26 – 9 Common Reasons why Restaurants Fail

Restaurant Podcast

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We look at the reasons why restaurants fail. Too many Restaurants close, but we aren’t talking about that kind of failure. We are talking about the Restaurant owner or chef who doesn’t have a Restaurant that is meeting the requirements of their personal plan. The ones who are:

  • They are working too many hours.
  • They aren’t making enough money.
  • They don’t spend enough time with their family.
  • They can’t take time out from the Restaurant for a holiday.

That isn’t good enough. Running a small business is hard and stressful, and running a Restaurant is one of the hardest and most stressful types of businesses. Let’s look at ways that can cause failure and how you can avoid failure and start being successful.

1. Cash flow, leases, understanding the P+L and the profitability hospitality metrics that you need to focus on.

2.  How to be objective about your Restaurant.  How can you use open and objective information about your restaurant to make it better.

3. Lack of innovation.  There are so many things that can be done in the Restaurant, POS systems, marketing, ingredients, Menu.  If you aren’t continually innovating, you will appear dated when compared to Restaurants uses the latest techniques and technologies.

4.  Fit out.  What is the ROI of the fit out?

5.  Poor marketing.

6.  No marketing.

7. Poor Culture.  Culture is a soft topic, it isn’t reported in the P+L, so a lot of the time it doesn’t get the attention that it deserves.  It impacts you, your team and your customers.

8.  Menu Engineering.  We look at some great Menu Engineering ideas and how it works in a real Restaurant, like www.noisyoyster.com.au, where the menu is costed, the wait staff know wait to recommend.

9.  Poor or no concept or Restaurant USP.

10. Burn out.  It is a really tough game.  It takes a toll.  What can you do to get the spark back and the passion that will shine through in bring the customers back in?

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Podcast transcript of episode 26: 9 Common Reasons why Restaurants Fail

 

James Eling: Hey, it’s James from Marketing4Restaurants and welcome to episode 26 of Secret Sauce, the restaurant marketing podcast. The nine most common reasons that restaurants fail.

James: Hello. Welcome back. Isn’t that a depressing topic? Restaurants failing. Now, we’re not talking about a restaurant closing the doors, although that happens way too often in out industry. What I’m talking about is a restaurant that is not meeting the personal goals for the restaurant owner. So, whether you’re front of house or a chef, you’re working these long hours in the restaurant and you’re just not meeting your personal goals. So, we’re going to go through the common reasons. I’m also going to talk about some of the things that you can do to turn that around.

Before we do that though, I want to talk about an interesting discussion that I had with a customer probably three or four days ago now. Zomato. Zomato in Australia, they’ve kind of pulled back quite a lot. I think they really only just have a sales team in Australia now. They’ve pulled out from a lot of countries, which is really quite sad because they took on, of course, Urbanspoon a long time ago. Which was a great brand, quite a popular review website regardless of what you think of review sites. Zomato bought them out. They hired a lot of people in Australia, as they did in a lot of other countries and dramatically increased their cash burn rate. They really desperately tried to come up with a business model that was going to make sense for them where they could make money out of the businesses that they bought, Urbanspoon, there was a lot of others that they bought. They’re actually quite strong in India as far as I know. But in Australia they’ve really pulled back, I think they’ve sacked a lot of people. They’ve really just got sales people who go running around now trying to sell these packages of effectively just banner ads I think it is. I’m not really sure what it is that they’re selling.

What I do know is a couple of things that I just want to talk to you all about. One thing that they’ll do is their pricing is very variable. So, they’ll have a look at your restaurant. I was talking to someone who works in a chain, quite successful, sorry it’s not a chain it’s a group of restaurants. So, you know, about probably 10 restaurants all up in the chain. Differently branded though. Zomato came out and spoke to them and was talking about a $10,000 marketing package for them. And quite rightly, the person said, “Well, you know, that’s never going to fly because you’ll never get a return on that.” And I think what happened was that they just thought, “These guys run a series of restaurants, they’ll have lots of marketing dollars. Let’s try and hit them up for what we can get out of them.” The conversation that I’m talking about though, that happened this week, was another restaurant owner who signed up two months ago to Zomato to get some more customers.

So, they’re going to run some banner ads on the Zomato website and probably in their app, as well. And we’re two months into that campaign now and she said that she had not got one customer from Zomato.

Now, these are the kinds of things that’s really quite scary. She’s paying $1,000 a month. And $1,000 a month is, that’s quite a lot of marketing budget. What would happen if you put that into Google AdWords? What would happen if you put that into Facebook marketing? I mean, that’s a $30 a day budget. That’s quite a large budget for you to be able to run. And truthfully, a lot of restaurants don’t run budgets that high because of the fact that those kind of campaigns can be really successful and they don’t need to be that high. So, very interesting to be spending, sorry not interesting, it’s really sad to see someone who’s spending that kind of money. And she is kind of freaking out because she has committed to a six-month contract with that and she said she already spent $2,000, got no customers from it. And my advice to her was, “You need to go back to Zomato, see if you can get out of the contract. They’re not providing any customers to you. you need to break that contract.”

