Opening and operating a restaurant is an exciting opportunity — but it’s also a big risk. According to the U.S. Bureau of Labor Statistics, about 20% of restaurants fail within their first year of business — and that failure rate only climbs as time goes on. Researchers have found that about 70% of restaurants fail by the 10-year mark.
Much of that risk is just the nature of the restaurant business, where profit margins are low, staff turnover is high, and choosy customers look for top-notch food, service, and overall value. Fortunately, many of the reasons that restaurants fail don’t have to be true for you.
Check out these common pitfalls that lead to restaurant failures and learn how a point of sale (POS) system can help overcome these challenges.
Common Reasons for Restaurant Failure:
1. Not Enough Industry Experience
Inexperience in the restaurant industry can lead to naive beliefs about success. Being a great cook, for instance, doesn't necessarily translate to being a successful restaurant owner. Understanding financials, management, and marketing are critical skills that inexperienced owners might lack.
How a POS System Can Help:
- Financial reporting to aid in understanding and managing restaurant finances.
- Streamlined management processes for efficient operations.
2. Not Enough Operating Capital
The high costs of opening and running a restaurant require sufficient operating capital — according to RestaurantOwner, just the startup costs alone can run you from $175,000 to $750,000. Hyper-focusing on making your restaurant look perfect without considering post-opening expenses can lead to failure within the first year.
How a POS System Can Help:
- Expense tracking and reporting to manage operational costs effectively.
- Insights into sales trends to ensure steady cash flow.
3. Not Staying on Top of Numbers
Failing to understand the business’s vital statistics can lead to overspending and ultimately mismanagement. Without monitoring key performance indicators (KPIs) like food and labor costs, average check size, and table turnover rate, it can be hard to accurately assess profitability and make related decisions.
How a POS System Can Help:
- Detailed reports on sales, expenses, and profit margins.
- Informed decision-making based on data insights.
4. Ineffective Menu Pricing and Planning
Razor-thin profit margins make menu pricing and planning crucial for success. By replacing costly ingredients with more cost-effective alternatives in certain menu items, you can lower food costs and improve profit margins without sacrificing quality.
How a POS System Can Help:
- Cost analysis tools for strategic menu pricing.
- Inventory management to reduce food waste and enhance profitability.
5. Failing to Adapt
Restaurants that don't adapt to changing consumer preferences risk failure, especially if they were capitalizing on a trend.
If you jumped on the bandwagon during the gourmet burger craze, where restaurants offer elaborate, high-end burger creations with exotic ingredients and extravagant toppings, you might be noticing that customers are now leaning toward healthier options.
Refusing or being unable to adapt to evolving trends and preferences can ultimately cause a restaurant to fail.
How a POS System Can Help:
- Integration with online platforms and technology solutions.
- Data-driven insights into changing customer preferences.
6. Being Too Trendy
When everyone adopts trends in a specific market, the market can get oversaturated. Everyone offers the same thing or has the same offers, and your uniqueness as a business disappears. When that happens, you’re no different from the next restaurant and when you don’t stand out, customers pass you by.
How a POS System Can Help:
- Data analysis to track trends and customer preferences.
- Support for innovative marketing strategies to stand out in a trend-driven market.
7. High Staff Turnover Rates
Restaurants often contend with higher turnover rates than businesses in other industries. Data from the U.S. Bureau of Labor Statistics shows that the restaurant industry’s quit rate has grown from 4.8% to 6.9% in recent years — which is higher than most other sectors.
That makes it difficult for restaurants to offer consistent, quality customer service, but it can also cut into margins. Research shows that the cost of losing an hourly employee averages $1,500 per worker.
How a POS System Can Help:
- Streamlined staff management processes, including scheduling and payroll.
- Implementation of loyalty programs to foster a positive work environment.
8. Inconsistent Food and Service
Consistency in both food quality and service is key for establishing and maintaining customer trust and positive reviews. When customers know they can routinely expect excellent experiences, they are more likely to return and recommend the restaurant to their friends. But when food quality and service are a rollercoaster, your customers become dissatisfied, leave negative reviews, and will look elsewhere when they dine out.
How a POS System Can Help:
- Efficient order processing and reduced errors for consistent experiences.
- Integration with customer feedback systems to address concerns promptly.
Opening a new restaurant can be challenging, but with the right tools, success is achievable. A POS system goes beyond transaction processing, offering valuable insights, efficient management, and enhanced customer engagement. By addressing the common reasons for failure, restaurant owners can position themselves for long-term success.
To learn more about how a POS system can benefit restaurants and improve the customer experience, read our eBook, How to Use your POS to Increase Profitability.