You’ve probably heard the cautionary tale, ‘90% of restaurants fail within the first year’ – this isn’t exactly true.
In reality, it’s more likely 30% (according to the National Restaurant Association), meaning one in three restaurants will fail within their first year of operations.
Having an understanding of why restaurants fail can be crucial to helping secure a successful future. It can help you avoid common pitfalls, and it can also aid you in identifying red flags to turn around a failing restaurant. Keep reading to find tips and tools to save a failing restaurant.
Reasons Why Restaurants Fail
According to Alignable’s Small Business Report (released in summer 2022), 47% of small business owners say they’re in jeopardy of closing by the fall. In early 2020, Restaurants Canada reported that eight out of 10 restaurants are either losing money or barely scraping by. While COVID-19 dealt the industry a blow, there are several restaurant pitfalls in your control that you need to be wary of to understand why restaurants fail.
1. Your Food Just Isn’t Hitting the Spot – and neither is your service
It might seem like an obvious cause for a restaurant to fail; nevertheless, food can sometimes be overlooked when there are so many other factors on your plate (so to speak).
Is your back-of-house staff the right fit for your cuisine?
Ensure the food you are putting out meets your (and your diners’) standard of quality by spot-checking or testing dishes as they leave the pass.
Aside from subpar quality food, your restaurant may be failing because you’re not offering a menu that fits your clientele.
Does your menu make sense for the area in which you’re located?
Consider the makeup of your menu. Is it possible that your menu has too many offerings, making it difficult for your staff to execute and for customers to understand your brand?
Lastly, your front-of-house staff is the face of your business. Put your best foot (or face) forward by hiring energetic, passionate staff.
Your staff should be able to answer customer questions with confidence and guarantee a positive dining experience that will lead to favorable customer reviews.
Read: How to Improve Restaurant Employee Retention
2. Your Marketing Isn’t Up To Par
You want customers to feel engaged with your restaurant, and marketing tools are a way to achieve this.
Employing a CRM system allows you to retain a connection with your client base. A restaurant without a digital footprint is one at risk of failing. Simple marketing techniques can have a significant impact on your business, and oftentimes can be acted on at a low cost.
With an online presence, which includes social media (like Instagram), or a Google Business Listing you may attract new customers and provide them with relevant information (like hours or a menu).
3. You Are Not Meeting Customer Needs
During the pandemic, online delivery was a lifeline for most restaurants. According to Statista, the Canadian food delivery market is set to reach US$9.95 billion by 2026, while the US market is expected to reach US$96.37 billion.
If you’re not leveraging your own branded mobile app, you’re missing out on potential revenue.
Additionally, customers are continually seeking out information about local restaurants using their phones, if your business does not have a mobile-friendly website (or any website for that matter), your restaurant is at a disadvantage.
Tips on How to Save a Failing Restaurant
If any of the above reasons why a restaurant may be struggling seem familiar, or perhaps you can identify one or more of these common operational pitfalls in your own business, you’re most likely seeking out help to save a failing restaurant.
Never fear – we have easy-to-implement tips and advice to help a struggling business.
Adapt Your Business Model
If there’s one thing we learned from the pandemic, it’s the importance of remaining agile and pivoting as needed.
If you’re finding your current business model is struggling, it’s time to explore other options.
For instance, you may wish to assess the possibility of operating under a ghost kitchen or partnering with a third-party service to carry out one.
Without a dine-in area, a business can cut down on costs. Open your restaurant up to other revenue streams as many did during COVID lockdowns. If you’re known for your hot sauce, you might think about bottling it and selling it as an additional source of income.
Adjust Your Menu and Hours for Cost Control
Is your restaurant open during hours with little foot traffic?
Or are you closed during a time that sees heavy crowds?
Conduct an audit of your labor costs and review your open hours. Your restaurant may be failing because your costs are not aligned with your revenue.
You might be spending too much on food costs where there is a low return on investment. Are there low-margin items on your menu that can be removed for a more seamless experience?
Or are there ways to adjust your current offerings, opting for less pricey ingredients or revising them as higher-margin dishes?
What items on your menu are unpopular and are they a waste of resources or time?
You might want to think about taking them off the menu as well.
A staggering 97% of restaurant operators said they made some changes to their business to survive the COVID-19 pandemic. These changes included: streamlined menus (54%), hour alterations (70%), and increased social media use (51%).
51% added new technology, like Smooth Commerce, into their business. While the foodservice and hospitality landscape has been irreversibly changed in the last few years, arming yourself with the expertise, tools, and resources is key in taking a failing restaurant or struggling business from surviving to thriving.
Have a Seamless Online Ordering/Delivery System
Having a seamless online delivery system can open you up to a new customer base, help you retain current customers, and act as a new revenue stream. A Deloitte study found that “61% of consumers order takeout or delivery at least once per week, up from 29% one year ago and 18% prior to the pandemic.”
Having a digital ordering, customer marketing, and loyalty platform for restaurants like Smooth, allows you to take ordering to the next level with personalized customer engagement, making your digital storefront the cornerstone of your brand.
Having your own branded web and mobile ordering platform puts you back in control of the customer’s experience with your brand to promote profitable sales growth. In fact, Smooth Commerce clients who are using their own branded direct ordering platform reported a 13% average increase in basket size which helps your bottom line grow.
Implement a Loyalty Program
It’s Business 101 that it costs less to retain existing customers than it does to sell to a new one. This is a major reason to utilize a loyalty program.
Loyalty programs can help attract new customers, but they also contribute to driving sustainable growth. Data shows that loyalty leaders grow revenues roughly 2.5 times faster than their industry peers.
According to National Restaurant News, 45% of consumers say that a restaurant offering mobile ordering or a loyalty program would encourage them to order more often.
Do your research on what type of loyalty program would work best for your business; whether that be points per dollar or tier-based loyalty. On top of the growth potential, loyalty programs can also provide you with consumer data which could be used to better connect and target your customers, or valuable customer feedback to better a struggling restaurant.
About Smooth Commerce:
Smooth Commerce is an all-in-one digital commerce and customer marketing platform for restaurants that combines online and mobile ordering, delivery, loyalty, and powerful marketing tools to help you grow your business, while giving you access to your customer data to help grow your restaurant.
If you would like to learn more or talk to a representative from Smooth Commerce about how our platform can help you meet your loyalty goals, contact us at learnmore@smooth.tech.