I think with any marketing that you do, so this is not just about Zomato, if you don’t know what kind of results you’re going to get, if they can’t guarantee you any numbers then what you need to do is you need to try it out for a month. You know, you don’t want to be committing to some sort of six-month contract. I mean, that’s $6,000 that’s down the drain for her. And, you know, I mean how many businesses are there that can afford a spare $6,000, you know? There’s not too many businesses out there and, of course, it’s not the loss of the $6,000, it’s the opportunity costs. So, we’re in Melbourne, I think she was in Melbourne. Yeah, I think she was in Melbourne. It’s pretty cold here, so some of the restaurants are doing it pretty tough. She has completely missed out on that opportunity to have a $6,000 budget that could have gone on a marketing plan that would have had a much, much, much better chance of working. So, you know, my go-to strategy would have been a Facebook paid campaign, you know. She could have, there’s a lot of other things that she could have done that would have worked better than no result whatsoever. So, just really bear that in mind. I know what it’s like. You get pitched all the time by all of these people with all of these great ideas about how they’re going to help you, you know, bring customers in. You really need to be careful about what it is you sign up for. And be very, very wary of anyone who’s trying to lock you into a contract.

A lot of those times those contracts aren’t enforceable anyway, you know. If you complain, go on social media and say, “We’ve got this contract, we’re getting no return on it. What do we need to do to get out of it?” They then tend to back off because they don’t want to see other people, they don’t want to have other people see that you struggled with your contract and you haven’t had any result from it. So, just a little bit of advice there. Try and avoid the lock-in for the contract. Now, so we’ve got a whole, what I’ve been doing is I’ve been doing a lot of research and sitting down with the team talking to a lot of restaurant owners about the kind of things that make it difficult for them to run their business. And about the reasons why restaurants fail. So, I think it’s something that’s very important because there are so many people, I remember speaking to one person and she said that she hadn’t been out to another restaurant for two years because they couldn’t afford to do that. Now, she’s working really long hours, you know, 55 hours a week and she’s making so little money that she can’t even afford to take her family out to a restaurant. That’s wrong. You’ve got to view that as a failed restaurant. If you have got personal goals in place and the restaurant is not meeting those goals, then you need to do something about it. So, the number one reason that we see is cash flow. Now, I know what you’re thinking, “Wow, you know, what kind of Einstein thought that up.”

Common reason why restaurants fail #1: Cash flow, leases, understanding the P+L and the profitability hospitality metrics that you need to focus on

But I push that back to you. How many people are there who wait until they go to their accountant to find out if they’ve had a profitable quarter or, God forbid, a profitable year? How many people judge how well they’re doing by how much cash they’ve got in the bank, because they’re not actually managing their cash flow? They’re not actually planning the number of customers that they need to get in. You know, I always think work out how much cash you want to be making per week. Work out how many customers you need to drive that based on the amount of profit that you’re going to get out of that. And then if you’re not getting that you then know that you’ve got some levers that you can push or pull, some buttons you can push, some levers that you can pull to be able to change that up a bit. Too many people just say, “It’s quiet and we don’t have any cash flow.” Or, “We seem to be really busy, but we don’t have, there’s never enough cash left over at the end of the month.” They’re the things that you really need to start delving into. And we talked about it in the profitable hospitality podcast.

You know, inventory, are you managing the inventory? Costings, have you costed the menu? Wages, are you managing your wages? What’s the percentage of revenue that your wages bill is? Where can you make some differences there? Your business plan, does it stack up? Like financially what does the perfect night look like? How do you trade off the lack of profitability on a Tuesday night with the profitability on a Saturday night? I’ve spoken to restaurant owners who say, you know, “If we could only be as busy on a Saturday night as we were on a Tuesday night we’d be fine.” There is something dramatically wrong with their business plan when they’re thinking like that. Because very few restaurants are busy seven nights a week. Very, very, very few. And yet, they’re hoping to be that outlier, that top two percent of restaurants, you know. “Yeah, we’ll be full on a Tuesday night.” That’s crazy talk. Unless you’re planning aggressively to do that. Unless you’re sitting down and saying, “We’re going to be different, we’re going to drive and there are the 20 things that we’re going to do to drive people in on a Tuesday night.”

If your business plan requires you to be busy every night to be able to make the financial numbers stack up, then you’ve probably got something wrong and you need to dramatically change that. One of the things, and we talked about his before, you know, the Groupon spiral. The cash flow gets tight, so they decide to do a Groupon campaign and Groupon’s great for that injection of cash because, you know, you get paid up front and, of course, you know, not everyone’s going to redeem their coupon and, you know, some restaurants try and make it hard to redeem the coupon. And, of course, the smart thing to do with your Groupon campaign is to try and drive them to your Tuesday night, I mean, maybe that’s the tactic that you’re going to take. Groupon doesn’t like it, they like it to put as few limitations as possible. But too many people don’t really think too much about their Groupon campaigns and then end up in all sorts of trouble and end up going out of business. The lease, you know, are you in a, is your lease very expensive? Is it too expensive? Do you need to go back and talk to the landlord? What is it that you can do in there to be able to increase the cash flow in your business?

