That's a bit of a rhetorical question because I know that staffing, overhead, food loss, etc are all hard to deal with, but what is it specifically?

I'm not talking about being a franchisee of a chain that has name power.  But I'm talking about a family run type place, that isn't in an over-saturated market.  

Is it mostly the overhead costs of utilities, payroll, etc to keep the doors open?  
Or constantly trying to keep customers returning?  
Using higher quality fresh ingredients that are more expensive than frozen?

I've always been curious because I always hear people say that the restaurant business is one of the toughest to be profitable in.

Some food sucks yo.

ETA: Also

Half of all small businesses fail.

Most people know fuck all about business management.
Your grandmas recipes aren't going to get you far if your restaurant is run like shit.
Also, not enough initial capital is common I'd imagine.
Plus, as stated, some food sucks.
 

Most people that open or buy a restaurant have no clue what they are doing. They think that if will be fun, easy and whatever but seriously you need a good 5-10 years of restaurant management experience before you think of opening your own place. Most of the places that I have seen fail were due to people like former car salesmen and their high school teacher wives or some such thinking opening a restaurant is a great idea. They may even buy an existing place but their lack of management and general business skills can quickly take a profitable place into massive debt.

Too many people should NOT go into the restaurant business.

It is the "hold my beer" of business decisions.

Yep.....I prefer and support non chain, local restaurants.  At least half suck, I find myself wondering what made them think making a living out of it was a good idea.  And they of course bomb out within 6-8 months.

People who don't know the first thing about running a small business usually open a restaurant.  You go with what you know, and who the fuck doesn't like to eat?

The answer is simple; Very few people are adept at running a business.

Watch any of the Restaurant Impossible type shows on TV. It might give you some insight. As posted above, seems like most people have no clue how to run a business and are some sort of power trip which causes them to take all advice as criticism. Well, that is at least what TV taught me.

I think it's because people who start restraunts are people that love food, or are good cooks.  The people who should be starting restaurants are people who love math, and are good at accounting.

I support and patronize non-chain restaurants, and when I find one that has good food, I make a point of posting a positive review on Yelp or Urbanspoon.

Anything to help them out and keep palatable options out there. Chain food is all Sysco crap.

That's interesting that you guys mention that.  I wonder if people have capital or get SBA loans, then think they have some great idea, so they think the restaurant business is "easy" rather than going into some other small business?

Seems like a lot of people probably have the idea in their head, but if they've never owned or even managed in the food service industry, they don't know how to keep labor and food costs down, deal with their market, properly advertise/promote, etc.  Just speculation of course.

Location, location, location.

Because so many restaurant in business

volume

Poor state of the economy equals less disposable income.  Folks eat at home.  Simple as that.

Because everyone thinks they cook like a Iron Chef and their food is heaven on earth.  Also most don't know crap about the logistics, their only experience of getting supplied is buying groceries from the supermarket.

 

Debt service.

Whether buying the building or renting, most do not realize that before they serve the first meal, pay the first employee, etc., the bank or landlord get theirs first.

It is so easy to go into a location and drop a ton of money on decorating, etc. and more importantly a commercial kitchen and in turn let that get out of hand.

Cause some delusional crazy bitch and her gangster old man are running the place

People who love to cook and are good at it are better candidates because they are not paying a chef.  The problem is composed of 3 major hurdles in my opinion:

1. New restaurateurs underestimate the power of presentation.  Ambiance is as important as the food.  They don't wait until they have enough startup capital to open properly and their place looks cheap, dirty, and unfinished.  

2. You are correct in that they try to run the business end while they try to run the restaurant, which is a mistake.  Finding a partner who IS good at the math and the accounting is critical.  A good financial mind will rein in the creative excess when an idea just isn't practical.  Part of this is limiting the menu.  Having an expansive menu right off the bat just leads to issue number 3.

3. Waste.  Mountains and mountains of waste.  New restaurateurs often have no experience in planning a day's services and estimating how much they will really need.  As a result they over prepare and waste potentially thousands of dollars a week in food that ends up thrown away.  Having a tasty, attractive, but limited menu that is easy to plan and prepare is the way to go until you establish a reputation and regular clientele.

Each of these is critical because typically the profit margins are so slim when first starting out.  There is not much room for error.

More or less what I was going to post.  I grew up in the industry.  Spent 13 years or so working in it.
Everything from fast food to 300 seat corporate tex-mex units in Dallas.

