According to industry statistics, about 95% of new restaurants fail within the first year. Of those that remain (only 5 out of 100), another 60% fail within the first three years. This means that for every 100 new restaurants that open, only 3-4 of them will survive for three years. The reason so many new restaurants fail (despite the passion, commitment, and financial backing of otherwise very capable people), is because of one simple fact: restaurants are complicated. This article is meant to be a brief overview of the components that are involved in opening a successful restaurant, based upon my own experience.
The first consideration is partnership. As an owner and a partner, you can not put your needs over and above the needs of your guests. That is a recipe for disaster, and it is not the meaning of hospitality. Hospitality is always about them, and it’s never about you. If you open a restaurant with the wrong partners, all sorts of internal abuses can take place.
Namely, bad restaurant partners will come into the restaurant and demand that their needs and special requirements be met, to the detriment of the dining experience of paying guests. Bad partners also often want to eat, drink, and party for free (with all of their friends), without thinking about the financial impact that this has on all of the other partners and effect this has on morale for staff on the ground.
They will demand tables and bar seats, when a paying customer has already been promised that seat. Bad partners will even demand that their own “special guests” be served outside the normal capacity or procedure for the business. For example, they might demand that a very large group (of 40+ people) be allowed to order off the regular menu on a Saturday night at 8:00 o’clock, when doing so will cause all other guests to see a 1-hour delay in their dining experience.
Bad partners can also create financial and legal problems for the business. If a partner is overly aggressive with female staff members, for example, that is no longer just a matter of ethics and social courtesy, that is a matter of law: abuse of power and abuse of position.
Inexperienced partners will also demand that changes take place in the business that have nothing to do with running a successful restaurant. For example, demanding that a particular drink be served in particular kind of glass, when the practicality of doing so would involve logistical and financial difficulties on the ground. Good partnerships have controls in place such that these kinds of abuses can not (or should not) take place.
Real Estate and Commercial Leases
The second consideration is real estate and commercial leases. It has often been said, “Location, location, location.” These are the three most important decisions you need to make when opening a new business. Most restaurateurs have little to no experience in selecting, assessing, or buying commercial real estate. They have zero experience negotiating commercial leases. They have no understanding of zoning law, building codes, neighborhood associations, and so forth.
Because of all this, many restaurateurs think they have found “an amazing location” when in fact because of some secondary consideration, that location can’t be used for what they want to do. Or, as is often the case, they agree to a lease which has terms that eliminate the possibility of making great money.
The third major consideration is choosing the right concept. When you’re assessing a location for your new venture, don’t make the mistake of just “doing something you believe in.” Passion is incredibly important. However, you also have to consider the wider context in which your restaurant is going to be opening. You’re in a city which probably has a lot of clubs, bars, coffee shops, and restaurants already. You should assess the restaurant market you’re getting into and look for a hole in that market. If all you know how to do is Italian, then look for a neighborhood that doesn’t have Italian. If you’re capable of doing any number of restaurant concepts and already have a location in mind, then choose a concept which fills a gap in the market.
Before we get into the rest of these basic restaurant ideas, let me note that we are now getting into the nitty gritty of what guests care about in terms of restaurant experience: aesthetics, food, drink, service, cleanliness, and so on. These are what really what make a restaurant tick, once you have good partners, a great location, and the right concept.
The fourth consideration is aesthetics: interior design and architecture. There are many guests who will dine in a place which has mediocre food and service, just because the architecture, art, furniture, and fixtures are incredible. In other words, they love the vibes. They want to sit in a beautiful room with their friends for a while. The importance of a well-designed, well-renovated, and well-decorated restaurant can not be understated. A poorly designed and decorated restaurant can drive away business. The look and feel of a building, however, are not the core-competency of a restaurant. The core-competency is hospitality, food, and beverage, which we will cover in a moment.
