The 4 stages of a restaurant business

Growing up, I dreamed of launching a restaurant. Actually, I dreamed of growing an empire. When I actually launched my first restaurant: there were a lot of surprises. One thing I learned is that there are 4 major stages a restaurant goes through on its way to success. The life-cycle of a restaurant is similar to the tech trend Hype Cycle. However, the Restaurant Life Cycle follows some different patterns.

Phase 1. The launch phase.
The launch phase is the exciting time in which you open your doors to the public, put forth your advertising, and test your idea. It’s the critical time in which your first customers come through your doors, you will make a lot of mistakes and work constantly during this phase. You will be surprised by the employee mistakes and the harshness of customer expectations. The best thing to do here is be as prepared as possible–and then expect problems to arise. Respond quickly and always consider the long-term ramifications of your choices. What will you choices today say about your brand tomorrow?

Phase 2. Hype-Phase. This phase kicks in right within the first 6 months of most restaurants opening. This is the time when your sales are at their highest. You hit what’s called a critical mass: enough people have heard about your business that they come and try to it out and there’s also just enough word-of mouth for your business to feel viral. During this phase, many restaurant owners get stars in their eyes, picturing themselves as wildly successful with scores of chain restaurants under their belt. This is actually a time to be carefully monitoring your customer’s satisfaction and listening to what they want. Do you get a lot of complaints about your best seller item? Do folks like your environment? Is there one thing that literally everyone asks for you don’t have yet? What’s the “vibe” that your customers are getting from your business? The reason why it is especially important to ask these questions is that during this hype-phase, the biggest number of your customers are figuring out what they think of your restaurant. If they don’t like it: they’re not coming back. You won’t be able to keep everyone coming back, of course, but you do want to make sure your product is something that brings a lot of your customers back through your doors.

Phase 3. Down-Cycle/Trough of Disillusionment
Your sales will start to drop dramatically. This is a sign that the hype is over, the brand of your business is established and understood by the general public. You will see your sales drop dramatically and may have to make adjustments to make sure your spending doesn’t overrun your sales. During this period, it is important to recognize it is a stage. A lot of restaurants don’t leave this stage because they get discouraged and quit. This down-cycle usually hits between 8-10 months of opening and lasts an average of 3-6 months. It often comes with a seasonal slow-down, the opening of a new rival business, or the natural slow-down that comes with the exciting “newness” of your business being over. This is also the point in which many staff will leave and turnover/performance issues can become a problem.

Phase 4. Stabilization/Seasonal Cycles

This final phase is only reached once you see a sustainable sales pattern emerge. It takes most businesses around 3 years to fully establish a good flow to their sales and an understanding of their natural seasons. Stability results in a slow, steady growth of business with seasonal drops based on the year and location of your restaurant. At this point, many restaurants will add in new products to re-start the “hype” phase, or cycle in an additional service. The key risk during this phase is a major disruption or a slow decline rather than slow growth. A major disruption can through your business through an additional down-cycle and if you don’t have the capital that disruption can cause you to close very quickly. A slow decline means that for one reason or another your business isn’t growing. In this circumstance, you have a two options: 1. Figure out how to change the slow decline or 2. Close your doors.

There you have it: the 4 stages every restaurant goes through to success. While any restaurant business is risky, it is also an exciting way to get your entrepreneurial feet wet and to teach many business lessons to you along the way. If you’d like some help figuring out where to start on your planning, check out our free resources page.

Columbus, OH, USA

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