My totally subjective experience suggests that:

1.  The vast majority have never managed in a well run restaurant.  Knowing a couple good dishes
is not enough.  Having an MBA is only marginally useful.  Knowing how to use date-dots, get and
keep food at proper temperatures, FIFO rotation, how to take a delivery, how product and cash losses
can occur and be prevented, how to control (not just operate the server functions) a POS, etc are things
that if you don't know, will hurt.  Get into the big chains, they have specs for salt and pepper positions,
and the order of sweeteners.  Sometimes these specs are for the mere sake of uniformity.  Sometimes
because they've spent millions analyzing the issues.

2.  Even if you have grandma's complete cookbook, chances are most of it sucks.  Even if it doesn't suck,
everyone's had it 1000 times, probably just as good.  Do you know how to develop new dishes?  Do you
understand presentation?  Do you have a basic sense of what taste and textures compliment each other
and why?  Do you know the difference between "mouth-feel" and texture?  

3.  Definitely under-capitalized.  To build a current fast food restaurant, you are looking at $1,000,000+
in many cases.  That doesn't include land.  Want to build a casual dining unit, e.g., Applebee's?  Start by
doubling that.  Want a good location?  I know of units that have spent almost $500,000 just excavating
rock to build because the lot with the best exposure was sitting on it.  Obviously, they have some
overhead you won't, but then again, you can't operate as efficiently as they can.  Understand that
they might be happy with a restaurant that clears $150,000 a year net on weekly sales of $70,000.  
They own 100.   How much to you have to take in a week to cover your nut and make the risk worthwhile?
Can you live on 5% of sales?  Is it worth it?

It can be done, but it takes more than "liking to eat out" or "liking to cook".   To anyone considering it, I suggest
you spend three to five years working in a restaurant.  No more than a year or two FOH.  You need the time
in the back learning all the things you can't see when dining.

They fail at accounting.

This part of it has always intrigued me.  My thought is that most people start out with good/fresh ingredients, but due to waist, they all of a sudden look at their food budget and realize they're spending too much.  So instead of doing things right, instead they switch to frozen/processed food and that in turn just furthers their decline.

 

Open a Mexican food place in San Antonio. Serve half ass food prepared by illegals and you have about a 90% chance of success.

Thieves. Restaurant employees will rob you blind unless you spend 25 hours a day there.

This nails it.  I worked in the business for over ten years before I got out.  I would not buy a restaurant unless I was planning on living there 100 % of the time it was open for the first 10 years.  I would also have enough capital on hand to cover 5-7 years of expenses so I could build up a customer base.  The places that I worked in that were raking in the dough had lots of the same customers coming back over and over again.  You really have to know what you are doing to get that to happen.



You pretty much get one chance with customers.  If you blow it they will not ever be back and they will talk and that will keep 100 other people from ever giving it a try.  That is how it works so you need to know what you are doing and do it right from the first moment you open.  A person who opens a restaurant with out first having worked in the business from a manager's, server's and cook's point of view will not know enough to make it work.



Just watch Kitchen Nightmares with Gordan Ramsey to see how many people invest their life savings into a restaurant and have no clue how to run one.



 

Being a part owner of a restaurant, I can tell you there are a million reasons. The biggest is under capitalization. Then there can be opening in a bad market, not controlling food costs, labor (also two big ones), poor food and service obviously, bad bookkeeping and accounting, poor legal advice, etc. There are a million reasons, but yea most people don't have enough operating capital to get them through the learning phase of determining how to price the food and how much labor is needed.

A large number fail due to location.  

Though, bad management is probably the big killer.

"Hey man, you cook a great burger!" being told to you in the backyard doesn't mean you should open up Bob's Burger Barn.

People think its as easy as cooking for their friends in the kitchen, except the friends are the public and they pay you.

What they don't realize is its a cash business where prices can change weekly.
They have no clue why their food cost is 34% and liquor costs is 40%.
Not opening with enough capital to soak up month after month of loss.
They didn't realize that $500 electrical bill they have at the house is nothing like the $2000 bill from the restaurant.
That guy that talked them into their credit card processor is raping them with the 4.2% charge per transaction.
That the cooks are stealing the prime cuts of meat.
The servers are using manager codes (or in cahoots) to discount people's tickets so they make a bigger tip.
That the AC will break on the busiest Friday of the summer at 8PM and it's hot out.
That they have to pay taxes.
They don't do market study.
That the $50 UFC PPV at the house is not $50 in a commercial environment.
That taking care of their friends and family is killing their bottom line.