Service and Human Resources
The fifth major consideration is service-style and human resources. How do you find the right kind of people, teach them the right stuff, constantly improve them, and then retain those people you’ve trained? This is incredibly important. Do you have the management skills and human resources skills to do this? Most people, even if they have all the other bases covered, do not have the interpersonal or professional skills needed to make this happen. Further, do you know how to create a great working environment and a cohesive team?
If you’re confident you can do all the above things, do you understand the different levels of expectations that come along with lower and higher price tags? Every level of dining has its own sets of expectations in terms of service and knowledge. If you set the bar too high, you’re wasting time, energy, and money. Your guests will complain that your service-process is overly complicated, slow, and too formal.
If you set the bar too low, you will constantly be receiving negative feedback from your guests that your staff is rushing them out the door, too casual, and that they don’t know enough about your wine list, drinks, food, etc. Luxury fine dining and fast casual (and everything in-between) have different sets of priorities, needs, and expectations. This is a balancing act which you need to understand.
Food and Beverage
The sixth major consideration is food and beverage. Besides the location, this is the most important factor in the creation of a great restaurant. People will forgive almost everything besides bad food and (to a lesser degree) bad drinks. In my own way of thinking, the internal workings of a food and drink operation can be boiled down to a pyramid of four priorities:
Clean & Safe.
Organized & Efficient.
Beautiful & Delicious.
First thing’s first - do you understand food safety? You kitchen and bar need to meet all the standards of what makes food safe to consume. Your operation needs to be clean, from top to bottom. No guest wants to eat things (no matter delicious they might be) that are being produced in a disgusting, unsafe cooking environment.
Secondly, things need to be organized and efficient. Because a restaurant intends to produce incredible, consistent food and drinks for a lot of people quickly, systems must be put in place to ensure that this can actually be accomplished. Every tool must have a place. Every dish must have a recipe. All food and drink items must be made using the same procedure.
There must be a home for every bag of flour, every bottle of olive oil, and every jar of honey. Everything should be labelled. With this organization in place, order guides should be created so that pars can be kept for all items the restaurant must have in stock. As my father often says, “Real restaurants don’t run out of things”.
We have finally arrived at the section which you probably assumed this article was all about: delicious flavors and beautiful presentations! Even if you do everything else right up to this point, you can still fail because you don’t understand flavor. Understanding good food and drink is exceedingly difficult, because most assume that it is really all subjective opinion: some people like some things and other people like other things. While there is some truth to that, there are also common themes among great restaurants which we cannot ignore. For me, I see three things that are absolutely indispensable:
Great ingredients. Flavor comes from good farming and careful food processing. The best food can only be made from things that are grown and processed with care.
Great technique. The chef and bartender must know how to make a food taste more like itself, how to balance flavors, develop flavors, intensify flavors, and so forth. This is an incredibly diverse topic that is the subject of countless books and tv shows.
Great care and attention. The most well-conceived menu will not be good if those preparing it - right now, today - don’t care about the final product. It will lack the final touches and attention to detail that make a dining or drinking experience incredible.
When one of these factors is missing, the experience will - in all likelihood - be ‘just okay’ if not terrible. If you start off with twice frozen fish, use a cheap fry batter, and hire someone who doesn’t care what it looks like when it comes out of the kitchen to fry it, you’re going to have bad or mediocre food. If you hire a chef who cares and understands good technique, but force him to use the cheapest possible ingredients, the meal might be pretty good. It won’t be exceptional until you use the best ingredients you can find.
If you get lucky, from time-to-time a chef who doesn’t care and and isn’t paying attention still produces a great meal, because he is using great ingredients and good technique. However, you will see a lot of inconsistency from that chef: sometimes it's amazing and sometimes it is way off, because he doesn’t care or he isn’t paying attention.
Fourth, the top of the pyramid - in terms of food and drink - is meaning or purpose in a bigger context: is it the national dish of Poland, being served in a restaurant with Polish owners? Was it sourced from a family farm where ten generations have all grown this one obscure variety of heirloom broccoli? The larger context and story of the food is important to your guests. It provides them with something that is hard to quantify, but nonetheless attractive and marketable. Knowing the bigger picture makes your guest enjoy the experience more. It’s the difference between seeing a painting of a some woman in a museum, and seeing the same painting while knowing it’s the Mona Lisa: what you know changes the experience.
