Your Restaurant's Guide to Surviving Past Year 1
Opening a restaurant is not an easy feat. It is a journey that definitely comes with some obstacles, and once your doors are open, the challenges don’t stop there. It may or may not surprise you that 60% of restaurants and bars fail during their first year in business, and 80% fail before year five. The National Restaurant Association estimates that 1 in 3 restaurants won’t survive their first year. So with stats like these, it may seem like a daunting feat to open a restaurant and find success.
Not only do operators need to prepare for common issues like staff management and unexpected operational costs that can arise, but they also need to prepare for newer challenges as a result of COVID-19. The restaurant industry was one of the hardest hit during the pandemic, and the National Restaurant Association reported that 10% of restaurants closed during that time.
While one might assume that the pandemic would slow the opening of new restaurants, many are opening restaurants with automated solutions to increase efficiency, meet new consumer demands, and overcome the staffing crisis. Yelp reported that in Q3 of 2021, restaurant and food business openings remained steady, with 19,892 new openings, a 2% increase year-over-year.
These numbers provide a positive outlook on where the industry is headed. With that, we want to provide you with solutions to prepare you for the obstacles you’ll encounter on your journey when operating a restaurant. Below, we’ll dive into some of the common issues you’ll face, solutions to overcome them, and the keys to success so your business makes it past year 5!
Common Issues & Solutions
Lack of Differentiation
One of the very first steps you’ll take when opening a restaurant is deciding on the concept. However, before you can finalize your restaurant concept, you must consider the location of your business. Depending on the demographic in the area in which you plan on opening, your concept may or may not be successful. You should always think of your target demographic first and make sure you are meeting or ideally exceeding their expectations with your concept.
Talk to people in the area where you plan on opening your business! Go around and visit the other restaurants in the area. What is your competition like? How will you set your business apart? If you can’t distinguish between your concept and your competitors, you’ll have a tough time establishing your business once you open.
Inexperience / Lack of Involvement as the Owner
When opening a restaurant, you need to prepare yourself for the time it will take to open your doors. If you aren’t ready to dedicate your time to the success of your business, then it will never work. As the business owner, you’ll wear many different hats. Try to gain real-life experience by working in a variety of restaurants, asking industry friends for feedback/advice, and conducting market research before opening your restaurant.
Create a successful business plan. This will ensure your business ideas are organized, help you nail your concept, and will help when looking for money from the bank, investors, or even family and friends. Preparing a strong business plan will help you execute your idea and take it from dream to reality!
Learning how to manage your staff is one of the best things you can do as a restaurant owner. If your employees aren’t happy, your guests won’t be happy. Ensuring your staff feels valued will make a world of difference in the success of your establishment. Let’s dive into some of the management issues you may encounter and how to overcome them.
Poor Staff Scheduling
If you’ve gone through all the steps to recruit and hire great talent, it’s time to learn how to manage that talent. According to the National Restaurant Association, only 44% of employees work full-time in restaurants. Many of your staff members will work multiple jobs, so they will need a set schedule to know when they can expect to work.
Without a proper schedule in place, you’ll create a stressful work environment for your employees, which will ultimately result in unhappy employees and higher turnover rates. You want to ensure your schedule doesn’t put too much or too little work on anyone, so it’s crucial to get it just right!
As the hospitality industry continues to accelerate toward technology, consider investing in an automated POS system to help streamline your scheduling efforts. Restaurant management software can save you loads of time, and everyone knows time is money! If you choose to automate your scheduling, make sure you select software that is the right fit for your business. Here is a list of some of the top restaurant scheduling software and apps. 7shifts, Push, and ZoomShift are just a few of the popular tools used among the restaurant community.
Using a software system will exponentially increase your overall efficiency, and employees will be able to easily access everything they need to view their schedule, take time off, and so much more! Once you’ve selected your scheduling software or management style, take time to ask your employees for feedback. This will allow you to learn where you can improve and the changes that you need to make to create an overall better work environment and culture for your staff.
If you’d like to learn more about scheduling employees, hiring and retaining employees, and how to use technology to automate day-to-day operations, download our webinar below to hear from three successful hospitality operators.
