Business Disadvantages in a Restaurant

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Low wages, long hours and lack of health benefits contribute to the large employee turnover rate in restaurants.
Low wages, long hours and lack of health benefits contribute to the large employee turnover rate in restaurants. (Image: Jupiterimages/Brand X Pictures/Getty Images)

Opening a restaurant is difficult work. You must supply diners with food they enjoy eating, and also develop relationships with food suppliers, hire competent workers, create schedules, maintain a clean establishment, and make money...and the latter is especially hard to do. There are many disadvantages to opening a restaurant that make it very difficult to succeed. It may seem like a fun adventure, but becoming a restaurateur is risky business.

What is a Restaurant?

According to Merriam-Webster, a restaurant is “a business establishment where meals or refreshments may be purchased.” On paper, that seems simple enough, but in the real world it's a little more complex than that. To many, restaurants are places to sit down and eat a meal; Applebee’s, Red Lobster and Olive Garden are undoubtedly restaurants. Even fast food places like McDonald’s, Burger King and Taco Bell are widely accepted as restaurants, since they are licensed businesses that prepare and serve food to the public.

Failure Rate

In a study published by Cornell University’s Hotel and Restaurant Administration, it's noted that nearly one out of every three restaurants (30%) fails in the U.S. According to the National Restaurant Association, 15% of restaurants fail within one year of opening their doors. Anyone considering getting into the restaurant business should be aware of those sobering statistics, as well as some of the most prevalent reasons for failure.

Employee Turnover

An article published in the National Restaurant Association’s magazine in 2002 noted employee turnover rate in restaurants to be a problem, and years later, that's still the case. Restaurants with average checks of less than $10 have an employee turnover rate of 88 percent, while the rate for those with average checks over $10 is 61 percent. That means for every 100 employees hired in the restaurant industry, nearly 75 will have to be replaced. This can frustrate business owners, as employee longevity is important. If you don't have committed and reliable employees, it's hard to run a successful business. It costs money to hire new employees and time to train them, adding stress to an already demanding job.

Competition

The more competition you have, the harder it is to succeed. In the restaurant business, competition is literally right around the corner almost everywhere you go. Although many restaurants fail, there are still plenty that thrive in the U.S. At the end of 2010, there were 579,210 restaurants in the entire country. With such a high level of competition, making your restaurant stand out from the rest is like a snowflake trying to stand out in a blizzard.

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