HOW TO PROTECT YOURRESTAURANT AGAINSTHIGH FAILURE RATES

BEATING THE ODDS

Introduction

Effective Business Planning and Execution 1

Differentiating the Brand 2

Prioritizing Service and Value 3

Managing Costs 4

Hiring and Retaining Employees 5

Ongoing Marketing 6

Conclusion

RESTAURANTS OPEN AND CLOSE EVERY DAYJust how many? Based on a 10 year study conducted by researchers from

Cornell University and Michigan State nearly 30% of new restaurants will

fail in the first year alone, with that number increasing to 50% after

three years. [1]

The failure rate is alarming for any new owner hoping for restaurant success.

But not to worry, the factors contributing to these failures are well documented

and can be avoided by establishing a strategy for success. To protect either

a new or established restaurant against becoming another statistic among

the graveyard of failed restaurants, six basic components must be considered:

1. Effective business planning and execution

2. Differentiating the brand

3. Prioritizing service and value

4. Managing costs

5. Hiring and retaining employees

6. Ongoing marketing

EFFECTIVE BUSINESS PLANNING AND EXECUTIONMany restaurant owners approach their new business with a burning passion

for cooking and food. However, some owners have little to no actual business

experience and soon find that passion will not keep the restaurant doors open.

Possessing passion and culinary prowess are certainly important qualities

within the restaurant industry, but they are not sufficient to operate a

successful business. When restaurant owners find themselves struggling with

the practical business side of the restaurant, the following steps may be taken:

1. CREATE A SOLID BUSINESS PLAN AND STICK TO IT

Using a business plan template, evaluate all aspects of the business

and create a detailed plan which assesses SWOT (strengths,

weaknesses, opportunities, and threats). When restaurant owners

approach the business from an analytical perspective, making

business decisions becomes more rational and less emotionally driven.

2. UNDERSTAND YOUR COMPETITION

Since restaurants are local businesses, having a thorough understanding

of local demands and existing competition is important to the success

of a restaurant. Filling a need in an area where the competition falls

short is a key component of a sound business plan.

3. LET A PROFESSIONAL HANDLE THE NUMBERS

Hiring an accountant to handle the books, costs, and financial

reporting is one of the best decisions that a business owner can

make. Being presented with numbers on a regular basis by a

financial professional helps owners maintain realistic expectations

regarding costs and profits in order to make financially

responsible decisions.

1

DIFFERENTIATING THE BRANDOffering great food and service is important, but is not always a unique

selling point. With over 616,000 restaurants operating within the U.S.,

how will your restaurant stand out to consumers? [2] Creating a brand that

differentiates one restaurant from another is an important component of

restaurant success. Here are a few examples:

All four of these brands offer great food and great service, but their

positioning in different niche markets creates a likelihood of success.

Applebees uses the slogan,

“Good food. Good people,” and

markets themselves as a friendly,

neighborhood bar and grill.

Cracker Barrel defines themselves

as the “Old Country Store,” with

a simple mission of pleasing

people with home cooked meals.

Their unique positioning adjacent

to interstate highways allows them

to excel in their market, feeding

home-style meals to travelers.

Chipotle Mexican Grill offers

“Food with integrity,” and appeals to

a socially responsible demographic

with fresh, local ingredients and

a model of sustainability.

Johnny Rockets is reminiscent

of the 50’s style diner, serving up

‘the original hamburger’. With a

classic, all-American theme that

extends to their menu items, decor,

and service style, Johnny Rockets

offers a nostalgic trip down

memory lane.

2

PRIORITIZING SERVICE AND VALUECustomer service is a priority in every business, but should be the primary

focus to a restaurateur. From the moment that the customer arrives to the

restaurant, each staff member they encounter should present a professional

and accommodating attitude, from the hostess to bus staff to the head chef.

When customers visit the restaurant, they are hungry and most likely on a

time table. Communicating delays, making menu suggestions, and promptly

addressing dissatisfied customers are a few ways to guarantee repeat business.

The importance of service and

overall experience is made clear

in a survey by Vision Critical that

found that 86% of customers are

comfortable spending more on

a higher quality experience. [3]

Personalizing the guest’s experience

is important and advances in

technology, such as mobile POS

systems, empower staff with the

tools needed to provide a consistent

exceptional customer experience.

According to consumer trends

reported by the National Restaurant

Association, 79% of consumers

indicate that technology increases

convenience [4]. Using technology

to enhance the customer’s

experience is no longer a luxury

or something that’s ‘nice to have’;

it’s become an expectation amongst

the majority of restaurant diners.

3

MANAGING COSTSFood and labor are historically known to be the most significant costs on a

restaurant profits & loss sheet, with food and beverage costs averaging

about 33% of sales dollars and labors costs accounting for an additional 33%.

