The restaurant industry is notoriously difficult. Research from Ohio State University showed that that 60 per cent of restaurants fail within their first three years, and 80 per cent fail within their first five. The numbers paint a stark picture of an industry where it’s tough to succeed, but what they don’t show is why restaurants fail.

There are many, many reasons behind the statistics, and every restaurant is a unique case. But we’ve gathered 10 major factors that can make or break a restaurant, as well as the solutions restaurateurs can implement to avoid these pitfalls.

Reason 1: You chose the wrong location for your restaurant

You know what they say in real estate: Location, location, location. The spot you pick can make or break your restaurant’s success. Think about all the factors that could cause problems for your restaurant, like:

  • Not getting enough foot traffic
  • Being far away from public transportation
  • Opening in a neighborhood that’s not known for its restaurants and cuisine
  • Having limited access to your target demographic in the area (for instance, if you opened a nightclub in a family-friendly, suburban neighborhood)
  • Being near too many already established restaurants that are similar to yours

The solution: Do your homework and choose a great location

The location in which you open your restaurant is one of the biggest decisions you’re going to make, so research it extensively to ensure you’re choosing a location that will help your restaurant toward success. Look at:

  • Neighborhood density
  • Property values
  • Average daily foot traffic
  • Rental rates

It may also help to informally poll your target demographic for your restaurant to see what’s important to them. If free parking is an important factor they point to, make sure your location can accommodate that. If they want to be able to walk to eateries, choose a location in a pedestrian-friendly part of town.

Reason 2: You spent too much before you opened

The perfect location cost twice what you budgeted for rent, but you went for it anyway. Then, you fully renovated the space, saying yes to all of your architect’s extravagant ideas. Now, there’s no money left to buy furniture and equipment, stock inventory or pay your staff. Oops.

The median startup costs for a restaurant sit right around $375,000, so going into a new restaurant endeavor without a solid financial plan is a recipe for failure, and one that many restaurants fall victim to.

The solution: Make a budget and stick to it

First, take stock of the amount of capital you actually have at your disposal, as well as the amount of debt you can realistically take on. Now, use that number to create a budget plan for your restaurant.

Some good budgeting tips:

  • Leave room in your budget for unexpected overages as you prepare to open your restaurant
  • Keep fixed costs (like rent) as low as possible, so you can put away more money in case of a rainy day or unexpected expense
  • Stick to the “68 per cent formula budget plan,” where your monthly operating costs amount to 68 per cent of the money you bring in
10 Reasons Why Restaurants Fail & How to Avoid Them
Source: ChefHero

Reason 3: You haven’t paid enough attention to your restaurant’s finances

If every seat in the dining room is full every night, you can take a break from poring over your restaurant’s books, right? Wrong.

Neglecting financial statements and bookkeeping for even a week can lead to too-high supply costs, inconsistent staffing levels and other budget nightmares that can have you dipping into savings to make ends meet. Restaurants operate at a notoriously slim profit margin (on average, as little as 3-5 per cent), so they require constant monitoring to make sure costs and profits are staying balanced. Some things you need to be watching:

  • Are you overspending on supplies?
  • Are you scheduling the right number of staff at any given time?
  • Are you bringing in more money than you’re spending?

The solution: Review your books frequently and transparently

Make sure to review your restaurant’s books at least monthly, but ideally, every week (or hire someone to handle the finances for you, if you can’t or don’t want to). Identify tweaks you can make (like changing staffing levels for certain shifts or replacing unpopular menu items) and see how they influence your bottom line. And share financial information with your staff — it’ll help them feel like they’re involved in the restaurant’s success.

Reason 4: Your leadership isn’t getting the job done

Leadership is important in every industry, but especially in restaurants, where personalities tend to be strong and teamwork is absolutely vital to success. Some qualities of an ineffective restaurant leader are:

  • Not recognizing your staff’s hard work and achievements
  • Not showing up
  • Over- or under-managing the team
  • Not communicating effectively
  • Losing their temper

The solution: Build a strong team you can trust, and lead by example

Leadership starts at the very top, and that’s you. Make sure you embody the qualities you want in your restaurant’s leaders.

Then, build a team of people you know you can count on to lead well. That can mean looking for specific leadership qualities, rather than the person who has the most restaurant experience. Take Luis Venezuela, executive chef and owner of Toronto’s Carmen Cocina Espanola, for example.

“If you take a look at the chefs in my kitchen, we’re not all people who come from extensive culinary backgrounds,” he said. “Rather, I look for chefs who are passionate. Some of my chefs have less than a year of experience, but they’re individuals who I have complete trust in because they love what they’re doing and they’re good at it, too.”

