The Hard Truth: Why So Many Restaurants Fail in Their First Year

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New restaurants face an uphill climb to succeed. One recent study found that 17 percent of startup restaurants fail within the first year. Though this is a more encouraging statistic than previous gloom-and-doom numbers that pegged first-year failure rates well beyond 50 percent, it provides little solace to entrepreneurs who know that everything about their restaurants must be perfect from the start to make it beyond 12 months.

New restaurants rarely struggle because their owners and managers aren’t putting in hard work. Often, other reasons are the major contributors to why restaurants fail. Here are some of those factors that entrepreneurs should keep in mind as they strive to prosper in their first year of business:

Ineffective Marketing

No matter how good your food, service, and atmosphere are, if potential customers don’t know you exist, your restaurant can fail. Word-of-mouth marketing and a little social media are not enough to attract customers; you need to be proactive, even a bit aggressive, with your marketing, advertising, and promotional strategies. This can be tricky on a limited budget, and too often, restaurants choose the wrong channels to invest their marketing dollars. You must get creative in drawing customers in your first year; employ a mix of active social media, smart promotions, and cost-effective marketing methods such as coupon advertising to attract and, ultimately, impress customers.

Poor Location

Just about everyone has heard the mantra, “Location, location, location!” For restaurants in their first year, location is not the only important thing, but it might be the most important thing. The best outdoor signage won’t make a difference if potential customers aren’t traveling past your restaurant to see that signage. Additionally, if customers can’t find a place to park near your business, they will eventually become frustrated and go somewhere else to eat. If you are already open and you are finding that your location isn’t optimal, smart marketing can help; for example, a coupon on the back of grocery store receipts can inform consumers that your restaurant exists and persuade them to find and visit your location.

Unhappy Customers

Even if your restaurant succeeds in getting customers in the door, it can still go under in the first year simply because those customers are leaving unimpressed. Poor customer service, long wait times, food that just doesn’t taste good—all valid reasons why restaurants fail. Unhappy customers not only don’t return, they leave bad reviews on social media and review sites such as Yelp. Negative word of mouth gets around, and the fledgling restaurant, even if it listens to feedback and gets its act together, never recovers. This may go without saying, but all aspects of your restaurant in relation to customers must be spot-on from day one. Outstanding food and service leads to outstanding reviews, which draws more customers to be impressed, who in turn leave more positive reviews and tell their friends, and so on and so forth.

Overspending

The costs add up quickly when opening a restaurant and operating it during the first year. Staff must be hired and paid, rent is due before your business even opens, your restaurant needs equipment and furniture, and some sort of marketing should be pursued. Sadly, many restaurants doing everything right simply run out of money. Add in the natural tendency to be a bit lavish when launching a restaurant, and you can see why overspending may lead to failure. Needless to say, careful planning is essential to staying within budget. Look for ways to save money without cutting corners, such as buying used equipment, intelligently pricing your menu, and hiring experienced staff who will require minimal training. Spend wisely and deliver delicious food, and success for the first year and beyond are likely to follow.

 

What challenges are you encountering as a startup restaurant owner or manager?

 

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