Add in an estimated average of 10-15% for waste and it’s no surprise that

turning a restaurant into a profit-positive business can be a challenge

to some. [5]

REDUCE ORDER ERRORS

When an order is incorrect, not only

is customer service compromised,

but costs increase, driving down

profits. Implementing a POS system

that allows for efficient, customized

order placement will reduce wait

times and order errors. An inventory

tracking system that integrates

with your POS also allows wait staff

to stay updated on the availability

of menu items in real time.

DILIGENTLY TRACK SPENDING

Taking advantage of detailed spending reports generated from a POS system assists management with understanding where every penny is spent and provides valuable insight used to develop cost cutting strategies.

MANAGE LABOR EXPENSES

Keeping a close eye on ‘sales to

labor ratios’ will help managers

make both short-term and long-term

staffing decisions that will positively

affect the bottom line. With a POS

that provides labor and sales data

by the minute, managers are able

to make important on-the-fly

decisions, like cutting staff on

a low-sales night.

33%

33%

15%

15+%

FOOD & BEVERAGE

LABOR COSTS

WASTE

POTENTIAL PROFIT

4

HIRING AND RETAINING EMPLOYEESA restaurant’s staff is its top resource and it is imperative that a staff is

assembled strategically. Once applicants are attracted and interview

scheduling has begun, consider these hiring tips:

Once a staff is hired, setting clear expectations will allow the team to reach

their full potential. A team that is working together towards the same clear

and understood mission becomes a well oiled machine. Establishing best

practices, putting policies in writing, encouraging staff dialogue, and hiring

an attentive general manager to enforce policies and encourage growth

will foster a staff that is fully invested.

Ask behavior-based prompts

during the interview, such as,

“Describe a time when you felt

that you were treated with

exceptional service.”

Pay attention to nonverbal cues

such as whether the applicant’s

dress is professional and whether

they make and maintain eye contact.

Provide an opportunity for the

applicant to ask questions, in

order to help you gauge their

curiosity and interest level.

Consider offering a test run.

This will allow an opportunity

for the manager to assess

on-the-job strengths and

weaknesses.

5

While word of mouth marketing is certainly important since customers are

more likely to act based on a recommendation of a trusted friend, marketing

should not end there. Thoughtful marketing plans that extend long past the

launch of a restaurant are essential for success. From email marketing, to

social media, to hosting events- there’s no shortage of ways for restaurant

owners to strategically market their business.

EXISTING CUSTOMERS

Having a deep understanding of the restaurant’s target demographic

will help to craft a multifaceted marketing strategy that will not only

bring in new customers, but will remind repeat customers of their past

experience and draw them back in. Gathering information from every

customer that comes through the door, either through your POS, a

social media check-in, or an old fashioned sweepstakes will provide

business owners with an opportunity to market to existing customers

with menu updates, special offers, and events.

NEW CUSTOMERS

Hiring a part time social media manager is a smart choice when

attracting new customers. Encouraging community interaction in

the form of restaurant reviews and photo “tagging” through

Instagram or Facebook is a great way to engage the community

and create a buzz around the restaurant. Running special promotions

through social media is a great way to create exposure, and encourages

first-time customers to engage more deeply with your brand.

For example, offering a half price appetizer if guests ‘check-in’

to your restaurant on Facebook is a great way to get new

customers in the door.

ONGOING MARKETING

6

CONCLUSION While many factors will ultimately play a role in the success of a restaurant,

approaching the creation and management of a restaurant with these six

factors in mind will ensure a greater possibility of success for years to come.

Excelling in the kitchen does not qualify a person for restaurant ownership.

A love of great food must be paired with a strategic business plan, qualified

and motivated staff, and value that exceeds customer expectations.

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SOURCES

[1] The Real Failure Rate of Restaurants, Retrieved October 29, 2015, from

http://digitalcommons.fiu.edu/cgi/viewcontent.cgi?article=1181&context=hospitalityreview

[2] U.S. Total Restaurant Count Increases by 4,442 Units over Last Year, Reports NPD.,

Retrieved October 24, 2015 from, https://www.npd.com/wps/portal/npd/us/news/press-releases/us-total-restaurant-

count-increases-by-4442-units-over-last-year-reports-npd/

[3] 2011 Customer Experience Impact Report, Retrieved October 29, 2015 from

http://www.oracle.com/us/products/applications/cust-exp-impact-report-epss-1560493.pdf

[4] 2015 Restaurant Industry Pocket Factbook, Retrieved October 24, 2015 from

http://www.restaurant.org/Downloads/PDFs/News-Research/research/Factbook2015_LetterSize-FINAL.pdf

[5] Restaurant Operations Report: Measuring Profitability to Stay Ahead. Retrieved October 29, 2015 from

http://www.restaurant.org/News-Research/Research/Operations-Report