10 Reasons Why Restaurants Fail & How to Avoid Them

Reason 5: Your guests are having bad experiences

If you get a sinking feeling in your stomach when you open up Yelp or TripAdvisor, your guest experience might need work. Negative reviews (or feedback) show that guests aren’t enjoying the experience they have at your restaurant, whether the problem is with the service, the food, the ambiance or all of the above. No matter what the root of the problem may be, guests who are consistently unhappy are a big reason why restaurants fail.

The solution: Take feedback seriously and use it to improve

Don’t strive for perfection, because it’s impossible to attain. Instead, strive for constant improvement of your guests’ experience at your restaurant.

Gather data from feedback (from online reviews, comment cards and in-person conversations with guests), and look for patterns that show where you might have problems or room for improvement. Do this regularly, and constantly be mapping out areas where you need to improve and making plans to better them.

Share guest feedback with your staff, too. Don’t be afraid to face criticism head on. And when you make a mistake (because you will make a mistake), apologize to the guest and try to make it right.

10 Reasons Why Restaurants Fail & How to Avoid Them
Source: ChefHero

Reason 6: Your restaurant isn’t doing anything original

A surefire way to make sure your restaurant doesn’t stand out from the crowd? Don’t stand for anything.

For example, take a restaurant that serves burgers, Italian, sushi and Mexican food all under the same roof. You know that’s not going to be the best quality food, because the restaurant is trying to be everything at once, and the staff is likely spread thin trying to meet that demand.

The solution: Develop a strong concept, and then build it

Write a mission statement for your restaurant. Have a concept and a goal, and set out to do one thing really well, rather than to do everything poorly.

Take Toronto’s iHalo Krunch, for example. It was the first ice cream shop in the T.O. to introduce charcoal ice cream, and for the first summer this unique treat was on the menu, the line was out the door every day. There are a ton of ice cream shops in Toronto, but guests went to iHalo Krunch because they had a unique offering that they did really well.

Reason 7: You don’t know your competition

You can have a great concept and a perfect location, but if your neighborhood or city is already saturated with restaurants that offer the same cuisine you do, you might be setting yourself up for failure. It’s important to get the right mix of a strong concept, a good location and an environment that isn’t too competitive to allow you to succeed.

The solution: Know the field and the players

Research other restaurants in your area that have similar concepts or cuisines to yours. Take note of what they’re doing right, but also what they can improve upon. Then seek to offer guests something they don’t.

10 Reasons Why Restaurants Fail & How to Avoid Them

Reason 8: You’re not promoting your restaurant like you should

In a restaurant, it’s common knowledge that you should try to offer good food and a great experience for your guests. But a piece of the success puzzle that’s often overlooked is marketing. You need to utilize multiple channels to promote your restaurant so you can reach new guests and encourage repeat visits.

The solution: Make a marketing plan and invest in spreading the word about your restaurant

First, figure out how best to reach your target audience. Maybe it’s social media, maybe it’s review websites, maybe it’s word-of-mouth. Once you know how to reach them, create a plan to market on that platform. If it’s social media, keep active profiles for your restaurant where you engage with guests. If it’s word-of-mouth, start a referral program.

Keep in mind that a marketing plan requires some investment, and you may want to build a modest marketing budget into your monthly expenses for things like social media ads or a loyalty program.

Reason 9: Your supply chain isn’t well managed

Some supply chain hiccups are outside of your control. But others are avoidable. There’s no reason for your restaurant to work with an untrustworthy vendor, or to accept a shipment of spoiled produce. And if an unavoidable supply chain problem occurs, you should have a plan in place that helps you deal with it with as little disruption to your service as possible.

The solution: Build a trusted network of vendors and suppliers

Carefully vet your vendors so you know they’re as invested in your restaurant’s success as you are. Create a network that has backups in place in case one supplier doesn’t come through.

Reason 10: Your guests think your food isn’t good

It’s happened to everyone: You head to a restaurant with five-star reviews, and the meal that ends up in front of you is definitely not five stars — maybe not even three stars.

The food is the first thing your restaurant should master before it even opens, and good food starts with quality products and consistent preparation.

The solution: Find high quality ingredients and stick to consistent recipes

Start small with some signature dishes you know you can execute flawlessly, and then expand the menu from there. Always start a dish with the highest quality ingredients you can find, and focus on training in the kitchen to make sure everyone is following the same recipes and making food that’s consistently delicious.

These aren’t the only reasons why restaurants fail, but they’re some common pitfalls that, with work and preparation, your restaurant can avoid. In the restaurant industry, success is far from guaranteed. But by avoiding these problems and executing these solutions, your restaurant will have a better shot. Good luck!


Having worked as a sous chef for many years, Jason St. Jacques has managed the many moving parts that come along with running a restaurant. He now works as an account executive at ChefHero, helping restaurants optimize their back of house operations.