🧑🏽🍳 No Restaurant, No Regrets
- Kishore Karthikeyan
- Dec 9, 2023
- 3 min read
Updated: Apr 17
The Harsh Realities of Running a Restaurant: A Behind-the-Scenes Look at Why I'll Never Open or Invest in One
One thing that every friend's group can relate to is starting a chai shop or biryani restaurant at some point in our twenties.
But guess what - I am a big-time no-no and totally against this notion of starting a restaurant or even investing in the restaurant sector.
Let's see why...
🥗 Problem #1 - The Supply and Demand
There is no effective demand planning that can be undertaken in the restaurant industry. You might never know when the demand will increase or decrease. For instance, if you overstock your inventory, there will be a lot of wastage and increased inventory costs.
Conversely, if you understock the inventory, you risk losing customers who may never return, eventually turning into Dead Customers perpetually.
A quick win would be servicing your customers 24/7. However, the number of restaurants providing a 24-hour service post-COVID has reduced by 18% from 2020 to 2024 in the US, since the fixed costs of running a restaurant are getting extremely costly post the covid era. Check out this article from CNN - Looking for a late-night meal? America’s closed
🍽️ Problem #2 - Cost of Making Food
In the USA, the cost of making food at home is higher than the cost of buying food outside. That’s why fast food chains like Burger King and McDonald's are a big thing in the US.
Whereas in INDIA, the cost of making food at home is cheaper and hence going out to a restaurant is very seasonal and occasional.
- Nikhil Kamath
And it's highly risky to be dependent on an industry that has seasonal customers.
🚛 Problem #3 - Food delivery
While people are getting lazier and lazier, they are switching to food delivery apps. More than 40% of people order food via aggregators like Uber Eats, Zomato, and Deliveroo, which take a huge commission of 20-25% on the margin which leaving you with low margins.
👨👩👧 Main Problem - Customer retention
The big fish is that Customer retention is very poor in the restaurant industry.
Just to give a heads up about what customer retention cost is - the money a company spends to retain existing customers and encourage repeat business, and there are different strategies:
Razor-Razor-Blade model
Including services like cloud storage within the product
Customer Retainer model
Coming back to the restaurant industry, even though the CAC cost is low, the customer retention cost is super high, especially with this generation (Gen Z, Gen Alpha) wanting to try out different food each time they go out and not always the same cuisine.
It Would Take 22.7 Years to eat at Every New York City Restaurant
For instance, if I had Chinese for lunch, I wanna try Italian for dinner. That's how we crave different cuisines for each meal.
Not to burst your bubble, but if you're genuinely interested in learning how to kickstart a restaurant business, I highly recommend checking out this insightful podcast by Nikhil Kamath.
With that being said, however, I would start/invest 😋
Themed restaurants or restaurants that serve very unique cuisines like Tibetan Momos, or only specialising in Chai. Never a generic fast food chain.
Probably a Brewery or a Resto-bar. And why?
Cause here customer retention is so high, and once customers feel comfortable with a bar, they always come back to the same bar again and again.
When people drink, they order more food. And when they are high, they order more drinks 😝. So could sell more products of high margin and give out the lower margin foods for a low cost
Happy hours could promote sales
Hosting cricket matches or any sports
As a Social workplace. For instance, SOCIAL restobar is an amazing concept. Fine dining restaurant with workspace in the mornings and a proper night bar during the nights.
The best option would be to create a house of brands (house of restaurants) with different cuisine styles so that you can capture a large market share. To explain in simple terms, let's say you go out to eat 10 times in a month and you try 10 different cuisines each time you go out and if I had a house of restaurants that at least captures 5 different cuisines, I have successfully captured 50% of your monthly spending on restaurants.
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