Running a restaurant is a tough and unforgiving business. A total of 768 restaurants closed in Britain in the twelve months up to March 2019-a 2.8% drop in numbers- according to the Market Growth Monitor from CGA and AlixPartners. Many new restaurants fail within the first year of opening. Not infrequently, the underlying concept and the business plan are unrealistic, given current market conditions. A lack of understanding of trends in the restaurant trade and a lack of adequate financing arrangements have led to failure to break even in the projected time frame.
Jamie Oliver is a recent casualty, albeit on a much larger scale, of this downturn in the restaurant trade. In an August 2019 interview with YOU magazine, he has claimed that rich diners seeking “posh” food have been partly responsible for the failure of his attempts at “mid-market” dining. The British celebrity chef, TV personality, cookery writer and food campaigner was reflecting in the aftermath of the closure of 22 out of 25 of his restaurant, with a loss of 1,034 jobs.
Discretionary spending on eating out is being challenged by a stagnation of real wages for many, along with rising costs of living, which include spending on housing, transportation and utilities.. Eating out is a barometer of the nation’s overall economy, and is an early casualty in leaner times. Consumer habits are also changing, with online ordering and home delivery gradually encroaching on the restaurant trade.
The operating costs of restaurants have risen steeply in recent years because of food and beverage price inflation, along with a higher wages bill. The national minimum and national living wages and employer pension contributions have raised spending on employees’ wages . Despite this, wages remain low and have led to servers having to supplement their wages through informal tips. Service charges added to the bill frequently have not been distributed out to the target recipients. There are also shortages in the supply of both kitchen and serving staff, many of whom come from the EU, and these have risen with uncertainties about Brexit.
In the UK, additional pressures have arisen from rising rental costs for commercial property and from sharp rises in local authority business rates. You also have to factor in health and safety and insurance costs. All of this means that balancing customer prices against overheads can lead to the thinnest possible of profit margins.
Jamie Oliver’s culinary empire will undoubtedly provide case study material for business school students. Simultaneous and rapid expansion into multiple sectors of the restaurant trade can lead to difficulties with both quality control in, and financial oversight of, individual outlets.
Successful chains, such as McDonald’s, rely on a system of franchising, coupled with strict product standards. Franchise owners receive management training, start-up capital and all relevant production technology to ensure product uniformity. McDonald’s re-branding to include greener menus, a wider range of coffees, and global menus that meet local tastes and customs show the importance of always keeping one step ahead of any potential competition. Even in this thriving sector, operating costs continue to be slashed, however, through innovations such as computerised ordering.
The restaurant trade is a difficult taskmaster, given that it requires sustained levels of performance seven days a week, all year-round. It is often difficult to be aware of, and keep up with, the competition. Customers look at a number of different things, ranging from location, decor, ambience, service, and even the state of the toilets.This is over and above the sourcing of food, the quality of cooking and the way in which food is presented. To this you have to add competitive pricing to stay in business. There are probably many more easier ways of making money that are less demanding of effort, capital investment and time.
Ashis Banerjee (spent around 20 per cent of my per capita GDP on gastronomic adventures in pubs and restaurants, as proven by my TripAdvisor account)