Food CostsLabor CostsRestaurant Operations

Reasons Why Restaurant Fail

Reasons Why Restaurant Fail

I have been in the corporate restaurant business for over 20 + years. Corporate restaurants do have working systems. As long as management follows through on closed-restaurant-why-restaurants-failexecuting those policies and procedures consistently, the restaurant will succeed.

About one in four restaurants close or change ownership within their first year of business. Over three years, that number rises to three in five.

While a 60%, failure rate may still sound high, that is on par with the cross-industry average for new businesses, according to statistics from the Small Business Administration and the Bureau of Labor Statistics.

The most important point is that your business needs to be better than the person next door. Word of mouth is the number one way to advertise, and best of all it is free advertisement.

Too many restaurant owners do not have a working system in place such as:

  • Labor and food cost control
  • A Training Program 
  • Systems and Procedures

Well trained managers who consistently follow procedures, give direction and do follow ups

These are just a few working systems that successful restaurants need to prosper. Statistically the cost of a restaurant’s food and labor should not exceed 60% of their sales.

Labor and food cost control

What is Labor cost? The cost of labor is the sum of wages, benefits, and payroll taxes. If you pay too much then you lose money. If you pay too little, then you lose employees. You have to have the right balance based on your sales. Sales include all your food sales, including beverages.

The formula: cost of labor/total sales (x 100%)

For example if you sell $5000 in a day, and spend $1400 in labor for that day, your labor percent would be 1400/5000 = 0.28 (.28*100%=28%)

The labor percent for restaurants should be from 25% – 35%. This percentage depends on your restaurant style and mix of sales. Fast food restaurants may have labor costs as low as 25%. Restaurants with table service may have 30% – 35% labor costs.

Food costs

Food cost is the percentage of total restaurant sales spent on food products. So this means you need to keep track of your food inventory and how much you paid the vendors for that food. This varies based on what type of food you sell, the costs of food in your area, and how much you buy locally. Food cost is typically in the range of 28% to 30%. A steakhouse will have a higher food cost—30% or higher. You must accurately track your inventory and food costs to determine the total profits for the restaurant.

Training program

There are restaurants that fail every day in the industry because of poor training programs or no training. Training is a part of our lives from birth on. Sometimes training may be by examples, but for the food service industry, it needs to be much more than just an example. You need to make sure that your employee’s understand the importance of sanitation, food safety, portion control, cooking temperatures, storage temperatures, and more. Your service staff needs to know the menu, the style of your restaurant, and the customers you serve. They need to know how to sell the menu—meaning up selling and suggestive selling. They need to know how to Wow the customers. They need a friendly demeanor, a positive attitude and a personality where they can focus on the guest’s needs. Employees do not typically walk into your restaurant with all these skills. They need to be developed and trained properly. They need to be shown the right way, time to practice their skills, and focused management to help them stay on track. The managers need to be well-trained in each area of the restaurant. The management also needs to know how to motivate staff. They should know what each employee should be focused on throughout each shift—what to do when it is busy, and what to do when it is slow.

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