Have you accepted reality before you start a restaurant, pub or cafe?

I’m seeing a lot of things that just don’t add-up at present. Why on earth would you spend several million dollars setting-up and fitting-out a new, modern restaurant site, in a very crowded market, at a time when getting skilled staff is very difficult — especially when the realistic profit margins you will achieve will likely mean a five to ten year pay back on your establishment costs? Something must have escaped me because I’m seeing this happening quite regularly in all our major cities.

On one hand you could argue that the public profile of food and the restaurant industry is at an all-time high and that the industry will benefit from this. You might also conclude that television shows like Masterchef educate the public to appreciate the work and creativity that goes into producing restaurant quality food, which, hopefully might lead to an acceptance of higher pricing for ‘artistic’ or complex food. On the other hand you might feel — as I do — that we are approaching an oversupply situation where eventually the only customers available will be other restaurateurs — a similar situation to that described by Lewis Carroll, who imagined an island where everyone earned their living by doing their next door neighbour’s washing.

An investment, or an ego trip?

Peoples’ egos and the drive for publicity cause many failures

Peoples’ egos and the drive for publicity cause many failures

Media analysis can be misleading. Take the example in a recent edition of the Melbourne Age where they noted, somewhat gleefully, that retail spending was down around 10%, while restaurants and cafes were seeing an increase of 10%. They quite rightly concluded that the spending patterns of the X and Y generations were shifting — the suggestion was that being ‘fashionable’ was less about what you wear and more about where you eat, and which hot restaurants you have been to. I can’t argue with this; I’ve seen and heard it myself, but I will argue with the perception that because of this apparent ‘boom’ the restaurant industry is a good place to park your money.

In exploring the reasons for this shift in spending priorities from clothes to food, I can paraphrase the sentiment I have encountered as: ‘Well — I’ll never be able to afford a house, so I’m going to have a good time.’ Unfortunately, having a good time sometimes extends to taking photos of everything down to the glass of water on the table and writing vitriolic blogs; but these are subjects for a serious rant, sometime in the future.

Too much competition

From my perspective, a 10% increase in spending, while most welcome, is not going to come anywhere near balancing the oversupply of places to eat as the industry is seen by outsiders as a healthy sector of our economy, when it isn’t. They just keep on coming and coming, carrying the dreams and hopes of the next generation of economic lemmings — fuelled by naïve emotion and mum and dad’s life savings.

In my experience new entrants to the industry often fail within the first year or eighteen months. When you have a slim margin at the best of times, 

In a very crowded market you have to be better than everyone else to survive and prosper

In a very crowded market you have to be better than everyone else to survive and prosper

optimism and hard work are unlikely to see you through. The really successful clients I have — and there are a few very successful ones — have done their apprenticeship through a number of businesses, learning from a string of initial failures.

Read this if you are about to enter the industry . . .

If you are reading this and thinking of taking the leap into your own place, stand in front of a mirror and slap yourself and read the following, which I wrote for a young lady who was about to invest her life savings into a restaurant, having never worked in the industry:

‘You are moving into the entertainment industry, and simultaneously, you will be selling food and beverage products that are judged emotionally and irrationally by the public, and they are all experts. Your business is governed by the whims of fashion. It is open long, family unfriendly hours and you are working when the rest of the world are enjoying recreation.

Think about the complexity of what you are getting yourself into, and the effect on your lifestyle — Tony Eldred.

Think about the complexity of what you are getting yourself into, and the effect on your lifestyle — Tony Eldred.

Your staff are a volatile mixture of artistic and logical people, with varying working hours and degrees of commitment to what they are doing. Most of your daily trade is done in two periods of total crisis where the pressure on everyone is unrelenting and intense.

You carry anything up to a thousand different items in stock. They have to be stored at critical temperatures, used in strict rotation, are all decomposing at different rates, and have to be sold before they end up in the waste bin.

Your customers come and go when they feel like it — with no consistency or predictability, and are unlikely to tell you the truth when they leave. Their perceptions of reality and their emotions are twisted by copious quantities of alcohol. Your staff are on drugs and are sleeping with each other, and none of them want to work nights and weekends.

You are running a bizarre custom manufacturing facility with a sales office attached and your customers use your product in your presence.’

The stock market is probably safer.