Equipment, you know, should you lease some equipment to be able to put some extra menu items on? There’s lot of things to think about there. But if you don’t understand your business you need to start learning about it. You need to be able to work out how the profit and loss works. You need to be able to understand the metrics, the KPIs that you need to be thinking about in your restaurant. That’s critical because then you’re going to have an idea that, you know, “We might be in trouble in a couple of weeks’ time because cash flow’s not going to be great.” It’s much, much, much better to know that next month is going to be really tough because, you know, it’s the depths of winter or there’s not a lot happening. It’s better to know that beforehand than after. Because after the fact, those days are gone, there’s nothing you can do about that.

Common reason why restaurants fail #2: How to be objective about your restaurant

The second one, and you know this is a really tough one but it happens all the time. Not being objective about your restaurant. And I know how tough that is because your restaurant is like your first-born child, it’s beautiful and it can do no wrong. Well, you know what, there are some restaurants that are just plain ugly and they do a lot of things wrong. And this is one of the things that we sort of struggle with, you know, people when they get a website done with us, you know, they’ll send in photos and you have to politely say, “Have you got anything a bit better? That food does not look that appealing. I probably wouldn’t want to eat that.” Or, the restaurant inside looks awful. Too many times, and I see this we do a bit of consulting on managing feedback and reviews and quite a lot you’ll see this where someone leaves a review on a website, or even if it’s in person or – because I’ve received this sometimes when I’ve given in person feedback. And it’s the start of a fight. Like, “Well, you know, our food is amazing.” “Okay, well, I’m just telling you what I’m seeing.” Or, “This person has left a review to say that they didn’t actually find it that amazing.”

A lot of people say that they have amazing food. Some restaurants do have amazing food but not a lot of them. You have to be really objective when you look at that. The voice of the customer is the voice of the customer and, at the end of the day, that’s who we work for. We work for our customers because they’re the ones with the money. They’re the ones who are going to give us the cash in return for food. We need that money to pay payroll to do all of those sort of things. So, if you’re not providing a great customer service experience, you need to be listening. Well, you need to be listening all of the time to that feedback, and you need to take it all on-board. It shouldn’t be a fight. It should be, “This customer…” And you know what, we all know what it’s like. It’s that review from one of your competitors, you know, have they put a dodgy review on one of the review sites just so people will look at your restaurant and go to theirs? You know, that happens all the time. Yup, it does. Get over it. Is it a legitimate piece of feedback that you can use to make the restaurant better? You know, are you a bit light on for well-trained staff front of house? Is the menu tired? Is the chef not up to scratch? Is it? Like, really ask that question. Ask and try and be as detached as possible. Is the menu any good? If I was here, what would I eat?

I always think that that’s a really interesting question because some people will say, you know, “You’ve got to try, you know, insert random dish here.” It’s amazing. And then you look at the menu and go, “That description is not going to get me to order that.” You know, there’s a better description about something else. You’re not helping the customer out by providing, by playing to their strengths. So, have a think about the kind of customer experience that you’re providing. The price. You know, where are you at with price? Is it too expensive? But, even better, is it too cheap? The menu, when was the last time you freshened the menu up? When did you last eat at your restaurant, and then go to a couple of your closest competitors and compare, and honestly compare. Is it better? If you have to choose one of these restaurants, where would you go? Because, you know, we like Indian restaurants, I’ve said that before, you know. And there’s a few Indian restaurants in our area. There’s a couple that we have tried once and won’t go back, because the food was really, really ordinary. And then there’s, we sort of float between three, just kind of depends on, there’s a couple of differences in the entrée menus really.

And so, sometimes we’ll order from one to another. Literally it just comes down to a couple of minor things in the menu. The food quality is average at best from the three of them, which is a bit sad. I’d really like some decent Indian. I’ll always say, I usually order a Vindaloo, “Make the Vindaloo as hot as possible.” And, you know what, it never is. And I know, I’ve been in to speak to a couple of them. They know me, “Yeah, yeah, you’re the guy from that place who always orders the really hot Vindaloo.” “Yeah, that’s me.” And it’s never really that hot. They go, you know, “Was it really hot?” “No, it wasn’t that hot.” They’re the little tiny things, and I give them that feedback, but it just kind of falls on deaf ears. And I think, I’m not sure why, and we’ve spoken about the quality of food. I know one of them has decreased the quality of their food because they’re trying to cut costs to avoid paying Menulog fees. Now, can sort of see where their strategy is going. So, just have a look at your restaurant and try and do it with, you know, get feedback from your friends. Well, maybe not from friends.

