Every day you pass a local sandwich shop on your way to work. Some days you even pay a visit on your lunch hour. But then one morning you drive by only to notice a big ‘CLOSED’ sign in the window. You wonder what happened. You wonder how such a thriving little restaurant could end up closing without warning.
Such closings are actually not uncommon in the restaurant industry. According to a report by the Salt Lake Tribune, some 60,000 new restaurants open in the United States every year. Another 50,000 close. That is a staggering comparison that makes it hard to believe restaurant revenue continues to climb. But it’s true.
So what gives? What most people don’t realize is that cooking food is the easiest part of running a restaurant. But good food alone is not enough to guarantee success. There is a lot more that goes into creating the right combination that leads to long-term success.
Of all the things that give restaurant owners nightmares, managing costs is at the top of the list. The restaurant business is a low-margin business to begin with, so any inability to manage costs effectively automatically spells trouble for the bottom line. Restaurant owners have to be able to contain costs no matter what.
Their two biggest costs are labor and ingredients. If you guessed that labor is the biggest, you guessed correctly. Food service is terribly labor-intense at the local level. Restaurant owners are constantly having to balance the need to save on wages against the need to provide quality service.
Outsourcing restaurant payroll to a company like Dallas-based BenefitMall is one way to help contain labor costs. But there’s no way to account for higher minimum wages and increased payroll taxes without either cutting staff or finding a way to increase revenues. In the end, it’s an ongoing battle to maintain the right balance of labor.
Meeting Customer Expectations
Containing costs is just the start of what restaurant owners are up against. They also have to constantly evaluate how they do things in order to meet customer expectations. What makes this particular task so difficult is the sheer amount of competition. What used to be a nation dominated by small, mom-and-pop restaurants has become one dominated by national chains.
There are so many choices these days that patrons are not afraid to walk away from a less than optimal experience. They will gladly take their business elsewhere. A restaurant doesn’t even have to be guilty of offering a poor dining experience. It could be a very good experience that still doesn’t meet customer expectations. Customers will go elsewhere if they feel like they can get a better experience by doing so.
Yet another challenge faced by restaurateurs is one that is rarely talked about: saturated markets. The truth of the matter is that there isn’t always room for one more. Local populations have their limits, and a lot of local areas really have more restaurants than they can legitimately support. A common trend in such areas is a constant stream of new restaurants opening while the weakest existing establishments close in their wake.
Operating a successful restaurant requires more than just cooking good food. Cooking is the easy part. Long-term success requires effectively managing costs, always meeting or exceeding customer expectations, and dealing with the competition in a saturated market. Get those things right and you just might succeed. Get even one of them wrong and you could be looking at closing your doors within a year.