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Should you Invest in a Restaurant Business or Not?

Updated: Mar 16, 2023


Date: 19/02/2023

Let’s dive deep into Why Restaurant Business is a risky business!

Most people think of opening a restaurant with the thought of creating a passive source of income, but, eventually, they end up losing all their invested money.

As per a blog published by CNBC in March 2016, around 60 percent of new restaurants get closed within the first year from inception. And nearly 80 percent before their fifth anniversary.

The biggest reason as highlighted is ‘Location’ and the general lack of self-awareness that you have no business being in that location.

Other important factors that are equally responsible for the same are:

1. Absence of a ‘trademark or hot selling’ item on the menu: Taste is always the first thing people notice when they visit your restaurant. Having at least a few differentiating items with top-notch taste provides a unique selling point. This will not only drive repeat visits to the restaurants by the customers but could also lead to positive word-of-mouth marketing.

2. Lack of proper accounting and cost estimation to run the business: Most people infuse a big chunk of money as an initial investment to set up the restaurant business but they fail or forget to plan finances for the next 6-8 months properly. Eventually, if the restaurant fails to generate adequate revenue in the initial few months, they run out of cash which leads to a loss of workforce and eventually closure.

3. Poor Marketing and Pricing strategies: Any new venture needs promotion to come in the awareness set of the audience. The path customer takes to purchase a product or service starts from awareness of the product/service. This phenomenon is called Marketing Funnel (depicted in the picture below):

4. Poorly trained management, chefs, and staff: Lack of training among the managers and the staff could lead to poor customer experience. This could impact the image of the restaurant very badly, especially during the initial phases of operations.

As the saying is “It takes months to find a customer.... seconds to lose one”.

5. Overstaffing: The owners mostly overstaff in the initial phases of operations with an optimism of receiving a huge number of customers and avoiding the issue of understaffing to serve the customer better.

This also happens as the owners are unaware of the kind of traffic to expect and at what time of the day. This knowledge comes with time and experience only.

But overstaffing in the initial phases could affect the PnL (profit and loss) statement badly and could lead to bigger losses monthly.

But you don’t have to worry as ROF is here to solve all your problems with just a single software solution!! Isn’t it Great?

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1 Comment

Honey K
Honey K
Feb 20, 2023

This is really helpful. Thanks for sharing! Looking forward to more such articles.

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