Sit down with customers, you know, “Honestly, if I could change two things about the restaurant, what would I have to do to make you come back more often?” I think that that’s a great question to ask, because you’re not saying, “Was the food okay? Did you have a good time?” Because a lot of people want to avoid an argument, or they want to avoid being – it can be uncomfortable to give people feedback. If you say, “What are the two things that I can do to improve your experience?” automatically, “Well, you know what, I think the prices is a bit high. I didn’t like that entrée.” Or, “I would try and, you know, if the waitress was a little bit friendlier.” You’ve given them permission to tell you two things that you need to fix. And so, I think that that’s a really good way of doing it. Now, this kind of leads on to the third thing that I think is really interesting. And it’s particularly common in restaurants that have been around for a very long time.

Common reason why restaurants fail #3: Lack of innovation

So, a restaurant that’s been there for 20 years and it’s had the same owner for 20 years. A lack of innovation. There are a lot of things that are happening in the restaurant industry. So, you’ve got POS systems, you’ve got innovation in the ingredients that you can use, a lot of fragmentation, you know. Are you going to go down the pre-prepared route and make it easier to cook in the kitchen? Are you going to go organic? Are you going to go vegetarian? Accounting systems, you know, cloud based accounting systems. Purchasing systems that are electronic. Monitoring of temperatures within the kitchen. 101 things that you can do to innovate to make things a little bit differently, you know. Marketing, my God, how much difference is there in marketing in the last five years? It’s made a huge difference and yet, a lot of people say, “Well, you know what, we’ve been here for 20 years. And this is how we run our business.” And you say, “Well, you know, how has it been over the last 3 years?” “Well, interestingly enough, it seems to have gone down a little bit, but that’s the economy.”

A lot of the time it’s not the economy, and you need to understand that. It’s the fact that there are people who are being progressive. Some of the most dangerous people I find in the restaurant industry are the people who are new to the restaurant industry and smart. Now, there’s a lot of people who are new to the restaurant industry and not overly smart, and they’re the ones who make all of the classic mistakes and they’re the ones who go out of business after six months. But there are some people who have run businesses in other industries and they say, “You know what, I’d like to run a restaurant. I’m going to have a crack at it.” And they’re the ones who come in and they’re looking for the way that things are done today. So, they’re looking for the best practices, they’re the ones who pick those up. And their menu is innovative, their processes are innovative, the way that they train their staff is innovative, the way that they hire is innovative.

All of the ways that they operate their business is innovative and it gives them a lot of little tiny one and two percent advantages over their competitors, and they can be really, really powerful when they all add up. What is there that you could do differently in your restaurant? And you don’t need to be a rocket scientist to do this. You can just go and steal the idea from one of your competitors. That’s a practice that’s been going on for hundreds if not thousands of years within business owners. “Wow, that’s an interesting menu item that seems to be selling really well. Wow, that’s an interesting way of hiring staff. That’s an interesting way of doing your accounting,” you know. How many other restaurant owners do you know that you could talk to? And I think that this is one of the things that restaurant owners don’t do. They always think that the other restaurant owners are the enemy, they’re the competitors. You don’t want to talk with them, you don’t want to share any information with them. I think it’s the exact opposite. Your main enemy is people sitting at home eating, you know, cooking their own food, or the supermarkets cooking the food up for them. That’s the real enemy. Talk to other restaurant owners, find out what it is that they’re doing. Find out the changes that they’re making in their business and think about it. “How would that work in my business?” There are too many people who are running a business that was really successful 20 years ago.

I went to a Chinese restaurant 18 months ago because it was our go to Chinese restaurant when I was like a teenager, you know, and in my 20s. And we thought, “Let’s go there, let’s go and have a look.” And it was kind of weird, because it was exactly as we remembered it and it was like, “Wow.” It just didn’t gel, because time has moved on. The way that you expect service to be was different. The menu was just old and dated. Everything was just, the décor was old and dated, you know. I don’t think anyone objectively looked at the fit out of that restaurant, at the way that it looked, you know. And we’re not talking, they didn’t need to a whole lot. They just needed to make a few little differences, but no. It was really quite ordinary, and we probably won’t go back there probably ever. Because it was just, “Wow.” Nothing has changed there, it’s an experience from 20 years ago. And that’s really not what we’re after.

Common reason why restaurants fail #4: Fit out: What is the ROI of the fit out?

Now, next one, and that leads on quite nicely into fit out. My question for you is what is the return on investment for fit out? Because if you spent $1,000 on Facebook, you would get a return. How do you clearly quantify what the return is if you spend $300,000 on fit out? Now, I know fit out is this big thing that we talk about, you know, it’s the tables, it’s the chairs. Yes, you’ve got to have tables and chairs. It’s all of the equipment in the kitchen. Yup, you’ve got to have, you know, fridges and stoves and burners and all of those sort of things, you’ve got to have all of that sort of stuff. But there are so many people who spend a fortune, an absolute fortune on making the dining area look completely retro, or super modern, or, you know, just the way that they imagined it the morning that they woke up and thought, “You know what, it’d be awesome to run a restaurant.” But my question is how many people actually go to the restaurant because of the fit out? I would have thought very few.