To work my pyramid in the opposite direction: no one cares how meaningful your food is if it isn’t delicious. No one cares if it’s meaningful and delicious if you’re disorganized, inconsistent, and inefficient about getting it to the table. No one cares that it's meaningful, delicious, and presented on-time if it’s being produced in a disgusting, unsafe environment. So, you have to start from the bottom: first clean & safe, then efficient, then delicious, and then meaningful.
Basic Restaurant Know-How
The seventh consideration is basic restaurant know-how. Do you or the people you have hired know what it takes - in terms of direct personal experience - to carry out the day-to-day operations of running a restaurant? There are established procedures and conventions in place within the industry to protect you from theft, waste, and abuse. If you don’t know what those are, you are starting with a major disadvantage.
Unfortunately, your staff - even if they are amazing people and don’t intend to do so - know how to steal from you and waste your resources without you finding out. By following certain procedures, it is also possible to stop the abuse of staff members by other staff members: for example, always having a manager make the schedule and make sections rather than having a server or bartender do this. If a server makes the schedule for another server who they don’t like, this will create obvious problems.
There are also considerations as to which type of marketing and public relations are most effective. Everyone is going to try to sell you their solution for staying top of mind. If you don’t already know what works and what doesn’t work, then - especially when you are struggling - you might be willing to spent money on absolutely anything that might help. Marketing and advertising agencies are aware of this and will take advantage of you. They make money by selling ads and other marketing tools, not by actually delivering customers.
The eighth major consideration is financial know-how. My great grandfather used to say, “I can run any business in the world - any business at all - and make no money.” This is the last and final piece of the puzzle. The incredible thing is this: even if you did absolutely everything else right, you can still fail if you don’t understand restaurant numbers. You can find great partners, get a perfect lease in a great location, pick the right concept, create an amazing team, offer the right kinds of products and hospitality experience, and be busy every night… and still make no money. In fact, you can be slammed from open-to-close and still go bankrupt. How is that possible?
Restaurants, generally speaking, have tight margins and tons of overhead. A restaurant's fixed and adjustable expenses are pretty astronomical. Many restaurants that have 1.2M dollars in gross sales a year are only breaking even. Which means, it doesn’t take that much of an error to end up just breaking even or actually losing money in the restaurant business. If you are a 1.2M restaurant which is breaking even and suddenly you need to buy a new 25k condenser unit for your walk-in cooler, then you’re going to find yourself in the red.
By understanding how much you can realistically spend wholesale on food, drink, labor, rent, and operational costs, you can end up beating industry averages. Without exposing any confidential financial information, I can comfortably say that when my family’s restaurants make a profit at the standard industry rate, that is a very bad year for us. Generally, we make double or even three times the average industry rate, and in a really good year we can push it up to four times the industry average. Understanding what your percentage costs, controllable costs, and profit centers really are in a restaurant is the most important factor of sustainable restaurant success.
To conclude, let's take a step back and think about all these factors together. You could do it all correctly and still fail because you didn’t understand food. You could do it all correctly, but make no money because you got yourself into a terrible, overpriced lease. You could do everything else right, but have slow or inconsistent execution on the drink menu. All the other pieces might be in place, but you opened your new venture in a neighborhood with too much competition. The reason so many restaurants fail is because it only takes one critical thing going wrong to take the whole operation down. When people start new restaurants, they generally only understanding one piece or two pieces of the puzzle, which is why they don’t make it.
The Montford Group comes in right at this critical stage. We can put all the puzzle pieces together, with the knowledge and experience that you need to start on the right foot, get out of the bad situation you’re in, or take your business to the next level. If you’re looking for a consultant, we’d be happy to help. We also provide short-term and long-term management contracts. On special projects, we’re also open to becoming partners and forging new successes together. We’d be happy to help make you the exception to the rule. Cheers.
Jared K. Jones
President of Restaurants