I’m always hearing about restaurants losing so much money in the first few years. Why?
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Fundamentally you are competing against people buying groceries and cooking at home.
So you have :
Labor cost
Capital costs ( kitchens are included with residences, restaurants have to build/buy facilities)
Regulations
Etc…
Oh… and at the end of the day you have to deal with the public.
Because there are a ton of upfront costs to design and build your restaurant. Plus, kitchen equipment is not cheap.
Then you open and you have to have the exact right combination of food, service, and price on Day One. If you are slightly off of any of those things, people will try you once and not go back. Or you won’t get the rave review.
Then even if you’ve got the right combination of price, food, and service, you still have to be in a location that can regularly fill your seats. If you are too big, then you are paying rent on space you cannot regularly fill and you have a commercial kitchen that is sized for an empty dining space…and you paid for and will continue to pay for both of those in the longterm….eating up your profits.
And finally, you have to spend money on food to prepare, and if you don’t use it all, it goes in the trash. If you were a retail establishment, your unsold wares would just take up shelf space…at a restaurant, it’s more money down the drain.
Because restaurants are a luxury (people don’t have to eat out) but the consumer frequently doesn’t properly assess the value of what they’re getting. They demand you to be there and cater to exactly what they want but then they don’t want to pay an amount equivalent to the full underlying costs/ value. So the balancing act of quality/ capital investment/ location/ staff vs price is brutal.
Tldr: The public sucks and doesn’t properly assess the costs that went into the price.
Food has to sell itself and that’s by a well known brand, or a type of food that is common in the area ex. people just ordering from any restaurant because it has Chinese food and it looks good. Seen lots of restaurants that just try to do food in general and it doesn’t work out.
I think some element of this is cyclical and bigger than just restraunts.
The economy right now is in a very dire situation. Affordability is very terrible. Wages have been losing to inflation for a long time. Land/rent prices are astronomical. Food prices are very high. Wage prices are very high. And the consumer has less extra money to spend than usual.
It’s not just restraunts that are struggling, everyone is now, there’s a reason major banks and tech companies are firing people left and right. Something has gone horribly wrong with the economy and financial markets, that’s why the yield curve is so inverted.
I think restraunts were just the canary in the coal mine. They got hit sooner and harder because they were more exposed to the deterioration. But that doesn’t mean the problems will be limited to restraunts and tech and banks, it will keep spreading.
Restaurants are expensive to run. Rent, wages, food and (sometimes) franchise fees, and ton of other stuff (advertising, utility bills, insurance, general maintenace etc). Those are all recurring fees. There’s also the set-up fees such as buying equipment, tableware, etc.
They also have to sell at a reasonable price (nobody wants to pay $100 for a cheeseburger) and therefor hope to sell a large volume…. just to break even.
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