Fit out is one of those things that it’s a little nice to have a lot of the time. The big problem I see is that people say, “You know what, I’m going to spend $150,000 on fit out.” If you’re planning on spending $150,000 on fit out, you need to double it and you need to budget for $300,000 on fit out. Because what invariably happens is that people go and spend all of that money on fit out, then there’s the usual costs overruns. And, like, don’t feel bad about it, just plan for it. We moved into new offices, we planned on $90,000 for the move. That was our budget and it cost us $170,000, so it was almost double. Just in all of the other bits and pieces, you know, having to get electricians to come back because they did the wrong thing the first time. All of the things that we didn’t think about. And we spent quite a bit of time planning it. Don’t feel bad, it happens all the time. But what you got to do is you got to plan for it.

Now, we had a contingency plan, you know, “This is what we’re going to do with the overruns.” There were some things that we cut out of the plan because that was part of the contingency. “This is a nice to have, but we’re not going to have it if we go over the budget.” We went over the budget, so we didn’t have it. How do you control those costs? Because the biggest thing is, when you open that restaurant you need a marketing budget. And a lot of people they go, “Well, we spent every last dollar, we now need to get the people in.” “How do you get the people in without the marketing?” “I don’t know, but we just spent all this money on fit out. Shouldn’t the people come in then?” They’ve gone and borrowed, they’re paying that back over an extended period of time. That is hurting them every month. They’ve got this ball and chain around their leg that slows them up. So, it’s a really big thing to think about.

If you’re in that situation where you’re going to be planning on doing a fit out, try and do the fit out as minimally as possible, because I just don’t think that it’s an area that people really get the kind of return on investment that they think. I think a lot of fit out is done for the actual restaurant owner. “This is my restaurant. It’s awesome.” I have had meals that I’ve thought have been awesome that have been in fairly ordinary surroundings, but it was the combination of amazing food and/or amazing service that created that experience. And I’ve been to places where there’s been massive fit out and you think, “It’s nice,” but doesn’t really resonate when you look at the food, you look at the price that you’re paying for that food. You know, you’re going to make your customers pay for the fit out. And unless the fit out is going to be something where they’re going to want to come back to, is that really fair? They’re going to think that the value of that experience is not as good because you’re tacking on a proportion of your food costs to pay for the fit out when they might have been happier with something that didn’t look quite as fancy. The food was a little bit cheaper, creates a much better experience for them, creates that value. That’s what you’re trying to get.

Common reason why restaurants fail #5: Poor marketing

Now, number five, poor marketing. I think that marketing is really something that a lot of restaurant owners sort of struggle with. You need to have a bit of a science and a bit of skill, a bit of learning around marketing. Because there’s a lot of people out there who are running average restaurants that are killing it. They’ve got queues out the door. And you look at the food and you think, “It’s not that great.” You look at the prices, it’s really expensive. But everyone seems to be going there and it’s because they’ve created a unique selling proposition, they’ve created that buzz, they’ve created the menu items and they’re pushing it out on Facebook, they’re pushing it. They’ve done all of this out, they’re doing all of the things that you need to do to make a successful business.

And they are much more marketing centric than they are food or service centric. And then they’ve got the poor old guy up the road who isn’t focusing on the marketing but is focusing on the food and providing an awesome service, and they’re the ones with half as many customers. And you have to wonder why. You don’t want to have the best restaurant that no one’s ever heard of. You don’t need to be a rocket scientist. Just listen to some of our old podcasts, you know, there’s plenty of ideas in there. You can do an emergency Facebook campaign. We get this question all the time, you know, “It’s really tough. I’m short of cash, I’m really struggling. What should I do?” Emergency Facebook campaign. In fact, I’m going to write that one down. We go through a series of steps to help restaurant owners who are just looking to get some cash in the door. Rather than go out and do a crazy Groupon campaign, what I might do is I’ll come up with a template for an emergency Facebook marketing campaign. Because when I say Facebook campaign, I’m talking $50, $100. We’re not talking a lot of money. But we’re talking the ability to create a significant amount of interest in your restaurant, you know, to really get, you know, that extra $1,000, $2,000 in the door that you need to. And that’s eminently doable. We’re not talking crazy talk there, that is easily doable. I might actually do this one next because I reckon that would probably be something that people would be really, really interested in.

Common reason why restaurants fail # 6: No marketing

Now, mistake number six, no marketing. Alright, I know what you’re saying, I’ve doubled up. Poor marketing and no marketing. I think there is a psychological thing in a lot of restaurant owner’s minds that the food that they create is absolutely amazing, and that everyone is going to go out and they’re going to tell everyone that they know about how good the restaurant is. And you do marketing because your food is not good enough to inspire people to tell your story. That is what I think some restaurant owners think. Now, the sad reality of it is is that we all operate in a competitive environment, and that means that there’ll be some people out there whose food might not be as good as yours who will be marketing relentlessly. And they’re going to be getting in front of people, and the people are going to be going there. And there’ll be people who potentially could love your restaurant, but will never hear about it because you just don’t get the number of people in to be able to create that buzz, to be able to create that hype. To be able to build a successful restaurant business.

