The restaurant business is perceived as very risky. Although some of this is somewhat overblown in my opinion, it is certainly true that the restaurant industry has relatively high failure rates. This has many causes, one of them being that some restaurants do not have a sustainable business model. In this month’s blog I will therefore highlight some of the factors that can make a restaurant’s business model sustainable. It should be noted that, in this context, sustainability does not primarily refer to environmental sustainability. Instead, the focus lies in long term viability.
One of the most – if not the most – important factor is financial stability, as it enbales restaurants to both invest and withstand economic fluctuation. Financial stability can be achieved by lowering costs, for which there are short term as well a medium/long-term measures. The latter can and should include measures that will also increase the environmental sustainability of the business, which in itself is also a worthy (and profitable) goal. However, when lowering costs, one most make sure to not go so far as to negatively impact the already established strengths of the restaurant, be it the ambiance, the level of service or the quality of the food. Similarly, when making investments, one should always consider if these investments really are necessary, given the strengths of the restaurant, or if they would only be a nice bonus (or, in some cases, even an expensive downgrade).
When opening up a new restaurant, one should especially consider various possibilities to keep costs low, as the business is still unburdened by customer perceptions. For example: in a time of staff shortages and rising wages, why not make sure that the restaurants is furnished in such a way as to minimize the amount of people required to oversee the space and handle customer requests? Also, what tasks can you as the owner do yourself? Similarly, do you really need to invest large amounts of money in your restaurants interior before opening, or can you improve over time, once your food has proven itself? Depending on what it is you serve, and the ambience the location you chose already has, that might be an option worth considering. One of my favroite restaurants at the moment opened up and still operates in the relatively run-down remains of a clothing store, but by making clever use of decorations and music – and by serving great food with a smile – the owners quikly make the customer forget about the state of the location.
Financial stability can also be achieved by increasing revenue. This can be done by raising prices. This should be done in a thought out manner however, as it also can have a detrimental effect on revenues. Another way to increase revenue is by opening up new revenue streams, such as delivery, catering, or offering breakfast. Here too one must always keep in mind potential downsides concerning the true strenghts of the restaurant, as well as potential financial pitfalls (maybe breakfast will costs more in salaries than it brings in).
Closely related to financial stability are the important qualities of resilience and adaptability, which, alongside with financial stability, allow businesses to withstand a range of unforeseen challenges, such as – stop me if you have heard this before – public health crisis. Building resilience involves strategic planning and scenario analysis.
Another important factor is social responsibility, which involves fostering positive relationships with employees, customers, and the community at large. For examples, offering fair wages and opportunities for advancement, promoting diversity and inclusion, and supporting local community initiatives create a positive image and build trust among stakeholders and strenghten a restaurants customer base, which is crucial if you are planning to be around for the long haul.
An opennes to innovation is another factor of a sustainable business model. Restaurants need to, in principale, be open to and up-to-date on new trends, technology, practicess and changing customers needs. However, it is also important that “new” does not equal “innovative”, and not everything that is new and/or innovative is right for every restaurant. Here too one must weigh the options with an eye on the strenghts of the restaurant, especially as they are preceived by the customers. A restaurant that wants to be a viable business for the long hault must always strike a balance between catering to its current customers and finding new customers. Whereas without the former, financial stability is very hard to achieve, the future looks very bleak without the latter.
The final point I want to address is authenticity. A restaurant that has no authentic identity behind it and especially it’s menu is not built for the long haul. “Whatever seems to be popular right now served in a room that looks like all new restaurants look like now” might work well for a while – and sometimes that is the goal, and that is fine – but it will always come with a use-by date.
Marius Zürcher
About the author:
The co-owner & founder of Millennial & Gen Z marketing and employer branding agency 1520 in Apeldoorn, the Netherlands, Marius Zürcher was a participant at FCSI’s ‘Millennials’ focused roundtable at INTERGASTRA and a speaker at FCSI workshops about industry trends.
