Why is everyone opening unprofitable restaurants
Only one out of ten new restaurants survive
Opening a restaurant is the most common dream of aspiring entrepreneurs, as there is a ready market. As per IBEF Indian middle class is close to 27 crore. It also projected compounded annual growth rate (CAGR) of 22% till 2021. But, nine out of ten restaurants shut down within five years of opening.
Restaurants have low entry barriers. But, it has high operating and capital costs. Capital costs can be as high as INR 7000 per square foot. A thousand square foot restaurant may have to incur a capital cost of INR 70lakh. Operating expenditures include kichen costs, rentals, utilities and salaries. Opening a new restaurant may cost between INR 1crore to INR 2.5crore. A good restaurant with a profit margin of about 20 per cent may break even in two years. Even quick service restaurant chains and cafes such as Dunkin’ Donuts, Domino’s, Costa Coffee, Barcelo’s, Barista, Carl’s Jr, Johnny Rockets and KFC are finding it difficult to make profits.
Riyaaz Amlani, president, National Restaurant Association of India (NRAI), said, “ There is a surge in the number of people entering the business, but most are getting in for the wrong reasons. “Some are in it for glamour, some for a quick ticket to fame or recognition. And then reality hits.”
Stand alone restaurant business is about INR 71,000crore (Source: Technopak 2017). It includes quick service restaurants, affordable and premium casual dining restaurants, cafes, pubs-bars-cafes&lounges and fine dining restaurants. Experts suggest that focusing on costs, food and ambience is the key to running a successful restaurant.