I look at people and you say, you know, “What is it that you’re doing to get the word out?” “Well, we’ve got a classically trained Italian chef, or a French chef. You know, look at the menu. Come in and taste my food.” If no one’s coming in you’ve got to understand, you’ve got to give people a reason to come in and if no one’s ever head of your restaurant, they don’t have a reason to come in to your restaurant. You really need to understand that, because it’s a very, very competitive environment. And if you’re, now, some people do this but they’re like half a percent who are able to get all of those things right without actually putting a lot of thought into it. You know, I have seen some people who’ve got a really aggressive marketing plan but they don’t actually do traditional marketing, you know.

They’re doing a lot of other things, but there’s very few people who just, “I’m going to start a restaurant. We’re going to cook really good food.” And that’s enough for them. Most of those guys really struggle. It’s not an admission that your food’s no good, it’s not an admission that the service is awful. It’s just the fact of life these days. There’s plenty of places that people can go to eat. There’s a huge amount of competition, there’s more restaurants than people need. So, you’ve got to be fighting for every single dollar that you can get in. You need to be thinking about the marketing. One of the other things that I think, and this is, you know, one of these soul-searching things. You talk to a restaurant owner and he says, “You know, it’s really tough.” “Okay, well, you know, what would you like us to do?” And they say, “Well, can you help me?” “Yup,” and you go through and you have a look at the marketing that they’re doing. And you lay out on the line what the problems are, and then you come up with some solutions. And, you know, sometimes their solutions, they’re very simple that they can do themselves. And they go, “Yup, thank you.” And then you follow up with them in two or three weeks’ time and they go, “No, we haven’t done that. No, we haven’t done that.” And the interesting thing is I think, you know, there’s a third of restaurant owners out there who are really, really keen to grow their businesses really aggressively. There’s a third of restaurant owners who don’t want to grow their business and then there’s another third who don’t know that they don’t want to grow their business. We see it all the time. If you’re not going to make a change, what’s going to change. It’s your business you need to be thinking about this.

Common reason why restaurants fail #7: Poor culture

Now, number seven, poor culture. I think culture leads into, you know, culture in hospitality it’s a service industry. You’ve got to be looking after your customers. And you’re not going to be able to look after every single customer. So, you got to look at the culture. Hire well, build a team well, delegate well. We’ve talked about a lot of people who do that. But I think that, because culture is one of those soft topics, it’s one of those things that doesn’t really get talked about. And you can’t say, “I’ve got a high performing culture and it brings in an extra $75,000 a year.” Or, “The culture in our restaurant’s awful and it actually costs us $125,000.” If you went to your accountant at the end of the year and he said, “You know what, I’ve just run the numbers and your culture is costing you $125,000,” you’d be like, “What? What do I need to do to fix the culture? I’m going to fic the culture, I’m going to have an awesome culture. And I’ll be $125,000 better off.” Now, you know and for a lot of restaurant owners there won’t be $125,000, well, they won’t lose money. They’re probably losing $60,000, they could be making $60,000.

Culture can make that much of a difference, because culture is alignment, culture is making sure that everyone who comes to work is there to do the kind of things that you want them to know. How many of you servers should be going for the upsell but don’t because there’s no incentive for them to go for that upsell? Now, I know in some places like in the United States, you know, where you’ve got a tipping culture, it tends to be a little bit more easy to get that alignment I think. Because people’s needs are more closely aligned, the restaurant owner makes more money when the servers sell more food and drink. And the servers going to get a tip that’s proportional to the final bill. So, you know, it’s in their best interest to do that. But even then, you can see some people who miss out on that really, really obvious upsell opportunity. What do you do to train the staff? And how do you go about that to monitor and reward those who are doing what it is? You know, it’s just a little thing but it can make a big difference.

Common reason why restaurants fail #8: Menu engineering

Menu engineering, hurray, one of my favourite topics. What are the items on your menu that you make the most money out of? What are the items on your menu that should be working their butt off to get new customers in? what are the sales people on your menu? If it’s a Chinese restaurant it might be the Peking duck and you’ll have a signature photo of the Peking duck with the hoisin sauce and the steam coming off it. What are the things that are going to draw people in? Have you costed it out? Too many people don’t do this and it makes it so much more difficult. Because, you know, you talk about having a great culture.

Now, a classic example of this was Noisy Oyster Seafood in Charleston, South Carolina. So, I went in there and I was caught by the gator tails, that’s a Louisiana thing but that’s cool. I’ve never had gator tail and I thought, “That’s going to be awesome.” And so, I go in there, I have that as a starter and for an entrée I, now I think it was a baked seafood or, I vaguely remember it being something like that. Now, that’s not something that I would normally get. But the waitress said, “You know what, the chef cooked this up for everyone before we started service tonight and it was amazing. It was really, really good. Now, I’m not sure but I think it’s a pretty well-run place. I reckon that’s probably one of their high margin items and I reckon that’s why the chef cooked it up so that everyone front of house could be on the same song book and be saying, you know, “This is what we had tonight.” I mean that’s an easy sell. “This is what we had tonight and it was awesome. So, if you’re not too sure, I would try that. I did and it was amazing.” Now, that all it takes to be able to do that. But there’s some things that you’ve got to be able to do to.

