Why do some Restaurants close Shop?

One day you are eating at this restaurant because you like the food there. Then a few months later, you are surprised this restaurant closed down and it has not even made it to its first anniversary. You have to wonder why did this happen.

In stating the obvious, the establishment was unable to generate enough profit to sustain itself, leading to its closure. This can be further broken down into the following reasons (these are reasons other than not having the permit to operate or failing to adhere to safety and health standards):

The owners did not do enough research. Before starting a business, entrepreneurs make it a point to research the market which is key to the business they will start. One of these is having a low start-up capital. Unsuccessful owners assume they could get a large return of investment if profits come in. But there are other factors they did not take into account, thereby setting themselves up for failure. In this case, there has to be operational funds to be set aside to cover such eventualities.

carls jr
Carl’s Jr is a very popular branch all over the world. But its Philippine franchises closed down because franchise owners failed to take into account certain factors. Source: Between the Buns

Wrong location – not only has to be accessible to their market but what they offer has to suit those within the area in terms of price and quality. You certainly would not want to put up a fine dining restaurant in an area populated by B-E class people. Such people find the food offered there a luxury and as such would not dine there often.

Even is some fast food establishments such as Little Caesar’s (Pizza! Pizza), while pizza is a very popular fast food, if prices are prohibitive, no one belonging to the aforementioned classes would patronize it. You would probably have a much better chance putting up a carinderia or “turo-turo” diner in these places.

Another factor is unable to pay rent. Restaurant owners are tenants in land or building space they occupy. One reason they close down is they lack enough money to meet the cost of rent. While the location may be attractive, the price of renting the space may be too expensive.

These business owners also lack knowledge of their competition. It is a mistake to assume they can outdo their competition if they do not do their homework. One obvious mistake they do is to offer the same thing. There is nothing unique that would make them stand out like offering something the competition does not have. This could have been addressed by promotion and having a competent sales and marketing team who could help.

Another factor is poor inventory and staff management. Lack of proper accounting and record will cause a business to suffer in the long run. It is important for business owners to keep track of their inventory and to have enough money to cover any contingency. This is related to not having adequate funds when starting out. It is a mistake to think having sufficient capital is enough to start a business without taking into consideration the unexpected such as this one.

Many business owners claim human resources is their most important asset. That being said, the employees must be cared for. This would mean paying them reasonably as agreed upon (in a contract) and making sure they receive benefits due them as mandated by law. But at the same time, bad employees can undermine the company’s reputation and lack of discipline can cause more trouble especially since these people deal directly with the customers.

While running a restaurant is a lucrative business since people need to eat, any potential proprietor must do his or her homework first. There is more to running a restaurant than having capital and offering good food. Neglect these and they will not last a year.

Featured Image Source: Snopes

Aaron Ronquillo

Quizzer, Practical Shooter, Martial Artist, Movie Buff, Avid Reader, Amateur Foodie and Photographer, Cat Lover; Someone with a wanderlust; got a keen eye for detail, trivia; enthusiastic but cautious; patient, calculating