Fill out the form to watch the webinar!
Payroll causes headaches for restaurant operators throughout the industry. From figuring out your tip reporting system and minimum wages vs. tipped wages to figuring out proper overtime pay, payroll is not a fun task for many operators. And, if you can’t figure out how to properly train/schedule your employees, you could be losing out on a percentage of your profits due to increased labor costs.
Say goodbye to the days of manual payroll. It’s time to automate your payroll too! We recommend using restaurant-industry-specific software for payroll that integrates with your POS system. If you use software that integrates with your scheduling software, you’ll have everything you need to manage employees, track costs, and view your key performance indicators to ensure you’re meeting your goals.
Using software solutions will provide you with real-time data and historical data to help you track your payroll percentage and labor costs, so you can make informed decisions about your staff scheduling. Restaurant software will save you time in the long run because it automatically ensures you’re following payroll regulations and restaurant-specific industry laws. Below, we’ve included a few restaurant payroll software companies that might be a good fit for you!
High Turnover Rates
The battle to reduce labor costs and increase retention rates continues as many operators struggle to find and keep staff because of the pandemic. Losing employees can create more payroll issues because the cost of training can impact your bottom line and your operations, so it’s critical to increase employee satisfaction through workplace culture, feedback, and incentives!
When hiring new employees, it’s key to give feedback. Feedback allows employees to understand what you expect of them and how they can improve to become successful in their roles.
While giving feedback is important, so is receiving it. If your employees do leave, conduct exit interviews. This allows you to hear exactly why your employees are leaving and if there are any changes you can make to create a better experience for your staff.
Another way to increase employee retention rates is by offering perks and incentives! The best way to gain new employees is through your current ones. If your employees think highly of you and your restaurant, they’ll be more likely to bring you good talent that will stick around. Consider offering a reward (whether it’s money or a gift card to their favorite store) to those employees who bring in a referral that you hire.
self-pour as a SOLUTION
Self-pour has proven to be a solution for many restaurant operators during the staffing crisis. With an automated beverage solution, operators can maximize service efficiency, decrease product waste, and reduce labor costs.
Malcolm Yards in Minneapolis, MN, is taking advantage of the benefits self-pour brings. Malcolm Yards is home to a 32-tap self-pour beverage wall and a 48-tap traditional bar. When comparing the total revenue from their self-pour taps to their bar, they found some astonishing numbers. Download the case study below to see how much revenue they’re making from their automated beverage solution.
Download the Case Study below to see how self-pour could reduce your staffing issues!
Understanding the hidden costs when opening a restaurant can help you budget and prepare accordingly. If you are not prepared, these costs can sink your business. Controlling costs within your business is one of the most challenging parts of owning a restaurant because your costs impact your profitability.
- Have three months of operational costs in your reserve fund. You’ll need to cover costs for stolen cutlery/dishes, as well as broken equipment, higher labor costs, layout changes, etc. Your reserve fund is money you keep in the bank to cover any drawbacks experienced when opening your restaurant. This money will help you cover any costs for payroll, inventory, utilities, and other costs incurred.
- Don’t make any permanent updates to your space until you have a run-through of the space. To avoid any unnecessary costs when redoing the layout of your space, test things out before making any permanent changes. That way, if the flow is off or you need to move decor around, you don’t have to fork over thousands of dollars to make changes.
- Ensure you have the correct permits and licenses to operate in your state. If you do not have the correct permits and licenses, you could be subject to hefty fines.
- Decrease your food waste to optimize your food cost. Ordering too much food and mismanaging your inventory can impact your bottom line. If you already use restaurant management software for your scheduling and payroll, it may already offer functionalities to manage your inventory, too. Avoid purchasing food that you don’t need and use data to your benefit!
Watch the video below to hear Jim Wright, a successful restauranteur, discuss how he budgets and analyzes costs in the 7 restaurants he manages across the US. Jim provides various metrics on prime costs, food costs, and more. He gives pointers and tools you can put in place to reduce certain metrics like labor costs.
While we covered a few of the unexpected costs that you can incur when operating a restaurant, we have also put together this list with 25 essential bar and restaurant performance metrics to track in your daily operations.
