Everyone understands the Restaurant Business

Posted by fshsfhsfh on Monday, April 25, 2011


I met with a seasoned professional in the investment banking space a few days ago and one of her statements really caught my attention. We were talking about a specific restaurant "Biryani Merchant" that was set up in Bangalore a few years ago. The restaurant shut shop after about a year in operation. She told me that service in that restaurant was really bad and that was the reason they shut down. Though I quickly wanted to ask her how many times she had visited the place, I wanted to be nice. But my guess would be "Once" or maybe 2/3 times at best.

Almost all of us have visited a lot of restaurants over the last several years. This exposure leads us to believe that we understand the business and what works (atleast for me, I thought I had figured it out before starting my restaurant). That is also the reason so many new restaurants open up and that is also the reason why so many of them shut down before their first birthday. Though I do not have any specific research data on this, I can safely say that over 50% (the number may probably be closer to 80%) of restaurant businesses shut down within 12 months. I can also say that about 50% of those who survive have big pockets or just got lucky and things fell in place. Which means that probably only 10-20% of restaurant business are designed in a way to be successful.

So what I am driving at? If everyone understands the business, then chances are, that the bright idea you have come up with, may have been tried elsewhere. So rather than starting with the question 'Will my idea work?", I would ask the question "Why will my idea not work or why hasn't anyone tried it out yet?".

An example - This investment banker lady I met with, told me that it would be a great idea if we could start a business where we have push-carts that serve hot indian hygienic food and that there would be a great market among office-goers for this. This seems to be one of those ideas that sounds really good, but instinctively I can see a number of factors why making this work as a business will be a hugely challenging task. Also if this could be done as a profitable business, I can bet that atleast some of the "Sagar" owners in the city would be doing this rather than investing in a place, paying rent, employing staff and running a restaurant. I believe that the stand-n-eat joints (Darshinis etc.) are the profitable variant of the push-cart idea.

The other analogy I can think of is cricket, especially when we are playing. While watching from the dugout, you feel that your team member batting in the centre is not playing the shots he should and you feel you should be there whacking the ball around. But when you go out to play, you end up struggling in the same way as your team-mate.

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