Market Watch

How to Turn Around a Failing Restaurant — or Avoiding That in the First Place

Restaurants are like living things. They are born and, sooner or later, they die. Much as with people who mind their health, the variable that owners seek to control is the amount of time between those two events. For some restaurants, that period is tragically abbreviated.

When a restaurant closes, usually another hopeful owner comes along and tries again in the same spot. In some cases, different concepts fail repeatedly in the exact same location until the right one breaks the cycle — or the space is finally deemed entirely unsuitable for a restaurant and ends up housing a different type of business.

When a restaurant starts to fail, or never catches on to begin with, owners can’t seem to get off the path to doom. It’s as if they’re in a roller-coaster car, locked to the rails until they helplessly wind up at the bottom of the hill. Really, though, as long as there are still funds available, an existing owner should be able to do the same things a new one would. In fact, an existing owner has advantages in reconcepting the space. He’s had an opportunity to get to know the clientele and hear their wants and opinions. He has sales records, hard data that can be analyzed.

We talked with restaurateurs with many years of experience in the industry, and asked for their thoughts on how to save a failing restaurant concept — or, better still, not open the wrong type of place to begin with. The below includes comments from Shepard Ross of Pax Americana, Manfred Jachmich, a former restaurateur who is now an industry consultant, and Niel Morgan of Legacy Restaurant Groups, which owns The Original Ninfa’s On Navigation and Antone’s.

Before Opening

Run the numbers. Jachmich thinks one of the biggest causes of failure is that new owners don't correctly evaluate costs before opening. “Most restaurateurs don’t think about the profitability standards and costs for food, beverage, alcohol and labor. They should not exceed 60 to 65 percent,” he says. He also stated that rent should not exceed 6 percent of costs and labor should not surpass 24 percent.

Do some market research. Do people who live and work in the area really want what is being offered? The money spent on some actual market research will be far less than covering the costs of a failed concept.

Will customers understand the food and concept? Jachmich pointed out in our interview that people are drawn to the familiar and know (or at least think they know) what they like to eat and drink. The opportunities to educate happen once they’re sitting down in the dining room.

Pick the right place.
Ross does believe in “cursed” locations. “Let’s say a space comes available. A broker calls up and says, ‘Oh, you’re going to love this space. It’s completely finished out. Permitting is a breeze. All you have to do is put in for your TABC permit and you could be open in six weeks.' Is that space available because it’s just a bad space? Is the location bad? Is the parking bad? Is it the neighborhood it’s in? Or was it just a bad concept that wasn’t thought out or poorly managed [that failed before]? You can’t just say, ‘Oh, great space came up. I’m going to jump on it.’”

The importance of a clear concept and good branding cannot be overstated. “Brand, brand, brand,” says Ross. “You have to have a clear vision of what you want to be when you open. There’s no flip-flopping. I’ve seen places open and within four weeks they’re completely changing direction. They completely missed their target market or weren’t sure of what they were doing. It’s great to adapt to survive, but you have to have a vision of what you want the restaurant to be and go full tilt right out of the gate.”

Name the restaurant correctly.
Related to branding: If the name is too ambiguous and doesn’t indicate anything about what the food is like, people won’t come in. Jachmich had to change the name of one of his concepts right after opening. Inspired by the bistros in New York and Chicago, he decided Houston needed its own and named it Post Oak Bistro. At that time, Houston diners had no idea what a bistro was. Manfred told why the name changed: “One evening, some lady takes my shoulders and says, ‘Look, Manfred, what is a bistro?’ I said, ‘It’s on the back of the menu! It comes from the Russian word bystro [which means “quickly”], and it’s a neighborhood place for people to come to.’ She says, ‘You see those houses across the street from you? Well, they have three cars in their garage. Within two minutes they’re out of the neighborhood.’ I thought about it and said, ‘Within two weeks, this place will be called Post Oak Grill.’

