Restaurant Failure Essay

If you have already opened a restaurant, you have already experienced all the first problems of growth and development. The first year is certainly the most important, as it sets the rhythm of the development of the restaurant. There is a question: “Will the restaurant be successful or not?” However, even if your restaurant is successful and visitors come to you, do not relax. According to statistics, not all restaurants fail in the first year. Fifty-nine percent of restaurants fail within three years. Read our restaurant failure essay which describes three reasons why restaurants fail within the first year, and even more within the second year of being opened.

If you don’t have any experience in writing, our restaurant failure essay will help you. After reading it through, you can write your own paper on a similar topic. Every student who starts to write an essay may face difficulties. Do not try to write your essay if you don’t know how to do it right. Our writers can help you when you’ll buy an essay from them, and if you want to know how we complete essays, check our the following restaurant failure essay.

Describe Three Reasons Why Restaurants Fail Within the First Year and Even More Within the Second Year of Being Opened

A study by Parsa et al. in 2005 dispelled the myth that 90% of restaurants fail within the first year of operations. Through a series of simulations, the group concluded that the estimated failure rate of restaurants in their first year is at 26% and this increases to around 60% cumulatively within three years (304-310). The figures are significantly lower, yet, this not does diminish the fact that a large number of restaurants do not make it within the first three years.

Experts have identified several factors that cause such failure. However, I’d like to focus on three factors which I consider more important. First is lack of differentiation. While it is true that location is contributory to a restaurant’s success, having a good location is merely the first step. Parsa et al. pointed out that what will make the restaurant survive is actually its ability to differentiate itself amidst competition (307). In the US, quite a number of restaurants located in highly accessible and highly visible areas which fail to differentiate end up closing down.

Differentiation is the ability of the business to understand the demand of its target market and then align the company’s product or service, location, pricing and promotions in accordance with such demand. For restaurants, this may entail offering great food, accessible location, a good ambiance and a pricing strategy that will please the restaurant’s identified clientele. Second cause of failure is ineffective management. Often, this is brought about by lack of experience and incompetence, among others.

Ineffective management may result to a string of other operating problems such as inefficient workforce, employee turnover, poor inventory management, improper cost management and etc. These operating problems will depress the restaurant’s profitability and when these issues are not properly addressed, may eventually lead to bankruptcy. Finally, low or inadequate start-up capital. Sufficient operating funds must be available to keep the business going.

However, some new restaurant owners underestimate the timing of their cash flow. The disconnect between the timing of revenue generation of the restaurant and the payment of its operating costs may result to funding shortfalls and this may put the business out of operation (Horton 3).

New restaurant owners must therefore be aware of these factors or causes; the lack of differentiation, ineffective management and having inadequate start-up capital. Countering these with appropriate measures will certainly increase their restaurants’ chances of survival.

Works Cited

1. Horton, Melissa. “The 4 Common Reasons a Business Fails.” Investopedia, 7 June 2017, https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp. Accessed 8 May 2018.
2. Parsa, H. G., et al. “Why Restaurants Fail.” Cornell Hospitality Quarterly SAGE Journals, vol. 46, no. 3 (2005):304–322, doi:10.1177/1938965514551959.