One, like I want there because of the gator tails. So, you know, it’s a bit of a touristy thing but that’s what got me in. Now, I don’t know whether they make money on gator tails or not, potentially they don’t. But then they’ve gone, they’ve costed the menu out and because they’ve costed it, they’ve got something that they know that they can driving, getting their front of house team to drive towards. Simple. They’re the kind of things that you want to be thinking about.

Common reason why restaurants fail #9: Poor or no concept or restaurant USP (unique spelling proposition)

Number nine, a lot of people talk about just having a poor concept, or no concept. So, no real marketing plan. No unique selling proposition. And they’re the kind of things that you need to be thinking about in your restaurant. Why does your restaurant exist? Now, if it’s going to be just another Indian restaurant you need to ask yourself the question, and you might be in a small town where there are no Indian restaurants. There might be, you know, three or four Indian restaurants but they might be packed all of the time. People might be getting turned away. That’s some pretty valid reasons for opening an Indian restaurant up. But a lot of the times I see people opening up a new Indian restaurant when there’s always three, and there’s already, you know, and two of those are struggling. You know, it doesn’t sound like there’s a huge amount of demand for Indian restaurants. And you’re going to go from three Indian restaurants which are, you know, fairly similar, to four. Now, how successful do you think you’re going to be with that? Because I think you’re probably going to struggle. That’s not to say, and like I’m very, very mindful of the fact that a lot of people come to a new country and they struggle with the language and so it makes it very difficult to get a job.

And so, opening a restaurant is probably one of the easiest things for them to be able to do. So, I’m not saying don’t open an Indian restaurant or don’t open up a Thai restaurant, don’t open up a Chinese restaurant. What I’m saying is if you’re in that situation, what can you do to make yourself a little bit unique? Because I ask this question all the time of people, and this is a fundamental problem. You know, we just, I don’t want to pick on Indian restaurants, but, “We’re just an Indian restaurant. There is nothing on the menu that is very different. There is nothing that clearly differentiates us from any of our customers.” Now, this problem right here feeds into a lot of other things. So, there’s going to be no hero items on the menu. Your menu is not going to be working really hard because people aren’t going to go, “Wow, that’s what I really want to have and this is the only place I can get it. I’m going to have to go there.” There’s no unique selling proposition, there’s no reason for your restaurant to be. So, that means that like, why are people going to come and work there?

They’re literally coming there to have a job to pay their bills. If you can have something a little bit more meaningful, that makes it so much easier for you to be able to hire the right kind of person. And so, if you look at the work that Nick does, Nick creates a family restaurant, you know, he wants people to bring their families into Nick’s Pizza and Pub. So, it’s really clear what he’s trying to do. He’s started to hone in on his target market and the kind of experience that he wants them to have. And that’s why it feels homely, that’s why everyone’s super friendly. And so, this makes it easier for him to hire, it makes it easier, people are more motivated to come to work because they’re actually doing something higher than just, “Here’s your food, you know, what would you like? Do you want fries with that?”

The concept can be a really powerful tool to unify a lot of these things together. You know, things like fit out, innovation, the feedback, you know. And some of the people who’ve got really strong concepts, they’ll get feedback that’s really quite negative and they go, “You know what, that’s fine because they’re not our target customer.”

People don’t think about who their target customer is. They’re not guided by what it is that they’re doing by that target customer that they want to be thinking about. So, have a think about that. Could you clearly define what makes you different to everyone else? And if you say, “The food is better,” how can you really back that up? The food might be really great, but from a marketing point of view how do you say that? Because, you know what, there’s lots of restaurants out there who say they’ve got the best food. What is it that you do that makes it, and it will help with a lot of the other things.

Common reason why restaurants fail #10: Burn out

The last one, so number 10, people just get burnt out. And I see this all the time. And the worst-case scenario that you can find yourself in when you run a restaurant, I think, is being burnt out and running a restaurant that owes you money and doesn’t make enough money to be able to pay back that money. Vitality, they had that dream of creating this place where people could come along, they could eat, they could have a great time. They could do all of the things that were really important to them back in the day when they first opened up the restaurant, when they were wide eyes and excited with all of the potential and all of the excitement that they were going to have. And just day by day, crappy review after crappy review, bad employee after bad employee, and unprofitable month after unprofitable month. That spark in their eye just got that little bit dimmer, until the point where it’s burnt out and they’re left in a job that doesn’t pay enough in a business that’s not profitable that no one is going to want to buy. So, it’s very sad.

And when you find yourself in that situation, you’ve got to really do something about it. And I don’t know what that is, you know, you need to think about it. Is there a way that you can reignite your passion? Before I was doing this, I was running an IT company and we had a period for about three years where I just hated coming to work because the culture had got, I wasn’t paying attention to the culture and I’d let the culture slip a long way from where it should have been. Which meant that we had continual customer service issues and profitability was a drama and I didn’t like the people who were here, and then one day I thought, “You know what, this is my company. I’ve got to do something about this.” And so, we started firing people and we started saying, “No, that kind of behaviour’s not acceptable here,” and so people left.

