Who Is Killing The Restaurant Industry – Part 1 (An Introduction)
Crime thrillers are all the rave right now and although I am no James Patterson or Lincoln Child, the slow but painful death of the South African Restaurant Industry makes for some pretty interesting reading. “Death?” you ask, am I not being a little too dramatic, a little too severe… I think not! Restaurants are closing down weekly and those that are able to survive are doing so against great odds. Of course there are the exceptions to the rule and over the next few days and weeks I hope to uncover some of the suspects and hopefully aid some of the survivors. Your comments as always are most welcome and should you require any assistance in your own business, please do not hesitate to contact me. Should you wish to forward this article or extracts from it to friends and colleagues, you are most welcome to do so, all I ask is that you credit the source at www.mikesaidwhat.co.za)
Like all good crime writers, let me begin by introducing our lead character… the victim! The restaurant industry has always been a difficult industry and there are a number of factors that unsuspecting entrants are often not aware of. For one thing it is a factory… You need to turn raw material into finished goods in little or no time at all. Secondly it is retail with a twist, your clients then sample the product in front of you and not once they have arrived home and thirdly they are only expected to pay for their purchase AFTER they have enjoyed it. Combine these factors with a few others like cash, alcohol and ego and you quickly realise why an owners visit to any table is so fraught with danger.
Despite these challenges it remained an attractive and seemingly lucrative pursuit because profit margins were acceptable to high IF you could manage your business properly. Alas all that has changed over the past three years. Restaurant profitability, or RETENTION as it is often referred to in the restaurant industry is at an all time low. Whereas in the past a restaurant owner could expect to retain 18-24% of his turnover (EBIT) this figure is now down to between 7-14%… something on par with what the waiters are earning in tips and often less than the landlord is receiving in rent!
There are a number of key factors that have contributed to this. First and foremost is considerably slower than anticipated growth and the impact of this is a massive increase in the rental to turnover ratio that should ideally be sitting at 11% or less. (I shall delve into this a little further in Chapter 2: The Suspects – The Landlord) Secondly increased input costs as food prices climb and a budget conscious clientele continue to put pressure on restaurants NOT to increase their prices. (I shall delve into this a little further in Chapter 3: The Suspects – The Suppliers and Chapter 4: Suspects – The Customers). But it would be untoward of me not mention the owners, franchisers and other industry players that are contributing to the decline either through total apathy and neglect or in some cases sheer stupidity.
So the picture is a NOT pretty one and the casualties are mounting… Who is to blame and what can be done about it? Watch this space for details…