Q & A | Failing Restaurant, Should I Fold or Go On?

Q & A (2)

Q & A is where Entrepreneur Campfire will get our panel of experts to answer your business questions. If you have a business question, write in to ask@entrepreneurcampfire.com

Question from reader:

I am a cafe owner. My main offerings are coffee and set meals. I started this business six years ago. At first business was really good and we proceed to open our second and third branches. However, recently sales in all my outlets dropped and there has been a delay in a few major payments. This leads me to the stressful situation where I am not able to pay my staff on time.

One of my outlets is near a busy intersection of a mall. Many office workers pass by but we rarely have an occupancy of more than 30% at a time. I have a buntings displayed outside but it does not seem to help with sales. The other problem I am having with this outlet is that food runs out fairly often. I have to get my staff to bring food to this outlet from another outlet which is 1 hour away. While we wait for food to be restocked we end up not having enough to serve our customers, losing sales.I don’t know what to do about my situation. I feel like I am drowning. I can’t talk to my friends or family about my business problems because I am too embarrassed. They probably don’t understand anyway.

I have even sold some properties to keep the business going, but I am not sure how long these funds will last. I don’t want to my cafe chain to fold but I don’t know what else I can do. I’m afraid I will have to close down eventually.

What should I do?

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Andrew’s Reply:

Hi there,

I understand your situation, I’ve been there myself. The valley of death is a lonely and dark place. I survived by slowly focusing, pulling myself up and building my revenues. It is completely possible to get out of it. Remember, it’s not over until you say it is.

For your situation, I recommend that you focus on building your revenues, which means increasing your F & B sales. To be able to achieve this you need to be strategic in making improvements to your business. These are areas where you can make improvements in:

1. Potential outlets

Start by identifying which are your potential outlets and focus on them. You may have to make the painful decision of letting go some outlets and keeping only one. Which is the one outlet which you have the most potential with? Focus on that outlet and bring in the sales. Usually in an F&B environment, the most important critical success factor is the location. From what I can read, the cafe which is located in a busy intersection of a mall, will be the best location. Focus on bringing in the sales. Sometimes, the problem is very much internal than external. This means that the situation may be able to be controlled. Let’s try that first.

2. Operations and customer service

What is your customer service like? Is your staff serving customers well enough for them to make a return visit? One of the biggest reasons F & B businesses fail is because of staff who give bad customer service. Get a trusted friend to sit in your cafe and have a look at how your staff is like when you are not around. How do they treat customers? Are they fast with their service? After you have your friend’s feedback, talk to your staff and coach them on how to serve your customers better.

Other than that, is your staff working hard enough to ensure that everything is handled smoothly? Place your most exceptional staff at the outlet which has the highest chances of doing well now.

3. Positioning and marketing

If there are other cafes in your area, why would people pick yours? You must position yourself so that you beat the competition around you. One way is to position yourself as a place offering affordable and good lunches. For this you can adapt McDonald’s value meal strategy. Combine drinks with meals at an affordable price. You can even offer tea time promos after 2pm (after 2pm not many people will come for lunch) to capture the crowd that wants a snack or light meal.

Other than this, why not offer drinks with special names that are unique to your cafe? Perhaps you can create a drink especially for families, office workers and kids. Test different drinks and see which ones are more popular.

Moreover, you mentioned having a billboard outside your cafe. This is good but is your staff doing anything to promote what’s on the billboard? If not then you need to position your staff next to the billboard to get them to explain the promotions available to the office workers. Get them to entice the office workers to enter your cafe by telling them that they can get a discount for mentioning a name at the counter. If you want, you can even get your staff to walk around with the billboard to promote your meal promotions.

4. Food schedule

If you are running out of food, it means that you do not have a workable food delivery schedule. Your outlet manager is not doing the job well. You need a food delivery schedule to ensure that you have enough food everyday. Every morning, your manager will have to take note about the food inventory. You can use the Just In Time method. So food that is insufficient in quantity has to be ordered and delivered before 12 noon. If it is sold out it means you don’t have enough food. Imagine people walking in and there is no food. That is money lost. What if you lost 20 customers per day during lunch hour, that is thousands of dollars of lost revenue monthly.

5. Staff motivation

Another thing that is important for you is to build staff motivation. Do you have a culture that motivates your staff to do their best? You need to create a culture that is unique to your cafe. By doing so you will create a more inclusive culture that will motivate your staff to work hard.

Other than this, you need to set targets for your staff, especially your managers. To help them get started, you can brainstorm with them together to plan how to achieve the targets. Take baby steps to get there. You can even introduce incentives for them when they achieve their targets.

The most important thing is that you need to take the lead in this. You must personally talk to them, coach them and motivate them.

6. Solve each problem one at a time

It is easy to be overwhelmed with problems and losing sight of trying to solve them. What you need to do is to cut all your problems into piecemeal and solve them one-by-one. When you cut them into pieces, you’ll find that some problems can be solved right away and some may take time but they are not overwhelming for you to solve. Often times, we get emotionally overwhelmed when problems seem to be piling up. So, break them down and focus. When you start focusing on the solution, you will find the problems are not so heavy after all.

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This is the areas I would advise you to work on for now. In any case you must remember that the main aim is to ensure that your revenues exceed costs (profits) and your cash exceeds your expenditures (positive cashflow).

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Want to ask your own question? Send them to ask@entrepreneurcampfire.com

Andrew Wong is the co-founder of Entrepreneur Campfire and CEO of MAD Incubator, the largest business incubator in South East Asia. In his career, Andrew has started 8 incubators and 2 venture capital funds. Andrew is passionate about entrepreneurship and likes helping entrepreneurs.

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