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Restaurant Business–The Story of Long-Term Survival

The Restaurant Industry plays a pivotal role in shaping today’s world economy. The food brings distinct cultures and communities together in a truly globalised environment. With over $780 bn of sales (2015), the industry provides employment to millions of people and is one of the largest private sector employer.

Although the industry is marked by low barriers of entry, the restaurant business is highly competitive. An astonishing 60% (a study by Ohio State University) of restaurants go out of the business within 3 years of commencement. The seeds of failure are sown much earlier, even when a restaurant opens up, largely due to the fundamental flaws in the business strategy. There are subsequent issues that take shape in the form of lack of execution of the business plan, poor staff and inventory management, inconsistency in the quality of offerings, insufficient marketing, lack of understanding of the competition, less control on a day to day finances, etc. This leads the unguarded into oblivion.

Yet, there are restaurant businesses that have survived for long, like Stiftskeller St. Peter, Salzburg (established in 803 AD), Zum Franziskaner, Stockholm (established in 1421), Sobreno de Botin, Madrid (established in 1725), etc. They have stood the tide of the time and have been providing excellent food and services year after year and decade after decade. Moreover, they are deeply rooted in their surrounding communities. The contemporary restaurant business survival models are the likes of McDonald and Burger King. They are doing well over the last six decades and have ushered the new fast food culture. So, what differentiates the long-term restaurant business survivors from the rest?

Through analysis of varied business models of a few of the long existent restaurants, we can conclude that they survive in the industry due to the originality of ideas and Unique Selling Point (USP). It is all about their ability to connect emotionally with their customers who remember the experience for decades, even after they have forgotten what food they had or how was the service. For example, the Burger King, offers the concept of accommodation “Have it your own way”, which keeps the consumers emotionally connected to the brand. Further, at the same time, long surviving restaurant players innovate to fend off stagnation and change with time, leading to customer base retention and the addition of new clienteles. The Average Revenue per Guest for long-term survival has exhibited a stable trend over their life cycle. The chart below depicts the same for the past 4 years.

 

 

 

Source: Televisory Research

 

Secondly, long-term restaurant business survivors offer a timeless design and a menu that is built to last. For instance, McDonalds has been offering consistency in service and quality, while providing value to its customers. A customer who visits the McDonald’s outlet in California or Australia will have a similar quality of experience. The same familiar look, feel and great taste of the Big Mac retain different generations of loyal customers who keep revisiting. Though, in the face of intense competition (from Burger King) hosts of new innovations in offerings and services, were undertaken, but the core essence of McDonald remained identical: serving customers a great tasting food coupled with quick service.

 

Source: Televisory Research

 

Third and most important, these players have controlled costs while driving the revenues and getting more customers. Televisory’s study of few long surviving casual Full-Service Restaurants in the USA revealed this fact that Food, Beverage and Labor costs (which constitute the major part of the expenses of any restaurant operator) ranged between 60-65% of revenues. However, the same ranged between 70-75% for unprofitable restaurants pushing them into losses and leading to their ultimate demise

Clearly, the ability to control costs while maintaining quality, service and attracting more customers is the key to long term survival in the restaurant industry. 

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