And, you know, look, it took a long time and it wasn’t easy. It took years to do. But we turned it around and we got a really good team now, it’s really exciting. You know, people are excited to come to work, we have a lot more fun. And that’s what it’s got to be about. So, you know, and if you don’t think that you can do that, you know, have a talk to people. You know, find a mentor, talk to other people, talk to your support network. Maybe you just need to bite the bullet and get out. Maybe you just need to do that. And I think the mental cost of being in a business where you’re burnt out can be huge. And so, have a really good, hard think about it. I think one of the easiest ways to turn the ship around, when you’re in a situation like this, is just one little tiny thing at a time, you know. Start by listening to the feedback.

What are the big issues here? “What’s the number one issue? And I’m just going to tackle that. What’s the number two issue? Let’s try and tackle that.” And it might take a while but, you know, try and set yourself some goals. Because this is the way that you get out of a failing business. Work out why it’s failing and fix each of those problems one by one. And the sooner you make that decision to fix the business, the sooner you’re going to get out of it. And you don’t want to, like, the number of times we get a phone call from someone, “You know, I’ve got no customers.” It’s like, “Okay, so what do you do? What are we going to do?” And you talk to them, you come up with an action plan and they go, “Yup, yup, yup this is really exciting. It’s good.” And you can tell they’re fired up, they’ve got some new ideas, they’ve got some new plans. They’re going to have a play around with the menu, they’re going to have a play around with Facebook, you know, they’re excited. They’re fired up. And then, six weeks later they close. Because they got fired up, they got a bit of fire in their belly too late. And, you know, you don’t want to think, “Yes, I can turn this around,” only to find out that you’ve taken action too late. So, hopefully that’s not you.

Hopefully there’s only one or two little tiny things that you can take out of this one and think, “You know what, I need to be doing a little bit better in that and then, you know, we’ll be running an awesome, awesome restaurant.” Hopefully that’s you. if you know someone who’s like that, and I hope you got something out of this one, tag them in it. Once again, if you are getting something out of it, please, please, please leave a review on iTunes. It really helps us get the word out and it’s exciting, because every month we’re seeing more and more people downloading the podcast. And every month we’re getting more and more emails specifically from people who are listening to the podcast, and we love getting those. As soon as I finish this one, I’m going to be replying back to a restaurant owner in the UK in London who said, you know, “Thanks for the great work with the podcasts.

Do you mind having a look at the website and giving me a few ideas?” That’s really exciting, we love doing that, we love hearing from people all around the world about how the podcast has helped them. So, emergency Facebook marketing campaigns, I think I’ll probably do that one next. That’d be an easy one to do because we do them all the time for restaurant owners. So, that’s a nice simple one. I’ve made an executive decision; emergency Facebook campaigns should be coming out in about a week. If you’ve got ideas for podcasts that you would like to hear then let us know. I’m in the process of reaching out to a few people that I’d like to have on as guests to talk about some areas to bring a little bit more expertise. So, we’re pretty strong with the marketing, there’s a few other bits and pieces that I think it’d be well worth talking to some people about to help you run a better restaurant. So, that’s it for today. Hopefully you have a really busy today and I’ll see you on the next podcast. Bye.

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  • chefjas

    Hey Mate!
    Had a great time in Chi-town bro.Let’s do it again. I LOVED this episode and am sharing with a couple clients. I have one who just can’t seem to get past the “culture” issue.He complains staff sucks and that nothing will motivate them. In addition, he can’t find people.I offer solutions and he shoots them down, one by one. Sad, I want to share something with you and get your feedback. I’ll hit you soon.
    Cheers!
    James

    • Gerald Richards

      Perhaps you are giving him the ideas, rather than him coming up with the ideas. Often what happens is that when you give people ideas it can be seen as telling them what they should do. On principle some people reject this. Also, when you tell people what to do there is no commitment on their part to agree or follow it through. Am a big believer in the Socratic method of learning, whereby one acknowledges that the other person has the information it’s just a question of teasing it out of them. The hypothetical question is great for achieving this. For example, “If you were to have motivated staff how would you know that they were motivated?” and/or “if you were to have motivated staff what would you have to do to bring that about?”
      Open questions may help, such as “What is your definition of motivated staff?” And/or “What action or behaviour would you want to observe to indicate that staff are motivated?”

  • Gerald Richards

    Some very useful tips and advice. One of the “takeaways” for me was the importance of the financials and menu costings as well as a “hero” item on the menu. It’s amazing how many people open a restaurant (or retail shop) then expect customers to magically turn up. One should learn from the Big Boys like McDonald’s and Bunnings. Everyone has heard of them, but they still aggressively promote.
    Perhaps one of your podcasts could be on LAN – Local Area Marketing

  • Ronnie Lottz

    sooo glad I found you,,you get it 🙂 https://www.youtube.com/watch?v=lE7Kelc5rIE