Challenges faced by independent restaurants

Owning and running a restaurant seems like a glamorous business. From a distance it looks very easy. All you have to do is invest money, select a good location, hire experienced team and an expert manager to run the show on your behalf while you just watch the money pouring in.

The reality however is far from this.

Things are no longer easy. Restaurant business is not for the faint hearted. They have a high failure rate, with around 60 percent of new restaurants failing within the first year and almost 80 percent closing down by the fifth year.

Restaurant owners today, face a plethora of challenges; In addition to budgeting, staffing, pricing, profitability and quality control, restaurant owners now also have to deal with Changes in consumer preferences, competing with international brands all this while providing a consistent brand experience.

Another challenge is coping with the ‘online reputation economy’, where their fate depends largely on what is being said about them online. In simple terms, a poorly served pasta can now have a very negative impact on prospective customers who tend to see you as a poor service restaurant. Not just this, it ends up affecting your sales to the tune of 5 – 10% drop in revenue.

Increasing Competition in Fragmented Markets

The Indian Restaurant market comprises of majorly small and medium stand – alone restaurants competing with large chains and international brands. There are a large number of stand – alone restaurants who offer almost similar products at highly competitive prices with no single market leader in the segment.

Today, Customer expectations are changing. With the overwhelming number of dining options available to customers, ‘one size fits all’ approach no longer works and If the restaurants don’t review their menus, concepts from time to time they will find it increasingly difficult to create their unique value proposition and attract customers from diverse segments.

Rising Food Costs

Food price inflation is one of the key factors affecting the restaurant market in India, and is unfavourably impacted by adverse demand- supply conditions, delayed monsoons, the economic slowdown to name a few. It keeps fluctuating and food costs account for almost 30-35% and sometimes more, of the revenue. The continuous rise in food costs reduces the restaurant’s profit margins, forcing them to increase their menu prices. This in turn poses the challenge of retaining already value-conscious customers who tend to evaluate all available dining out options vigilantly.

High Labour Costs, Shortage of Quality Staff and High Attrition

The restaurant industry industry is highly labour-intensive. From a labour cost perspective, the fast-growing restaurant industry has also resulted in a shortage of skilled hospitality manpower to fill all of these restaurants which in turn has increased the cost for quality staff. Along with this, restaurants struggle to maintain profitability with increases in minimum wages, overtime issues with long hours that often include weekends and holidays, health care coverage expenses, and increased competition.

In addition to food and labour costs, increases in real estate prices especially restaurant rentals make things more difficult.

While these rising costs impact the entire hospitality industry, it is the independent restaurants operating in the fast-casual to fine-dine restaurant space that are facing the biggest impacts.

The tricky part for independent restaurants is figuring out the best ways to maintain margins when every other cost rises, while still providing a unique and enjoyable cost-effective dining experience and meeting the soaring customer expectations.

This is where we come in!

Our Restaurant Consulting Services