And so forth and so on. Essentially, they have no idea what their doing and don't hire anyone that does.

I've seen many come and go and the biggest issues were:
1) No clue
2) No management
3) Poor cash handling

Especially when there's 8 Chinese restaurants on the same street in Athens, Ohio.

Most of them go out of business in a year or two and sold to another recently Chinese arrival. It's a vicious circle.

We do have a locally run restaurant that's been in business for 34 years.

This. If you aren't going to be the destination, be near the destination.

Hard to respond to each of you on your points but I appreciate all the experiences.  Very interesting.

It's interesting to me that places like Olive Garden, Applebee's, Chili's etc mostly seem to be busy all the time.  Now I'm not saying their food is bad, because it's not and I eat at places like that a few times a month, but the food never really "wows" me.  It's more about the convenience or price.  We have a great steakhouse in town, but for a typical meal with drinks and a salad, you're looking at 40-80 per person.  

My towns seems to really lack decently priced non-chain restaurants.  We have a few, but they are all more expensive than most chain places.

 

Here's the thing about causal dining restaurants. For the most part, the food and service is constant. So you can go from Alabama to West Virginia and still get, basically, the same thing. It's a safe bet.

Plus they cater to the segment of society, a large segment, that can't afford to eat out very often or at least not pay $100 per person.

 

My favorite place is always busy on monday nights. People always say that it must be a gold mine. Monday is kids eat free and They hire a clown. Also they run a $10.95 prime rib dinner with salad an baked potato. This is also during happy hour with $2.50 Barcardi, Smirnoff and 16oz draft beers.





Full-Service Restaurants
Full-service restaurants at all levels spent about 32 percent of each dollar on the cost of food and beverages, 33 percent on salaries and wages, and from 5 percent to 6 percent on restaurant occupancy costs. Profit margins, however, varied according to the cost of the average check per person. Those with checks under $15 showed a profit of 3 percent. Those with checks from $15 to $24.99 boasted the highest profit margin at 3.5 percent. Finally, those with checks of $25 and over had the lowest profits, at 1.8 percent.

http://smallbusiness.chron.com/average-profit-margin-restaurant-13477.html

I have a cousin that owns 2 successful restaurants.

You can keep it.  The hours, effort, and raw amount of intense and careful management of people and everything from food buying to walk-in repairs is scary.  She pretty much LIVES those businesses.  I couldn't do it.

Plus there is software that allows you to match up the cash you brought in with the inventory that has gone out. This allows you to make sure that everything is accounted for. If there differences in cash and inventory out then you know you have employees that are fucking around and you can figure out who it is.

 

Food costs get out of whack, labor costs and too high of rent.   Poor location kills them too.  

That's assuming the food is good as well.

If you are looking at doing a restaurant let me know.  I'm in that business.  Guy I work with built a chain of his own to 44 locations then sold it to Fred deluca/subway.

I can see every transaction from each store on my iPhone along with the cameras. Shows comps, voids, tips, how they paid, what the server ran in, the whole thing. We have it not because we don't trust our employees, but because it's made it easier for us not to be there from 10AM until 3AM. And they get a lot more in depth than that too, like live tracking of the POS system so you know exactly what each server is doing right then and there. We don't have that feature.

ha   I saw that one too.   And a few others who had no clue how to run a business,  let alone a restaurant where it helps  to know how to cook.  

Because people have thoughts like ...

"I cook at home ....... Running a restaurant is mostly cooking ........ ergo..... I can run a restaurant".

 

I never thought of it that way but you guys nailed it.  Especially if I'm traveling, I'd rather eat at a place I know than a place I don't unless I have a review from a friend in the area, etc.  I think familiarity and consistency is big.

And another good point is staff.  Most of these places have high turnover with staff.  If the person isn't cutting it, the GM will find somebody who will.  I'm sure it's a whole different ballgame for family run business, especially if you have kids, brothers, cousins, spouses working for you.

SAP and/or Radiant.











 

EDIT: In addition to the above great replies, not including chains. You have bad management, poor cost control and poor location. If you have damn good food in an out of the way location you can still do well in Alaska anyway.