The Keys to Success
Embrace Change / Adapt to Survive
One of the most important qualities you can have as a business owner is being open-minded. With so much change happening worldwide today, it is crucial to pivot and change when needed, whether that be adding technology or implementing new menu items. A great way to adapt is by first listening to customer and staff recommendations.
By taking in this feedback, you can learn what your customers do or do not want, and your workers will give you insight into how well your inside operations are doing. For example, if you tend to offer a lot of alcoholic beverages on your menu, but perhaps your customers might enjoy some non-alcoholic drinks, you may want to rethink what you offer on your menu.
Hire Great Staff
Choosing the best employees is critical when you have a restaurant. They are the backbone and essentially run your business’s day-to-day operations. The chef you hire will translate your menu into unforgettable meals. Your servers and bartenders will be the ones translating your brand and aesthetic into personal relationships with your customers.
Hiring good and reliable staff can be difficult (especially when you’re trying to navigate the labor shortage), but it’s not impossible. You’ll want to hire employees who will be enthusiastic and passionate about your concept so that your customer service stands out. The most efficient way to do this is by ensuring you receive a resume from potential employees, conduct an interview, and make sure to call their references. Once you have a good group of employees, a great place is to start is with an employee referral program. Employees will refer potential candidates they trust and know will be a good fit for the job, making your life a little easier.
Create A Unique Experience
Standing out from the rest is a critical part of keeping your business relevant. With the ever-growing expectations of customers, adding a unique aspect to your concept is just what you need to keep your establishment part of the conversation. Whether that be adding games, automation, or running promotions.
Games and live music are a sure-fire way to keep customers coming back and staying longer. Bar games always make any occasion more fun and exciting, especially when they bring a little friendly competition to your venue! Live music is the perfect opportunity to pack your bar, bring in customers, and retain loyal customers. Many bars and restaurants have weekly live music nights that bring in crowds. This will make for a great evening with lots of fun for your customers and profit for you.
When it comes to adding technology into your operations, it can seem scary, but it will make your life and your employees’ lives easier. Picture this… you have a traditional bar setup, but you’re struggling to serve large amounts of customers, causing them to leave when it takes too long to get a drink. A great solution to this inefficiency is to add a self-pour beverage system that allows customers to serve themselves. As an operator, you can serve more customers, ultimately increasing your sales and creating a better experience for customers.
You can also run promotions or offer seasonal menu items to stay in the conversation. When running promotions, this could mean the typical sales and specials, but it also could mean offering a cooking or mixology class. This creates a unique spin on the common promotions run by other competitors and will make you stand out. Offering limited-time seasonal options can create a need for customers to come into your establishment. So make sure to switch out menu items according to the season or holiday to keep customers coming back.
Financial Planning & Marketing
Your business plan is just as important as you think it is. Having a business background isn’t necessary. Inexperience can be a leading cause of a business’s failure, and having a business brain can help a whole lot. Don’t let this scare you. Your finances aren’t something to be feared. Think long-term in regards to profit and loss. Familiarize yourself with solid accounting practices and learn about finance. You’ll want to become acquainted with key performance indicators such as cash flow, cost of goods sold, and retention. Remember to do some reporting, analyzing, and check-in on vital business processes regularly to see where you may need to improve.
Your restaurant could be the best in town, but without marketing, no one would know. Social media is a great way to reach your customers and get your name out there. Make sure to experiment with many different social media platforms to find the one that works best for your establishment. Email marketing is another great way to get in touch with customers. If you are running a promotion or offering seasonal menu items, you can use email marketing to communicate with your customers. Marketing isn’t just online, though. You can market in other ways as well, such as outdoor advertising and partnering with local businesses. The way you market your business is everything, so make sure you’re building your restaurant’s brand the right way.
Opening a restaurant requires a ton of hard work, dedication, and passion. If you don’t prepare yourself for every situation that could arise during your first year or two in business, you’ll have more difficulty surviving. We hope you find these solutions and keys to success helpful when opening your restaurant. If you have any other tips you’d like us to highlight or if you’d like to contact us about adding self-pour as a way to automate your beverage solutions, contact us below!