, they do not receive minimal training in administrative aspects, they do not carry out rigorous testing of menus, they do not seek the advice of specialists in design, gastronomy or marketing, and they do not have an action plan that tells them what to do. and when to do it to reach your goal, which is generally very ambiguous or unrealistic.
6. KEEP THE SAME MENU AND SETTING FOR YEARS.
Despite having managed to accumulate large profits over the years, they refuse to remodel their establishments, modernize their kitchens or train their staff. At best, they try to attract new customers by introducing live music, the famous happy hour or even tacos and snacks at night. However, they generally become second-rate bars rather than renovated restaurants until one day they close with large accumulated losses.
7. IMPROPERLY PROMOTING A GASTRONOMIC OFFER.
All restaurants use some form of advertising or promotion. From outdoor blankets or advertisements in local magazines to radio and television “spots” or online. However, they generally turn to them when sales are low or, what is the same, when the nearby competition begins to gain ground.
They do not assume that advertising and promotion spending should be permanent and, therefore, that it should occupy a considerable part of the operating budget, up to 10% or 15% according to some specialists, even in times of strong sales volumes. In other cases for wanting to save the payment to an agency specialized in the matter, the restaurateurs become "self-taught creatives" and when they see the little impact that their "advertising" had, they later complain that it was a useless expense. In addition, they assume that their frequent customers will always remain so, forgetting that it is them and their family and friends who should be targeted in the first place for special promotions. Like a spoiled marriage, they forget to reward the loyalty of their partner (the clientele) and do not make an effort to "win it back" day by day.
This article was published by Nestor Elizondo Martínez director of the CULINART Culinary Arts School and Gastronomic Advisory Center in 2005