Why Most New Restaurants Fail

Copycat Model Strategy

Many aspiring restaurateurs attempt to replicate an already successful model, such as a BBQ buffet or Mandi restaurant, hoping to tap into its success. While imitation may seem like a shortcut, it often overlooks the unique efforts that contribute to the original’s success, including backend operations, brand identity, and customer experience. Blindly copying a concept without adapting it to one’s strengths or market needs leads to failure more often than not.

Wrong Place Selection

Location plays a crucial role in the success of a restaurant. Even a prime location may not guarantee success if it doesn’t align with the restaurant’s concept. For instance, an ice cream parlor near a hospital may fail due to low demand, whereas a tiffin center offering nutritious, quick meals could thrive in the same spot. The choice of location must consider the target audience, accessibility, and competition to ensure sustainable footfall.

Overspending on Capital

It’s easy for first-time restaurateurs to get carried away with lavish interiors, expensive kitchen setups, and high-end equipment. While aesthetics and functionality are important, overspending upfront can deplete resources needed for day-to-day operations and marketing. Balanced capital allocation is critical to avoid financial strain and maintain flexibility for unforeseen expenses.

Poor Financial Planning

A lack of understanding of financial dynamics often leads restaurants to run out of working capital before reaching break-even. From rent and salaries to inventory and utilities, cash flow management is vital. Overestimating revenue projections and underestimating operational costs can quickly derail a restaurant’s financial health.

Ignoring the Cost

In the restaurant business, saving on purchase costs directly boosts profitability. Many restaurants fail to manage this aspect effectively. This doesn’t just mean buying ingredients at the right price but also ensuring that quantities match actual requirements. Over-purchasing or procuring unnecessary ingredients can inflate costs and lead to wastage. Cost optimization in purchasing is crucial for healthy margins.

Lack of Consistency in Food and Service

No matter how good your initial offerings are, inconsistency can alienate customers. A restaurant must deliver the same quality and experience every time a guest visits. Inconsistent food taste, delayed service, or unprofessional staff behavior can result in negative reviews and declining customer loyalty.

Inappropriate HR Budget Allocation

Many restaurants either overspend on hiring or fail to allocate sufficient resources to build a balanced team. For example, hiring an expensive manpower in one area while underinvesting in service staff can create gaps in the overall dining experience. A well-thought-out HR budget ensures that all departments are adequately staffed with competent individuals.

Lack of Training and SOPs

Standard Operating Procedures (SOPs) and regular training are the backbone of a successful restaurant. Without clear guidelines and skill enhancement programs, staff may struggle to meet operational standards. Training ensures consistency, efficiency, and a customer-first approach across all levels of the team.

Poor Coordination

A restaurant’s success depends on seamless coordination between departments like kitchen, operations, purchase, HR, and finance. Miscommunication or lack of alignment among these teams can lead to delays, inefficiencies, and customer dissatisfaction. For example, if the kitchen isn’t informed about promotional menus by the operations team, it can result in delays and unhappy guests.

(The writer Nakul Chandna is a former COO of a leading F&B brand in India)