The restaurant failure rate is notoriously high – up to 70%, depending on the source. So it’s hardly headline news when a restaurant shutters, except for the shocked staff who had no clue. A lifeless dining room is an obvious red flag, but plenty of subtler clues can signal that a restaurant is on shaky ground. Do you ride it out or jump ship?
1. CUTTING QUALITY CAN ANTICIPATE JOB CUTS
Watch out for a sudden switch to cheaper or low-quality ingredients. Purposefully using off cuts is one thing, but many cash-strapped owners who want to slash food and beverage costs will start cutting corners in subtler ways. Platters once piled high with three tacos get reduced to two, protein portions shrink overnight, and everyday supplies start to thin out.
Maybe I should stay: Menus do change. Restaurant Italienne in New York City eliminated a labor-intensive, pricey tasting menu in favor of a more casual and affordable lineup that better matched neighborhood demand. In time, it thrived.
2. TROUBLE PAYING BILLS
When cash flow starts to shrink, suppliers and landlords are often the first to feel it. So monitor reductions in deliveries or whispers that your employer’s landlord is fishing around for new tenants. If inventory is below norms or servers notice that linens or disposables are in short supply, something is amiss. Should your paychecks start arriving late, dust off your resume. “Usually a restaurant can float money between vendors and control food costs to some degree,” says Dean Small, CEO of Synergy Restaurant Consultants, “but if they can’t make their payroll and taxes, that’s a serious problem.”
Maybe I should stay: An operator who taps a new investor for a cash infusion isn’t a sure-fire death rattle, as it can bring with it renewed energy, new ideas and tighter financial controls.
3. SHRINKING STAFF
If you’re in the back of the house, keep track of layoffs or defections in the front of the house. Servers and managers are a key bellwether: Servers will bolt if their numbers – and thus their income – starts shrinking. When managers begin talking about “looking elsewhere” and “making do with less,” know that difficult days are likely ahead for everyone.
Maybe I should stay: Management goes back to the basics, educating its staff and stressing that small things can add up to big gains. “A problem meal can be overlooked if the staff are empowered to solve the problem on the spot to ensure satisfaction,” says Roger Beaudoin, whose Restaurant Rockstars consulting service specializes in restaurant finance and restaurant staff training.
4. BEWARE THE PHRASE “MINIMAL SERVICE”
When everyday restaurants start “strategically” shutting down one or two days a week, there’s often nothing strategic about it. Taking days off or choosing to close earlier or open later – especially when it’s antithetical to the hours stated on a website – sends a bad message. Restaurant staff know they’re going to take a pay cut, and customers will eviscerate, both online and with friends, any restaurant that can’t keep set hours.
Maybe I should stay: Some restaurants – especially new ones – don’t have the demand to justify staying open for longer hours, seven days a week. And sometimes they overstaff. The owner might just be finding the right balance.
5. CONSTANT DINER DEALS AND DISCOUNTS
An occasional meal deal or Groupon offer is one thing, but a continuous wave of freebies is often a debilitating crutch for cash-strapped operators. “When restaurants turn to aggressive discounting, it becomes kind of a drug,” says Yana Bushoy, account director with Marlo Marketing, a New York and Boston-based marketing agency. “Sales might go up for that month, but once the offer expires, sales are down again."
Maybe I should stay: Management invests in a marketing strategy or PR push that doesn’t feel desperate. These can be as simple as penning a narrative about your chef’s experience, creating a new menu section or trying thematic bar offerings.
6. OWNER NO-SHOWS
When hands-on owners become conspicuously absent, trouble is often brewing. “A lot of small restaurants don’t necessarily have a bookkeeper – the owner handles it. And if you don’t keep up with your accounting, you can get behind the eight ball very quickly,” says Small.
Maybe I should stay: If an operator shows a willingness to identify critical problems by touching tables, tasting the food and holding regular restaurant staff meetings to absorb ideas, he’s still in the game. More than one restaurant has flirted with closing before finding lasting success.
7. NEGATIVE RESTAURANT SOCIAL MEDIA FEEDBACK
Disastrous Yelp ratings or a trail of critical comments on Facebook can kill a once-thriving restaurant. Unfortunately, by the time a negative review appears, the fire has probably been smoldering for some time. “When you catch a problem, it’s generally something that happened a month or two ago,” says Johan Engman, founder and owner of Rise & Shine Restaurant Group in Southern California. “Sometimes it takes a while to rectify it, because you need to win back customers.”
Maybe I should stay: An owner who heeds the critics and rights wrongs is worth sticking with, particularly if that means improving service and the menu through training – or better management.