Wipe away any vestiges of the old one. “The last thing people want to do is walk into a previously failed restaurant and go, ‘Oh, that’s why that last one closed.’ Kiss of death!” says Ross.

When the Restaurant Is Already Open and It’s Not Working

Discontinue the “Field of Dreams business model." You built it. They didn’t come. Instead of spending money on a failing concept until you go broke, stop. Use what resources are left for a new concept and get out the gate the second time around with food and drink correctly positioned for the market.

Determine if small changes will work or if it’s going to need a total overhaul. If the business is doing really badly, the concept may have to change from the ground up. If totally scrapping the concept is in order, Ross’s advice about a total revamp still applies. “Make sure you’ve stripped away all vestiges of what that place was. You won’t want people to connect those two things,” he advised. Niel Morgan of Legacy Restaurants totally overhauled the Antone’s business model (closing several stores in the process), and the company is only just now getting back around to adding brick-and-mortar locations. “After some trial and error, we came up with a new business model with a sandwich shop concept and menu that customers seem to like, as unit sales confirm," wrote Morgan in response to our questions. "We also expanded and modernized the wholesale distribution — to places like H-E-B and Kroger — with new graphics and packaging.”

Hire some new faces. It may not be enough to change the concept. Keeping the same people in the same positions will also be too much of a reminder of the old place. If the restaurant formerly served ceviche but is now offering fried chicken and it's all by exactly the same people, that’s disconcerting and it will make guests who have visited before suspicious. Adding talent helps reinvigorate the place and makes the new concept more convincing.

Fix it up. If the concept only needs minor help, maintenance and improvements in the cosmetic appearance might be the boost the place needs. Morgan says that when Legacy Restaurant groups purchased Antone’s and Ninfa’s on Navigation, both needed work. “Ninfa’s was still popular and profitable with a great, veteran staff and many loyal customers who considered it special and really didn’t want a lot of changes. But it was badly in need of attention because no money had been spent on maintenance or improvements in quite some time and we felt that the quality of the experience should be improved.”

Yes, social media actually does matter. Jachmich says that “[consumers] can kill you if they give you a bad report, so I’m taking it back to the old-school model: You’d better get to know your customers. It’s six or seven times more expensive to develop a new customer than keep an existing one. So take care of your regular customers. When was the last time you sent over a free appetizer or a dessert?”

Get some help from the outside. Professionals who are not intimately involved with the business can provide valuable perspective. “People need mentors and outside voices, even the President of the United States,” advised Jachmich. Don’t ask personal friends for professional opinions, though. They might feel obligated to sugarcoat their opinions to avoid hurting your feelings.

Give customers what they want as often as possible. Ross thinks too many restaurants inflexibly stand on principles with their food and that loses customers. “It’s fine to say, ‘The chef recommends medium rare,’ but if the customer doesn’t want it that way and then it’s ‘Chef says you can’t have the dish,’ that doesn’t fly too well. There’s a cut of steak that [chef] Adam [Dorris of Pax Americana] likes to serve medium rare, but if you want it like the heel of your shoe — hey, I’ll get the blowtorch out! You can make recommendations, but ultimately the guests are going to want what they want.”

On the other hand, take customers' business opinions with a grain of salt. They might have opinions, but that doesn’t mean customers actually understand the business. Ross says, “What most people who have opinions on the restaurant industry don’t realize is that there are a lot of factors. ‘Why don’t you serve this?’ It could be a cost-prohibitive thing. It could be a seasonal thing. What you should be prepared to do is listen to all that feedback. It’s useful data. I can get more data from a detailed bad review than an ambiguous positive one.”

All of the above advice is easier said than done, and none of it covers the most basic and important consideration for survival: capital. What should be obvious, though, is that a new restaurant needs enough financial backing to have a fighting chance at weathering any missteps — and an opportunity to implement some of this advice before it's too late. 
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Phaedra Cook
Contact: Phaedra Cook