March 8, 2019 |
A perspective into why so many restaurants shut shop in 2018
While many people look forward to dining out, it’s a sad reality that more than a dozen branded standalone outlets have closed for good in the past year.
Here I’ve outlined some of the most common factors creating this decline:
1. High Rent and Hidden Costs – Unrealistically high rental leases are placing an enormous burden on the business. As an industry standard, the rent you pay should not exceed 10% of your estimated sales turnover annually. There is a hint of trouble straight away if the percentages do not make financial sense.
2. Restaurant Lease Agreement – Make sure you understand every line of the agreement, and ensure that there are no hidden clauses that are detrimental to the business. Negotiate hard to protect your business’ best interests; you have to be satisfied that the agreement is a win-win for all concerned parties.
3. Location of the Venue – Demography, ease of access, parking space (a challenge in Dubai, particularly), visibility, volume, high urban commercial/resident population within a kilometre of radius: these are all strategic factors that ensure the success of your business. If any of these fail to meet the required standards, there is a problem.
The above three reasons top my list; however, there are other factors to consider when entering the restaurant business.
4. Adherence to standards: Every business needs clearly set and standard operating procedures right from the start. This means that each person working in the organisation dishes out products and service at the same rate and efficiency each and every time. Success will also come when your company is managed by systems and procedures, rather than being driven by a few people alone.
5. Menu and Concept – It is imperative that as a business owner, you have a true passion and understanding of the culinary industry. Create a concept that feeds an existing vacuum and make sure you do not over-promise and under-deliver. Specialise in a niche, and present your products in the right size, packaging and price. Invest in efficient menu engineering and the right hardware that complements and supports your concept in every way possible.
6. Invest Right and Smart – Sparkling floors and dazzling chandeliers attract an audience. However, while it’s vital to have synergy between aesthetics and functionality, surveys have shown that customers will return for a combination of tasty food, efficient service and warm ambience – in that order. I have seen many a restaurant owner spend capital on designing the dining room, when it should have been invested in the back-of-house instead. Invest into your product and service and support it with a cosy and welcoming ambience.
7. Working Funds – Make sure you have sufficient funds and working capital placed into a contingency fund, and have a five-year strategy plan. You do not want to start borrowing money while in the initial stages, which are so crucial for the success of a new business.
8. Confidently Believe – Be patient and understand that the first three months may be the toughest, known as the ‘spend period’. If you started with the right systems and procedures in place, you are on your way into the relatively stress-free break-even stage. This means your business is now carrying its own weight, and staff and suppliers are being paid through sales and not your contingency funds. After six months of opening is when a well-planned and executed F&B operation actually starts moving towards profitability. This is a conservative study for single unit outlets; profitability and revenue is faster, with some units even posting profits in the first month of opening, in established multi-units’ expansion, where the consumer is aware of the brand.
9. Sound Finance – An excellent finance management system that addresses the core activities of the food business should incorporate purchasing systems, which lead to receiving systems, production, wastage, man-hours, fixed costs, variable costs and prime costs of the business. A well-organised and well-implemented accounting system can be extremely simple yet thoroughly efficient and functional.
10. Power of Manpower – When you strongly believe that your staff and management are the ambassadors of your business, do not ignore training and growth of your team, right through the ranks. Systems run the restaurant, but manpower is needed to implement systems. There are many outlets consumers can choose to spend their money at, so you need to ensure that yours is the first choice in this competitive market by providing guests with 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 opening a new place, the team tends to be the most neglected. Eventually, sales go down and regular customers are lost to more competitive and well-operated venues. Keep your team highly motivated and well-trained with daily briefs, monthly trainings and regular appraisals.
“If you are not embarrassed by the first version of your product, you’ve launched too late.” – Reid Hoffman, LinkedIn Co-Founder and Venture Capitalist
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